Standards Full by Prof. Khushboo Sanghavi

Auditing Standards, Statements and Guidance Notes – An Overview
Prof. Khushboo Girish Sanghavi P a g e | 272

C.A. Final – Advanced Auditing and Professional Ethics
AUDITING STANDARDS, STATEMENTS AND GUIDANCE NOTES -

AN OVERVIEW
The Importance of this Chapter is emphasised as under:

 Apply logical, critical and creative thinking to analyse, synthesise and apply theoretical knowledge, and
technical skills to conduct audit & assurance as per engagement and quality control standards.
 Determine and apply knowledge of auditing standards to your professional practice and/or further
study.
 Understand the requirements of each standard to conduct audit in accordance with standards.

SA 200 – 299  GENERAL PRINCIPLES AND RESPONSIBILITIES

SA 200 (R) Overall Objective of Independent Audit & Conduct of Audit in accordance with SA
SA 210 (R) Agreeing the terms of Audit Engagement
SA 220 (R) Quality Control for an Audit of Financial Statements
SA 230 (R) Audit Documentation
SA 240 (R) The Auditor’s Responsibilities relating to Fraud in an Audit of Financial Statements
SA 250 (R) Consideration of Laws and Regulations in an Audit of Financial Statements
SA 260 (R) Communication with Those Charged with Governance
SA 265 Communicating Deficiencies in Internal Control to Those Charged with Governance and Mgmt
SA 299 Responsibility of Joint Auditors
SA 300 – 499  RISK ASSESSMENT AND REPONSE TO ASSESSED RISKS

SA 300 (R) Planning an audit of Financial Statements
Identifying and Assessing Risks of Material Misstatement through understanding the Entity
SA 315
and its Environment
SA 320 (R) Materiality in Planning and Performing an audit
SA 330 The Auditor’s Responses to assessed Risks
SA 402 (R) Audit Considerations relating to an entity using Service Organization
SA 450 Evaluation of Misstatements identified during the Audit
SA 500 – 599  AUDIT EVIDENCE

SA 500 (R) Audit Evidence
SA 501 (R) Audit Evidence – Specific Considerations for selected items
SA 505 (R) External Confirmations
SA 510 (R) Initial Audit Engagements – Opening Balances
SA 520 (R) Analytical Procedures
SA 530 (R) Audit Sampling
Auditing Accounting Estimated, Including Fair Value Accounting Estimates and Related
SA 540 (R)
Disclosures
SA 550 (R) Related Parties
SA 560 (R) Subsequent Events
SA 570 (R) Going Concern
SA 580 (R) Written Representations

SA 600 – 699  USING WORK OF OTHERS

SA 600 Using the work of another auditor
SA 610 (R) Using the work of Internal Auditors
SA 620 (R) Using the Work of an Auditor’s Expert
SA 700 – 799  AUDIT CONCLUSIONS AND REPORTING

SA 700 (R) Forming an opinion and reporting on financial statements
SA 705 Modifications to the opinion in the Independent Auditor’s Report
Emphasis on Matter Paragraphs and Other Matter Paragraphs in the Independent Auditor’s
SA 706
Report
SA 710 (R) Comparative information – Corresponding Figures and Comparative Financial Statements
The Auditor’s Responsibility in Relation to Other Information in Documents Containing
SA 720
Audited Financial Statements
SA 800 – 899  SPECIALIZED AREAS

SA 800 Audits of Financial Statements Prepared in Accordance with Special Purpose Frameworks
Special Considerations – Audit of Single Purpose Financial Statements and Specific Elements,
SA 805
Accounts or items of a Financial Statement
SA 810 Engagement to Report on Summary Financial Statements
SRE 2000 – 2699  STANDARDS ON REVIEW ENGAGEMENTS (SREs)

SRE 2400 (R) Engagements to review financial statements
SRE 2410 Review of Interim Financial Information performed by the Independent Auditor of the Entity
SAE 3000 – 3699  STANDARDS ON REVIEW ENGAGEMENTS (SREs)

SAE 3400 The examination of Prospective Financial Information
SAE 3402 Assurance reports on controls at a service organization
Assurance engagements to report on the compilation of proforma financial information
SAE 3420
included in a prospectus
SRS 4000 – 4699  STANDARDS ON RELATED SERVICES (SRSs)

SRS 4000 Engagement to perform agreed upon procedures regarding Financial Information
SRS 4410 Engagements to Complete Financial Information

38
STANDARDS ON AUDITING (SAs)
ICAI Develops the technical standards i.e. Accounting Standards as swell as Standards on Auditing. ICAI is one of the
founder members of the international federation of Accountants (IFAC), the standard developed and issued by
Auditing and Assurance Standards Board (AASB) are in conformity with the corresponding International Standards
issued by International Auditing and Assurance Standard Board (IAASB), established by IFAC.
The main objective of an audit of financial statements is to enable the auditor to express an opinion whether the
financial statements are prepared in all material respects, in accordance with an Applicable Financial Reporting
Framework (AARF). It is undertaken to enhance the degree of confidence of intended users in financial statements.
In conducting an audit the overall objective of auditor is to obtain reasonable assurance whether the financial
statements as whole are free from material misstatements whether due to fraud or error and to report on the financial
statements in accordance with auditors finding.
•INTRODUCTORY MATTERS
100-199
•GENERAL PRINCIPLES AND RESPONSIBILITIES

200-299
•RISK ASSESSMENT AND RESPONSE TO ASSESSED RISK

300-499
•AUDIT EVIDENCE
500-580
•USING WORK OF OTHERS

600-699
•AUDIT CONCLUSIONS AND REPORTING

700-799
•SPECIALIZED AREAS
800-899
SA – 200
OVERALL OBJECTIVES OF THE INDEPENDENT AUDITOR AND THE CONDUCT OF
AN AUDIT IN ACCORDANCE WITH STANDARDS ON AUDITING (REVISED)
PRINCIPLES
I) Ethical Requirement (KEY - COP2I)
a) Confidentiality :- Auditor should Not disclose the information of Clients business unless it is not Legal or
professional requirement to do so.
b) Objectivity:- This could be achieved only by having independence of mind.
c) Professional Competence & Due Care:- By auditor should be updated with the latest developments in the field
of Accounting & Auditing.

d) Professional behaviour: There must be professional relation between auditor and auditee.
e) Integrity: Means honest behaviour, loyal attitude towards user of financial statements.
II) Requirement to have attitude of professional skeptism:- Auditor should always be alert towards audit evidence,
reliability of documents, response to inquiries, etc.
III) Professional Judgement :
Judgement taken by the auditor out of his professional experience in a audit situation- professional judgement is
necessary in particular regarding decision about materiality, audit risks, the nature, timing & extent of audit
procedures.
IV) Requirement to obtain sufficient & appropriate audit evidence.
V) Requirement to follow all standards on auditing.
OBJECTS
1) To form & express an opinion on financial statement whether they are giving true and fair view or not
2) To detect fraud & Error
3) To obtain reasonable assurance about FS free from material misstatement.
NOTE: User should not take opinion as guarantee about future viability &
efficiency.
SCOPE
I) Primary Scope
(a) Terms of Engagement e.g. branch auditor H.O Auditor etc.
(b) Pronouncement of ICAI e.g. SA’s
(c) legislation e.g. CARO, Tax Audit LFAR (Long Form Audit Report)
II) Secondary Scope
Inclusion (Responsibilities of Auditor) Exclusion (Responsibilities of Management)

1) Auditor should plan in such a manner that (Key : PAMaFI)
all aspect of F.S. are covered. Policies: Selection & application & accounting
2) Auditor should verify: policies.
- Reliability
Safeguarding of Assets
- Sufficiently
- Presentation & Disclosure Financial Maintenance of Books of Accounts
information. Preparation of F.S.
3) To verify Accounting Estimates. I : Internal Control: Formulation &
4) Determine & Segregate Material & Implementation of Internal Control
immaterial items.
Q1) Mr. Ishaan a practicing CA accepted the audit of PQR Ltd. Where his wife is managing director.
Comment.
Ans:- Accepting the audit is against the principle ethical requirements given in SA-200(R). Further clause (1) of
part II of the second schedule of the CA Act defines under council general guidelines that it will be a professional
miscount see code of ethics of the same publication for details)
Q2) Mr. Saurabh the owner of a small company, asked Drowsy & Co Chartered Accountants, to conduct an

audit within one week so that financial statement will be ready for the income tax return as the date
of filing return is near Drowsy & Co. demanded for double fee as compare to previous year and
accepted the engagement. Comment.
Ans- Accepting the audit on double fee to complete it in a hurry by itself shows that Dayal & Co. created an
interest against their duty hence it is against the principles Ethical Requirements under SA – 200 Revised
Q3) On subsequent discovery of misstatement regarding non provision of Impairment Loss auditor gave
his clarification that “I was not aware that AS-28 made applicable from this year” Next time we will
definitely be conscious about the same. Comment
Ans: Ignorant about the applicability of AS shows lack of skill in the auditor and it is against the principle of
professional competence.)
SA – 210
AGREEING WITH THE TERMS OF AUDIT ENGAGEMENT
Considerations to be given before acceptance of an audit?
DECISION
Whether there is common

Whether Preconditions to
understanding between
an Audit exists?
auditor & auditee?
1) Whether Financial
Statements are prepared
using Acceptable financial
reporting Framework.
2) Management should
acknowledge responsibility
of PAMaFI
3) Management agreed to give
free access to books of
accounts, inquire a person.e.
g. Employee/ Employer.

LETTER OF ENGAGEMENT
Audit engagement letter is a letter issued by auditor to the management. It shall contain COSt MP Fee
C: Confirmation of Acceptance
O: Objective of Audit
S: Scope of Audit
M: Management Responsibilities
P: Tentative Plan
Fee: Fees
RECURRING AUDITS
On recurring audits, the auditor shall assess whether circumstances require the
terms of the audit engagement to be revised and whether there is a need to
remind the entity of the existing terms of the audit engagement. The standard
prescribes that auditor may decide not to send a new engagement letter for each
period.
However, in following circumstances, the auditor may think it appropriate to
send a new engagement letter to client.
 Any indication that the entity that misunderstood the objective and
scope of the audit.
 Any revised or special terms of the audit engagement.
 A recent change of senior management.
 A significant change in ownership.
 A change in legal or regulatory requirements.
 A change in the financial reporting framework adopted in the preparation of the financial statements.
 A change in other reporting requirements.
SA – 220
QUALITY CONTROL FOR AUDIT WORK
1) The purpose of this Standard is to establish standards on the quality control regarding:
 Policies and procedures of an audit firm regarding audit work generally.
 Procedures regarding the work delegated to assistants on an individual audit.
2) The objective of issuing auditing standards is to provide similar quality of services to the client by every auditor
so that it should not make any difference to the client, with whatever firm of auditor; client is getting his books
of accounts audited.
3) For providing similar quality of services, Institute has advised that every firm of auditor should follow all
standards on auditing issued by the Institute and accordingly their quality of services will be similar.
4) Moreover, such quality control should be maintained not only at firm level but also at individual level and for the
purpose it becomes responsibility of the auditor to communicate, to guide, to supervise, to control necessary
auditing standards to the subordinates working under him.
5) Following are the essential factors for incorporating quality control audit work:
 Professional Requirements – Adherence to basic principles such as independence, integrity, objectivity,
confidentiality, etc.
 Skills and competence – Audit personnel should have required degree of skill and competence.
 Assignment – Audit work should be assigned only to competent personnel.
 Delegation – There is to be sufficient direction, supervision and review of work at all levels.
 Consultation – Consultancy within and outside the firm with experts.
 Acceptance and retention of clients – Evaluation of prospective client and review of existing client should be
done.
 Monitoring – Continued adequacy and effectiveness of quality control policies should be monitored.

Q1) The Director Z Ltd. are requesting Mt X the practicing CA to accept the audit on the terms he should not
report on Fixed assets in his CARO as no register has been maintained and also should not report on late
deposing or non-depositing the statutory dues like PF and ESIC. Comment.
According to SA-210(R) preconditions to an audit shall always be made available by client to the auditor, the
terms of engagement cannot override the scope as determined by the statute or pronouncement of ICAI.
Verification of fixed and statutory dues and reporting thereon is scope determined by Companies Act 1956
under CARO (New Report notified under new act 2013). Hence these terms of engagements are not
acceptable.
Q2) It is requested by Mr. Y the managing director of Z to the auditor Mr. P Please perform your remaining audit on
the basis of photo copies of books of accounts and vouchers as they are ceased by income tax department last
day. Mr. P requested to management that please provided a confirmation from the tax authorities and certify
the books of accounts and vouchers by management. Management refused to provide both. Comment?
If these conditions are clear to the auditor before accepting the audit he should refuse to accept the audit and
if these conditions are imposed after the audit auditor shall disclaim the
audit report.
Q3) “It is not mandatory to send a new engagement Letter in recurring audit, but sometimes it becomes
mandatory to sent new letter.” Explain those situations where new engagement letter is to be sent.
Hint: According to SA-210 (Revised) “Terms of Audit Engagements” the auditor may decide not to send a lilt
engagement letter or other written agreement every year. However, in following situations it is appropriate
to revise the terms of the audit engagement or to remind the entity of existing terms:
(a) If it is clear from the conduct of entity’s management that they misunderstands the objective and scope
of the audit.
(b) There is any agreement on revising the terms of engagement.
(c) If there is a change in management or ownership
(d) If there is a significant change in nature or size of the entity’s business
(e) If there is a change in legal or regulatory requirements.
(f) If there is a change in the financial reporting framework
(g) If there is a change in other reporting requirements?
(h) If management requests to change the terms of audit engagement and auditor agrees to it.
SA – 230
AUDIT DOCUMENTATION (REVISED)
MEANING
RECORD OF
Audit procedure Audit Evidence Conclusion

performed Obtained Drawn

BENEFITS OF AUDIT DOCUMENTATION
BENEFITS
INTERNAL BENEFITS EXTERNAL BENEFITS
1) Assist engagement team to plan

& perform audit.
2) Assist senior audit engagement
1) Enabling quality control review
team members to direct &
2) Enabling external inspection
supervise the team
3) Establishing the accountability
of engagement
Points to Remember :-
1) Working papers are property of auditor
2) He can make available copy of working paper to client on request at his discretion
3) Preserve upto 7 yrs.
4) Working papers should be prepared within 60 days after the date of audit report
5) Auditor shall not delete or discard audit documentation but he can modify  explain reason for modification
& when & by whom they were made or reviewed?
Q1) Mr. Pranay a practicing CA was auditor of Aryan Ltd. for the year 1994-95, 1995-96 and 1996-97. They are still
keeping Audit Working Papers/files for all these years. Suggest whether there is any guideline/law or rules
regarding the period for which the Audit Working Files should be kept ?
Ans: According to Aryan Ltd. the engagement working papers shall be kept preserved up to a period of at least seven
years.)
Q2) Mihir & Co. Chartered Accountants are the branch auditors of the Jaisalmer Branch of the Mandira Ltd. The
principal auditors of Mandira Ltd. i.e. PQR & Co. request Mihir & Co. to show there branch audit working papers.
Should M & Co. comply with the request? Would your answer differ if the BOD of Mandira Ltd. request you and
consent to your showing this papers to PQR & Co.?
Ans: According to SA 230 “unless otherwise specified by law or regulation, audit documentation is the property of the
auditor. He may at his discretion, make portions of, or extracts from, audit documentation available to clients,
provided with such disclosure does not undermine the validity of the work performed. Hence if principle auditor needs
working papers than branch auditor can provide them at his discretion after taking permission from the client.)
Q3) Comment on the following: Suppose a client who had engaged you as tax auditor and also for filing of income
tax returns and now want to discontinue your services. The client wants back:
 audit working papers
 working papers related to computation of income of previous years.

 Original acknowledgements of returns filed.
Comment?
Ans: Original copy of return and working papers relating to the computation of income should be handed over by the
auditor to the client but it is on auditor’s discretion whether to handover copies of working paper to client.
SA 240 (REVISED)
THE AUDITOR’S RESPONSIBILITIES RELATING TO FRAUD IN AN AUDIT OF
FINANCIAL STATEMENTS
MEANING AND NATURE OF FRAUD

 Fraud is an Intentional Act involving use of deception to obtain an unjust or illegal advantage.
 Auditor is concerned with Fraud that causes Material Misstatement.
 Material Misstatement may result from:
o Fraudulent Financial Reporting.
o Misappropriation of assets.
 Due to inherent limitation there is always an unavoidable risk of material
misstatement in Financial Statements due to Fraud.
 Risk of Material Misstatements due to Management Fraud is higher than due to
Exployee’s Fraud.
MANAGEMENT DUTIES
 To prevent and detect fraud.
 Management must have an commitment to create an culture of honesty and Ethical behaviour.
AUDITOR’S RESPONSIBILITIES
 To obtain reasonable assurance that Financial Statements as a whole are free from
 Maintain an attitude of Professional Skepticism
 Circumstance indicate existence of material Misstatement.
 Consider whether such a misstatement is an indication of fraud. If fraud identified –
o Communicate to Management & TCWG (and to Regulatory and Enforcement authorities, if required
by Law)
o If auditor is unable to complete engagement then he should consider the possibility of withdrawing
and if possible then discuss with Management & TCWG.
RISK ASSESSMENT PROCEDURES AND RESPONSES TO ASSESSED RISKS

 Enquire Management & Others w.r.t.:
o Assessment of risk of material misstatement.
o Procedure to identify Fraud.
o Communication to TCWG and Employees.
 Enquire TCWG w.r.t.:
o Undertaking of their supervisions process.
o Their knowledge of fraud.
 Evaluation of identified unusual and unexpected relationships
 Evaluate whether information obtained indicates fraud risk factor.
Determine responses to address assessed Risk of Material Misstatements due to fraud at:
 Financial Statement Level; and

 At assertion level
Some example how fraudulent financial reporting and misappropriation of an asset can be done.
Fraudulent Financial Reporting Misappropriation of Assets

1) Manipulation, falsification or correlation of 1) Embasseling receipts (e. g.
accounting records. misappropriating collection on account
receivables)
2) Misrepresentation/ Omission of events, 2) Stealing physical assets (e. g. Stock for
transactions or other significant inform personal use)
actions.
3)International misapplication of accounting 3) Causing an entity to pay for goods and
principles. services not received. (e. g. payment to
4) Recording fictitious journal entries. fictitious vendor or employee)
5) Inappropriately adjusting assumptions.2) 4 4) Using an entity assets for personal use.
6) Omitting, advancing or delaying 3) (e. (e. g. loan to related parties)
recognition in FS of entries/events.
1)
Q) While conducting statuary audit of ABC Ltd, you came across IOU's amounting to 2 Cr. as against cash balance
of Rs. 2.10 Cr. You also observed that despite similar balances throughout year, small amt of Rs. 50, 000 are
withdrawn from bank to meet day to day expenses.
Ans. Obtain SAAE w.r.t. existence of fraud (SA 240) + Reporting under CARO Clause 3(x) & Section 143(11).
If fraud, reporting to CG under 143(12) + Auditor Responsibility
Guidance Note on Audit of Cash & Bank Balance i.e. If unduly large balance of cash, carry surprise physical verification.
If cash in hand does not meet with book balance, seek explanation, state fact in report.
SA – 250
CONSIDERATION OF LAWS AND REGULATION IN AN AUDIT OF FINANCIAL
STATEMENTS
IMPACT OF NON-COMPLIANCE OF LAWS AND REGULATIONS

1) Non compliance of which effect Going Concern.
2) Non compliance of which resulting in misstatement in F. S.
3) Non compliance of which attract entity towards heavy penalty.
RESPONSIBILITY OF AUDITOR (AUDIT PROCEDURE)

Auditor should consider the risk of non-compliance with Laws & Regulation & should obtain Sufficient & Appropriate
Audit Evidence that all Laws & Regulations have been followed.
AUDIT PROCEDURE
1) Understand the entity’s environment.
2) Obtain exhaustive list represented by management of applications of laws
and regulations.
3) Discussion with -
Branch Auditor, Internal Auditor, Legal Consultant, Legal officers.
4) Obtain/expert’s opinion
5) Verification of correspondence with departmental authority?
6) Auditor should verify whether management has developed the system by
which it can be informed about non-compliance.
7) Verification or computation of:

 Figure
 Return
 Challan
 Duty paying documents
8) Obtain Sufficient & Appropriate Audit Evidence
WHAT IF NON COMPLIANCE IS FOUND?

1) Immediately inform to management and those charged with governance.
2) Ask management to comply & issue qualified opinion report.
Q1) What are reporting responsibility of the Auditor for non compliance with the laws and regulations by the
entity under audit?
Case – 1 In case where those charged with governance are not directly involved in the management: The
auditor shall communicate with those charged with governance matters involving non-compliance with laws
and regulations (whether intentional or unintentional) that come to the auditor’s attention during the course of
the audit.
Case – 2 If the auditor suspects that management or those charged with governance are involved in non-
compliance: The auditor shall communicate the matter to the next higher level of authority at the entity, it if
exists, such an audit committee. Where no higher authority exists, or if the auditor believes that the
communication may not be acted upon or is unsure as to the person to whom to report, the auditor shall
consider the need to obtain legal advice.
Q2) What shall be effect of Non Compliance of Auditor’s Report?
Case – 1 When Auditor has Sufficient and Appropriate Audit evidence that non-compliance exist: Express a
qualified or adverse opinion on the financial statements.
Case -2 When auditor has limitations on scope of Audit:-
If the auditor is precluded by management or those charged with governance from obtaining sufficient
appropriate audit evidence regarding non-compliance the auditor shall express a qualified opinion or disclaim
an opinion on the financial statements on the basis of a limitation on the scope of the audit.
Note: If the auditor has identified or suspects non-compliance with laws and regulations, the auditor shall
determine whether the auditor has a responsibility to report the identified or suspected non-compliance to
parties outside the entity.
SA 260 (REVISED)
COMMUNICATION WITH TCWG
MEANING OF MANAGEMENT AND TCWG

1. TCWG: Persons with responsibility for overseeing the strategic directions & obligations related to
Accountability.
2. Management: Person with executive responsibility for conduct of entity’s operation.
Determine the appropriate person to whom communication is made:
 Need to Communicate with Governing body, if communicates with sub-group.
 If all of TCWG are involved in managing the entity, the matter needs not be communicated again.

Matters to be communicated:
(a) Auditor’s responsibility in relation to Financial Statement Audit.
(b) Planned scope & timing of audit.
(c) Significant findings from audit w.r.t.
(i) Accounting Policies.
(ii) Accounting Estimates.
(iii) Material weakness in Internal Control.
(iv) Matters discussed with Management.
(v) Other significant matters.
(d) Statement with respect to compliance of ethical requirements regarding independence.
COMMUNICATION PROCESS
 In writing when oral communication is not adequate
 on timely basis.
Evaluate adequacy of communication for the purpose of the audit. If not
adequate, evaluate its effect, on the auditor’s assessment of risks of material
misstatement. If not adequate, evaluate its effect, on the auditor’s assessment
of the risks of material misstatement.
FACTORS AFFECTING MODE OF COMMUNICATION

 Size, operating structure, control environment, & legal structure of entity.
 In the case of an audit of special purpose Financial Statements, whether the auditor also audits the entity’s
general purpose Financial Statements.
 Requirements of respective law specifying written communication with TCWG in a prescribed form.
 Expectations of TCWG, including arrangements made for periodic meetings or communications with the
auditor.
 The amount of ongoing contact and dialogue the auditor has with TCWG
 Significant changes in the membership of a governing body.
Q) Auditors should communicate audit matters of governance interest arising from Audit of financial statements
with TCWG of an entity”. Briefly state matters to be included in such Communication.
Ans. Responsibilities of Auditor in relation to FS audit, including that : -
Auditor is responsible for forming & expressing opinion on FS that have been prepared by mgt with oversight of TCWG
Audit of FS does not relieve Mgt or TCWG of their responsibilities.
SA – 265
COMMUNICATING DEFICIENCIES IN INTERNAL CONTROL TO TCWG &
MANAGEMENT
MEANING OF DEFICIENCY IN INTERNAL CONTROL

a) Inability of Internal Control to prevent, detect & correct misstatement; or
b) Absence of control necessary to Prevent, detect & correct misstatements.
 Determine whether individually or in combination they constitute significant deficiencies.
 Communicate deficiencies in Internal Control in writing to TCWG & Management where deficiency is significant
and to Management only in case of other deficiencies where the matter of communication will be:
o Description of deficiencies

o Explanation of their potential effect.

o Sufficient information to explain.
 That purpose is to express an opinion.
 Internal Control is evaluated to design further audit procedures.
SA – 299
RESPONSIBILITIES OF JOINT AUDITOR
ADVANTAGES OF JOINT AUDIT:

Pooling and sharing of resources.
Everyone has expertise in different area.
Advantage of mutual discussion.
Better quality of work performance.
Improved services to Client Company.
Lower costs to carry out the audit work.
DISADVANTAGES OF JOINT AUDIT:

Sharing of fees.
Lack of clear definition in case of joint responsibility.
Co-ordination problems in conduct of work.
Areas of common concern being neglected.
Problems when firms of different standing are associated.
REQUIREMENTS OF SA 299
The engagement partner and other key members of the engagement team from each of the joint
auditors shall be involved in planning the audit.
The joint auditors shall jointly establish an overall audit strategy that sets the scope. Timing and direction
of the audit.
Development of Audit Plan (Principles of SA 300 will be applicable).
Identification of Risk of Material Mis-statements.
Allocation of work.
JOINTLY & SEVERALLY RESP. INDIVIDUALLY RESP.
1) Discussion of work, overall audit plan and

decision taken regarding audit procedure.
1) Individually divided working area.
2) Matters raised by one of the joint auditor
2) Audit procedure decide by him.
but solved mutually by all joint auditors.
3) Use of other’s work.
3) Unallocated and undivided work
4) Conclusion of his procedure.
4) Verification of compliance of statutes
5) Reviewing the reports of the branches
relating to Financial Statement,
allocated to him
accounting policies and format of FS
6) Written representation by management
5) Disclosure requirements regarding FS
for a particular area. .
6) For obtaining an evaluation written
representation of mgmt.
JOINT AUDITORS ARE NOT REQUIRED TO REVIEW THE WORK OF OTHER JOINT AUDITORS. HE CAN DEEM THAT THE
WORK DONE BY OTHER JOINT AUDITORS IS IN ACCORDANCE WITH GENERALLY ACCEPTED AUDITING PROCEDURES.

JOINT AUDIT REPORT:

Usually Joint auditor are of unanimous opinion but if one or more joint auditor is not in agreement over the
opinion, each disagreed joint auditor may submit his report on the disagreed point separately
PRELIMINARY ENGAGEMENT ACTIVITIES

(a) Procedures required by SA – 220 w.r.t. continuance of Client Relationship.
(b) Evaluate compliance with Ethical Requirements (SA-220)
(c) Understanding of terms of Engagement (SA-210)
PLANNING
a) Establishment of Audit Strategy:
 Identify the Characteristics of Engagement.
 Ascertain Reporting Objectives
 Significant factors to direct.
 Consideration of result of Preliminary Engagement Activities.
 NTE of Procedures to be performed.
b) Development of Audit Plan.
 Nature, Time & Extent of Risk Assessment Procedures (SA-315)
 Nature, Time & Extent of further Audit Procedures (SA-330).
 Other Planned Audit Precedure.
DOCUMENTATION
 Audit Strategy
 Audit Plan
 Changes in Audit Strategy and Audit Plan and the Reasons for the change.
Q. RM Ltd. at AGM appointed Mr. K, L & M as Joint Auditors to conduct Auditing for FY 14 –15. For Valuation of
Gratuity scheme of company Mr. K, L & M wanted to refer their own known Actuaries. Due to difference of opinion,
all joint auditors consulted their respective Actuaries. Subsequently, major difference was found in Actuary
reports. However, Mr. K agreed to Mr. L’s actuary report, though, Mr. M did not. Mr. K contends that Mr. L’s
actuary report shall be considered in audit report due to majority of votes. Now, Mr. L is in dilemma. You are
required to briefly explain Responsibilities of auditors when they are jointly & severally responsible in respect of
audit conducted by them & guide Mr. L thereon.
= Responsibility of Joint Auditors (Discussed Earlier) +
= In instant case, there are 3 auditors, namely, Mr. K, L & M, jointly appointed as Auditor of RM Ltd.: -
• For Valuation of gratuity scheme of the Company they referred their own known Actuaries.
• Mr. Z (one of the joint auditor) is not satisfied with the report submitted by Mr. L’s referred actuary.
• He is not agreed with the matters to be covered by the report whereas Mr. K agreed with same.
CONCLUSION: -
Hence, Mr. L suggested to express own opinion by Separate report & Mr. K & L may provide Joint report for it.
SA – 315
IDENTIFYING AND ASSESSING THE RISK OF MATERIAL MISSTATEMENTS
THROUGH UNDERSTANDING THE ENTITY AND ITS ENVIRONMENT
RISM ASSESSMENT PROCEDURES

 Procedures to obtain an understanding of entity & its environment.

 To identify and assess the risk of material misstatement.
It includes:
a. Inquiry of Management and Others.
b. Analytical Procedures.
c. Observation & Inspection.
UNDERSTANDING OF ENTITY & ITS ENVIRONMENT

Auditor shall obtain understanding of:
a) Relevant Industry, Regulatory and other External Factors.

b) Nature of Entity including:
 Its operations
 Ownership & Governance structure
 Types of Investments
 The way Entity is structured & how it is Financed.
c) Selection and Application of Accounting Policies & reasons for changes thereto.
d) Entity objectives & Strategies & those business risks that may result in increased risk of material
misstatements.
e) Measurement & review of Financial Performance.
f) Internal Control relevant to audit.
IDENTIFICATION AND ASSESSMENT OF RISK OF MATERIAL MISSTATEMENT

a) Financial Statement Level.
b) Assertion Level for classes of Transaction, Account Balances & disclosures.
For the purpose auditor shall:

a) Identify risks
b) Assess & Evaluate the identified risks.
c) Relate identified risk to what go wrong at assertion level.
d) Likelihood of misstatement.
Risk requiring special consideration:

a) Risk of Fraud.
b) Risk related to recent significant Economic, Accounting & other Developments.
c) Complexity of Transactions.
d) Transactions with Related Parties.
e) Significant Unusual Transaction.
DOCUMENTATION
a) Discussion
b) Key elements of understanding
c) Identified & Assessed risks of Material Misstatement.
Q. Z Ltd. has its entire operations including accounting computerized. As audit partner you are concerned about
inherent and control risk for material financial statement assertions. What could be the areas you look forward for
deficiencies and risk identification? OR
Q. What are Areas to be examined for deficiencies & Risk Identification in CIS Environment? OR
Q. Write short note on “Causes of RMM at CIS Environment.”
Ans. In a Computerized environment RMM ascertain being erroneously stated could arise from deficiencies in: -
• Program developed and 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)
SA – 320
MATERIALITY IN PLANNING AND PERFORMING AN AUDIT
CONCEPT OF MATERIALITY
 Subject of auditor Judgement; and
 Subject to discussion present in Financial Reporting Framework.
If Financial Reporting Framework does not include a discussion, following can be referred;
a) Misstatements including omissions expected to influence the economic decision of users.
b) Size or nature of misstatement & the surrounding circumstances.
c) Common Financial Information needs of the users as a group.
Judgement of materiality provides a basis for:

a) Determination of Nature, Time & Extent of Risk Assessment Procedures
b) Identifying and assessing risks of material misstatements.
c) Nature, Time and Extent of further audit procedures.
PERFORMANCE MATERIALITY
 The amount set by auditor at
 less than materiality for financial statements as a whole.
 to reduce to an appropriately low level
 the probability that the aggregate of the uncorrected and undetected misstatement
 exceeds materiality for the financial statements as a whole.
AUDITOR’S DUTIES
a) Upon establishing the overall audit strategy, the auditor shall determine the materiality for the Financial
Statements as a whole.
b) Determine the materiality level for specific transactions for which misstatements of lower amount be expected to
influence the economic decisions of users
c) Determine the performance materiality for purpose of assessing the risk of material misstatements.
d) Revise materiality and performance materiality wherever required as audit progresses.
Q. Mr. X was appointed as the auditor of M/s E Ltd. & intends to apply Concept of Materiality for FS as whole.
Guide him as to factors that may affect Identification of appropriate benchmark for this purpose.
Ans. SA 320 prescribes the use of Benchmarks in Determining Materiality for the Financial Statements as a Whole.
Determining materiality involves exercise of professional judgment. A % is often applied to chosen benchmark as
starting point to determine materiality for FS as a whole. Factors affecting identification of benchmark are: -
• 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
purpose of evaluating financial performance users may tend to 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 more emphasis on Assets and claims on them than on entity’s earnings)
• Relative volatility of benchmark.
SA – 330
RESPONSES TO ASSESSED RISKS
TEST OF CONTROLS
Procedures designed to evaluate the operating effectiveness of controls (E.g. Inquiry)
Obtain audit evidences w.r.t.

 Application of controls
 Consistency of application
 By whom & by what means they applied
Evaluate the audit evidences and material weaknesses identified and communicate to Management & TCWG on timely
basis.
SUBSTANTIVE PROCEDURES
Procedures designed to detect material misstatements at assertion level. It comprises of:
a) Test of details (of classes of transactions, Account Balances and Disclosures); and
b) Substantive Analytical Procedures.
 CLOSING PROCESS:
 Reconciling the Financial Statement with underlying Accounting Records
 Examine Material Journal Entries & other adjustments made during the course of preparing of Financial
Statements.
 SIGNIFICANT RISKS:
 Procedures that are specifically responsive to that risk needs to be applied;
SUFFICIENCY AND APPROPRIATENESS OF AUDIT EVIDENCE

 If sufficient and appropriate audit evidences obtained, draw conclusion & report accordingly.
 If sufficient and appropriate evidences not obtained, then obtain further audit evidence and if not able to collect
then give Qualified Opinion or Disclaimer of Opinion.
SA – 402 (Revised)
AUDIT CONSIDERATION RELATING TO AN ENTITY USING A SERVICE
ORGANIZATION
AUDITOR’S OBJECTIVE
 To obtain an understanding of nature and significance of service provided by service
organization and their effect on the user’s entity internal control relevant to the audit,
sufficient to identify and assess the risk of material misstatement.
 To design and perform audit procedures responsive to those risks.

OBTAINING UNDERSTANDING OF SERVICES PROVIDED BY SERVICE ORGANIZATION

The user auditor shall obtain an understanding of how user entity uses the services of a service organization in the
user entity operation, including:
a) Nature of service provided by the service organization and the significance of those services to the user entity.
b) The nature and materiality of the transactions processed or financial reporting processes affected by service
organizations.
c) The degree of interaction between activities of service organizations and those of the user entity.
d) The nature of relationship between user entity and the organization.
AUDITOR’S CONSIDERATION
 The user auditor shall evaluate the design and implementation of relevant controls of user entity that relate to
the services provided by service organization.
 The user auditor shall determine whether a sufficient understanding of nature and significance of services
provided by service organization and their effect on the user entity internal control relevant to the audit has been
obtained.
 If user auditor is unable to obtain a sufficient understanding from the user entity, the user auditor shall obtain
that understanding from one or more of following procedures:
a) Obtaining a Type 1 or Type 2 Report, if available.
b) Contacting the service organization, through the user entity, to obtain the sufficient information.
c) Visiting the service organization
d) Using another auditor to perform procedures that will provide the necessary information about the
relevant controls at the service organization.
User Auditor: An Auditor who audits and Reports on the Financial Statements of a user entity.
User Entity: An Entity that uses a service organization and whose financial statements are being audited.
Type 1 Report: Report on the description and design of internal controls at a service organization.
Type 2 Report: Report on the description, design and operating effectiveness of controls at a service organization.
Q. G Ltd. is a mobile phone operating company. Barring the marketing function it had outsourced entire
operations like maintenance of mobile infrastructure, customer billing, payroll, accounting functions, etc. Assist
Auditor of G Ltd. as to understand how G Ltd. uses services of outsourced agency in its operations.
OR
Q. In course of Audit of R Ltd., audit manager of A & Co. observed R Ltd. has outsourced certain activities to
outsourcing agency. As engagement partner guide audit manager in assessment of services provided by
outsourcing agency in relation to audit. (RTP, May 2010, 2011).
Ans. As per SA 402, when obtaining understanding of user entity in accordance with SA 315 through Understanding
Entity & its Environment, User Auditor shall obtain understanding of how user entity uses services of service
organization in user entity’s operations including: -
• 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.

SA – 450
EVALUATION OF MISSTATEMENTS IDENTIFIED DURING THE AUDIT
MEANING OF MISSTATEMENTS
Difference between:
a) The amounts, classification, presentation or disclosure of a reported financial statement item, and
b) The amount, classification, presentation or disclosure that is required for the item to be in accordance of
financial reporting framework.
Uncorrected Misstatement are the misstatements accumulated by auditor but not corrected.
IDENTIFICATION / ACCUMULATION OF MISSTATEMENTS

 Communicate to management and request them to correct.
o If management corrects, perform additional procedures to determine whether misstatements remain.
o If management refuses, understand the reason for not making the corrections, also determine the
materiality. If material, communicate uncorrected misstatement and their effect on his opinion to TCWG
with a request that uncorrected misstatements be corrected. If not corrected, obtain written
representation from management / TCWG w.r.t. their believing that effect of uncorrected misstatements
are immaterial.
 Determine whether any revision required in Audit Strategy Plan.
SA – 500
AUDIT EVIDENCE
METHODS TO OBTAIN AUDIT EVIDENCE (KEY: O Re I C A I)

O: Observation  Process
Re: Recomputation & Reperformance
I : Inspection  Documents, books of accounts, inventory, cash, minutes book etc.
C: Computation  Data
A: Analytical Review (SA 520)  Current Ratio, GP ratio etc.
I: Inquiry & Confirmation  employee, employer, third party confirmation (SA 505)
JUDGEMENT OF SUFFICIENT & APPROPRIATE AUDIT EVIDENCE

It is auditor's professional judgement.
Judgement may depend on the materiality of item, risk; of misstatement, strength of Internal control, nature and
complexity of business.
TYPES OF AUDIT EVIDENCE
A) On the basis of Nature B) On the basis of Source

 Oral  External
 Visual  Internal
 Documentary

AUDIT PROCEDURE
COMPLIANCE PROCEDURE SUBSTANTIVE PROCEDURE

Test for Internal Control whether - Substantive test for Evaluating
- Exists - validity
- Effective - accuracy
- Is it in continuation in operation during the year - completeness
- proper disclosure of data
e.g. Verify accounting system, ratio analysis, vouching,
verification of assets and liabilities etc.
RELIABILITY:
1) External audit evidence are more reliable than Internal audit evidence.
2) Internal audit evidence are reliable when Internal control is effective.
3) Documentary evidence are more reliable than oral.
4) Evidence obtained by an auditor is more reliable than evidence obtained from others.
NOTE: Auditor gets increased assurance related to an item of financial statement. If he finds consistent audit evidence
from different different sources.
Q1. The company produced photocopies of fixed deposit receipts as the original receipts were kept in the iron safe
of the director finance who was presently out of the country on company business. As an auditor how will you react?
Ans: In this case auditor may get information from bank manager by applying one of the methods EXTERNAL
CONFIRMATIONS:
Q2. Whether the auditor can carry out the audit and submit his report under section 44 AB in situation where the
books of accounts and other records of the company are sized by the income tax department and only photocopy
the same are available?
Ans: Auditor if does not have reliable financial information can disclaim his opinion. If management provides him with
external confirmation from the tax department certifying that the photocopies given are the copies of original
document they seized, he may audit the same and can give onion also disclosing the same fact in his report.
Q3. An assistant of X & Co., Chartered Accountants wanted to verify the cash in hand and investments of Y Ltd. The
General Manger (Finance) of V Ltd. suggested to the assistant of X& Co. that it was not necessary as his staff had
done the same only few days back and no discrepancies were noticed. Comment.
Ans: Contention is wrong, Auditor h to get sufficient and appropriate audit evidence before drawing any conclusion.
As per SA-500 “Audit Evidence” The auditor should obtain sufficient appropriate audit evidence through the
performance of compliance and substantive procedures to enable him to draw reasonable conclusions there from on
which to base his opinion on the financial information. Please note one should not mention work performed by others
as there is no delegation of authority to staff of general manager by X & Co.

SA – 501
AUDIT EVIDENCE (ADDITIONAL CONSIDERATION FOR SPECIFIC ITEMS)
PHYSICAL VERIFICATION OF STOCK (Key Code: YAC 2 TP)

Y: Year End: Auditor should verify the stock physically atleast once in a year.
Existence of stock Conditions
A: Additional Audit Procedure: Auditor shall apply additional audit procedure
if he has obtained from physical verification.
Additional Audit procedure may include:
1) Reconciling the changes in inventory (if any)
2) Verify the procedure) adopted by the management for physical verification
3) He should ensure that appropriate off procedure we re followed by the
mgmt.
4) Obtain Written representation from management about Completeness of information regarding the inventory
C: Control: Internal Control over inventory, records, issues, receipts. slow moving stock, non-moving stock.
2: Follow AS-2
TP: Third Party: Third party confirmation as per the SA-505. (in case of mortgage, cease of goods by Dept.)
LITIGATION & CLAIMS (Key Code: UVW)

U: Updates: Inquiry with management how management updates itself of litigations and claims.
V: Verify: Discuss matters and verify the facts given by mgmt with
-expert
-legal consultant
-branch auditor
-Internal auditor
-Employees
-Officers
-Review of books of accounts
-Minutes of Board Meeting / EGM/ AGM.
W: Written Representation': Obtain written representation from management about exhaustive list of litigations and
claims, and their latest updates, management accounting estimation etc.
SEGMENT REPORTING
Refer AS 17
Q.1. You are the auditor of Easy Communications Ltd. for the year 200708. The inventory as at the end of the year
i.e. 31.3.08 was ₹ 2.25 crores. Due to unavoidable circumstances, you could not be present at the time of annual
physical verification. Under the above circumstances how would you ensure that the physical verification conducted
by the management was in order?
Ans: According to SA 501, “If the auditor is unable to attend physical inventory counting due to unforeseen
circumstances; the auditor shall make or observe some physical counts on an alternative date, and perform audit
procedures on intervening transactions” perform alternative audit procedures may include following:
1. Reconciling the changes in inventory between the date of physical count and the period end da are correctly
recorded.
2. The auditor would also verify the procedure adopted by management for physical verification a treatment given for
the discrepancies noticed during the physical count.
3. He should ensure that appropriate cut off procedures were followed by the management.
4. He should obtain written representation from management about:
(a) the completeness of information provided regarding the inventory and
(b) assurance with regard to adherence to laid down procedures for physical inventory.

SA – 505
EXTERNAL CONFIRMATION (EC)
1) Select the item

2) Design the format
3) Communicate the request
4) Obtaining the response
5) Evaluate response and no response
Auditor should a) Positive
evaluate the PROCESS Confirmation:-
response of OF
Transaction is
management for non EC
material or
-performance of chance of Fraud
external Process of obtaining & is high
confirmation Management evaluation Audit Form &
(reason is legal) request not to Evidence through Format of b) Negative
then he should apply perform direct communication EC Confirmation:-
alternative test but if "from a, third party
External Transaction is
auditor is restrained after obtaining prior
Confirmation immaterial or
without sufficient
approval of chance of fraud is
cause then
management low
Reservation /
Disclaimer of
Opinion
NOTE: EC depends on auditor's personal judgement to use or not But generally the following area require EC:
1) Confirmation of Bank balance 2) Debtors/ Creditors
3) Stock/Assets held by third party and 4) Documents mortgaged with bank
Q1. Moon Limited replaced its statutory auditor for the financial year 2008-09. During the course of audit, the new
auditor found a credit item of ₹ 5 lakhs. On enquiry, the company explainer him that it is, a very old credit balance.
The creditor had neither approached for the payment nor he is traceable. Under the circumstances, no confirmation
of the credit balance is available.
Ans: In the given case, the creditor is pending since long. It creates a suspicion to the auditor that why litigation has
not been instituted by the creditor against the entity. It might be a case that an income of ₹ 5 lakhs had been hidden
in previous years by debiting fraudulent credit purchase. Auditor should obtain sufficient evidence in support of the
balance. He should apply alternative audit procedures to get documentary proof for the transaction/s and should not
rely entirely on the management representation. Finally, he should include the matter by way of a qualification in his
audit report to the members according to SA 705 if disagreement with management.
Q2: Mr Raj, CA, is auditing the financial statements of a Gram Panchayat. The assessed level of control risk for all
accounts receivable relating to panchayat tax of villagers assertions is high to maximum. Mr. Raj instructed his article
to prepare a format of debtors confirmation the article is confused which form of confirmation request is
appropriate whether Positive or Negative ?
Ans: as control risk is high positive external confirmation request is must.

SA 510
INITIAL AUDIT ENGAGEMENT (OPENING BALANCE)
Auditors duty in relation to opening balance

 To read the latest audited financial statement
 To obtain sufficient and appropriate audit evidence about the prior period closing balance have been
correctly brought forward to the current period
Yes No No No Tally opening

Whether Whether Whether Balance with
P.Y. CY and PY during the PY financial
Financial auditor Whether year CY
are same auditor is state that was
statement audit
were person?
report unsatisfied brought
audited? with the PY forwarded
was auditor
correctly
NO YES
Audit Procedure
YES YES
STOP SA 710
AUDIT PROCEDURES
Auditor should check LY Closing Balance (Key - IFRS LC2D)
I: Investment: Verify registry, demat A/c, external confirmation, physical verification etc.
F: Fixed Assets: Verify registry, valuation, expert’s report.
R: Reserves: Check balance sheet of Previous Year.
S: Share Capital: Check share capital register
L: Loans
Cash & Bank Balances: Obtain sufficient & appropriate
C2: Creditors audit evidence + Confirmation
D: Debtors
Q. Auditors of M/s. Vista Limited were changed for the accounting year 2010-11. The closing stock of the company
as en 31-03-2G10 amounting to ₹ 400 Lacs continued as it is and became closing stock as on 31-03-2011. The auditors
of the company propose to exclude from their audit programme the audit of closing stock of ₹ 400 lacs on the
understanding that it pertains to the ceding year which was audited by another auditor?
Ans: In the light of above duties auditor’s contention is wrong he should perform procedure to o6tain sufficient
appropriate audit evidence that opening balances were exist in substance.

SA 520
ANALYTICAL PROCEDURES
MEANING
Analysis of ratio and trends and resulting investigation of deviation from predetermined set of standard of
performance OR Relationship between two sets of financial statements
WHEN TO USE? (Key Code: SPA)

S: May be used a Substantive procedure.
P: At the time of Planning.
A: To investigate unusal fluctuation at the time of concluding Audit
RELIABILITY
Reliability depends upon:
1) Materiality of item.
2) Risk of Misstatement
3) Assessment of internet and control risk.
4) Reliable financial information and reliable financial information depends upon adequacy of internal control
system.
SPECIAL NOTE
In case of material item, analytical procedure may be used as additional audit procedure but not substituted audit
procedure.
PROCEDURE FOR CHECKING TRANSACTION

1) Apply analytical procedure
2) Apply test of control (Compliance procedure)
3) Apply detailed & substantive procedure,
i) Verification of invoice
ii) Verification of authorization
iii) Verification of total of invoices
iv) Verification of Debit/ Credit note
v) Analysis of increase/ decrease in price
vi) Reconciliation of accounts etc.
Q1. Analytical procedures are unable to help the auditor determining the nature, timing and extent of other
audit procedures at the planning stage.
Ans: False SA-520 “Analytical Procedure” states that application of analytical procedures helps auditor to
understanding the entities business and performances and it will also assist him in determining the nature,
timing and extent of audit procedures.
Q2. A trader is worried that inspite of substantial increase in sales compared to earlier years, there is
considerable fall in Gross profit after satisfying himself that sales and expense are correctly recorded and
that the valuations of inventories is on consistent basis, he wants to ensure that purchases have been
truthfully recorded. How will you proceed with this assignment?
Ans: While verifying whether purchases are truthfully recorded or not the auditor has to apply following
procedures.

SA 540
ACCOUNTING ESTIMATES, INCLUDING FAIR VALUE ACCOUNTING ESTIMATES
AND RELATED DISCLOSURE
ACCOUNTING ESTIMATION
An approximation of monetary a mountain absence
of an adequate means of measurement
DUTIES OF AUDITOR
Auditors should obtain S & A A/E that accounting estimates are reasonable and disclosed properly.
PROCEDURE
Risk assessment procedure Inquiry with mgmt) (DR. ACE) Further procedures (Very Close Wife)
D: Determine: How they determine items requiring V: Verify: Verify the judegment of mgmt.
estimates? independently by the auditor himself or by use of
R - Reliable Information How they get reliable information expert.
related to accounting estimation ? C: Compare: Compare Estimate in light of other
A- Assumptions: How they establish Appropriate accounting estimates.
"assumptions? W: Window dressing: If accounting estimates are
Change in method or assumptions. related to current assets and current liabilities- check
C- Change: Change in method or assumptions. window dressing
E - Experts: How they assess need of experts?
NOTE: General provisions are required on the basis of historical data. E.g. warranty claims.
Q. While auditing Z Ltd., you observe certain material financial statement assertions have been based
estimates made by the management. As the auditor how do you minimize the risk of material
misstatement?
Ans. As per SA — 540 “Auditing Accounting Estimates, Including Fair Value Accounting Estimates, and Related
Disclosures”, it is auditor’s duty to obtain sufficient and appropriate audit evidence that accounting estimates
by management are reasonable in present circumstances or not. Auditor first apply the RAP (Risk assessment
Procedure to decide the nature timing and extent of FAP (further audit procedure). Auditor should consider
the following:
i. The requirements of the applicable financial reporting framework relevant to the accounting estimates,
including related disclosures (For example provisioning norms in case of banking company as required
by RBI).
ii. How management identifies those transactions, events and conditions that may give rise to the need for
accounting estimates to be recognised or disclosed, in the financial statements, in obtaining this
understanding ,the auditor shall make inquiries of management about changes in circumstances that
may give rise to new, or the need to revise existing ,accounting estimates.

iii. The estimation making process adopted by the management including
1. The method, including where applicable the model , used in making the accounting estimates
2. Relevant controls applied over the process of estimation
3. Whether management has used services of an expert for estimations of complex nature?
4. The assumption underlying the accounting estimates whether reasonable in present

circumstances
5. Whether there has been or ought to have been change from the prior period in the methods of
estimations,, and if so, whether there is sufficient reason to do the same.
6. Whether and, if so, how the management has assessed the effect of estimation
of uncertainty;
SA 550
RELATED PARTIES
MEANING
Related parties (RP) either defined by Financial Reporting Framework (AS-18) or if inadequately defined then-
1) Holding Co.
2) Subsidiary Co.
3) Fellow Subsidiary Co.
4) Associated
5) Investors
6) Key Managerial Personnel ,
AUDITOR'S DUTY
1) Understand relationship
2)Asses the risk in relation to RP transaction
3) Professional Skeptism.
PROCEDURE
STEP I: RISK ASSESSMENT PROCEDURE: (Inquiry from mgmt)
[Key Code: NRTC]
N -Name of RP
R - Relationship
T - Transactions
C - Change in relationship compared to previous year.
STEP II: INQUIRY ABOUT CONTROL:

[Key Code: IA]
I- Identification of RP
A- Authorised and approval
STEP III: OTHER AUDIT PROCEDURE:

[Key Code: SWATI ViR)
S - Share Capital Register
W- Written Representation
A - Last year annual report

T -Tax Audit Report

I - Investment register
V -Verification of transactions authorised transactions & pricing is fair.
R - Review of DAMR
D - Director's' Report / Register
A – Articles of Association
M - Memorandum of Association
R- Register u/s 189 of Companies Act, 2013
(old Cos Act, 1956 Sec 301)
Q. In the course of audit of Q Ltd, its statutory auditor wants to be sure of the adequacy of related party disclosures?
Kindly guide the auditor in identifying the possible source of related
party information.
Ans: As per SA 550 on, “Related Parties”, following are the procedure to identify the related party disclosures:
1. Review the disclosure information given by the management in financial statement and compare it with the previous
year’s disclosure and to compare the disclosures.
2. The auditor may inspect following records or documents that may provide information about related arty
relationships and transactions,(this is an illustrative list and not exhaustive
 Income tax returns,
 Information supplied by the entity to regulatory authorities,
 Shareholder registers to identify the entity’s principal shareholders,
 Directors register
 Section 189 register of Companies Act (Previously section 301 register under 1956)
 Long term contracts and arrangements
 Secretarial auditor’s report
 Tax audit report
 Investment register to identify subsidiaries associates and joint ventures
3. After applying all the above procedure if the auditor identifies fraud risk factors (including circumstances relating to
the existence of a related party with dominant influence) when performing he risk assessment procedures and related
activities in connection with related parties, the auditor respond to assessed risks. The auditor shall designs and
performs further audit procedures to obtain sufficient appropriate audit evidence about the assessed risks of material
misstatement associated with elated party relationships and transactions.
4. During the audit, the auditor shall remain alert, when inspecting records or documents, for arrangements or other
information that may indicate the existence of related party relationships or transactions that management has not
previously identified or disclosed to the auditor.
SA 560
SUBSEQUENT EVENTS
MEANING
Events occurring in between balance sheet date and date/of auditor's report.
AUDITOR’S DUTY:
He should obtain sufficient and appropriate audit evidence that all subsequent events identified and disclosed
properly.
Audit Procedure
Risk assessment Test of Controls Substantive Procedure

Procedure
1) How mgmt update 1) Verification of Internal 1) Auditor should itself with all
subsequent events control obtain written
2) Check MIS representation
2) Evaluate strength of that mgmt identify,
MIS and other controls adjusted &
disclosed all possible
subsequent events.
2) Confirm from
internal Auditor,
Expert, brand auditor, etc.
3) Reading of Minutes books of
Board meeting, GM etc.
4) Review interim Financial report
NOTE: Subsequent events after audit report and before presenting in AGM
Inform mgmt/ Ask mgmt to revise
If mgmt do not agree
Give a revision of opinion in public (GM)
Q. Audit procedures on subsequent events?
Ans: As per SA-560 (R), “Subsequent Events”, The Auditor should perform the following procedure to obtain
sufficient appropriate evidence to find out the adjustments or disclosures of those subsequent events:
(i) Review the procedures adopted by the management to identify subsequent events.
(ii) Examine the minutes of the Board of Directors, Executive Committees and the General Meetings of the
shareholders.
(iii) Collect information from the other sources like budgets/estimates, cash flows, forecasts, interim
financial statements etc.
(iv) Make enquiries and hold discussions with the top management.
(v) Details from company’s lawyers for any litigation matter.
SA – 570
GOING CONCERN
MANAGEMENT RESPONSIBILITIES
 Assess the entity’s ability to continue as a going concern.
 General Purpose Financial Statements are prepared on a going concern basis unless management intends to
liquidate the entity or to cease operation.
 In case Financial Statements are not prepared on going concern basis, the fact would need to be appropriately
disclosed

AUDITOR’S DUTIES
 To obtain sufficient appropriate audit evidence about the appropriateness of management’s use of going
concern assumption. For this purpose, auditor is required to,
o Cover the same period as that used by management
o Consider whether management has considered all relevant information of which auditor is aware.
 Identify events that cast significant doubt.
 Perform Additional Procedures:
o If going concern assumption appropriate but material uncertainty exists, determine whether Financial
Statements makes relevant disclosure. If yes  Emphasis on Matter and If no  Qualified / Adverse
Opinion.
o If Going Concern Assumption inappropriate  Adverse Opinion
o Management unwilling to make its assessment  Consider implications on Auditor’s Report.
o Request management to make its assessment of entity’s ability to continue as going concern.
o Evaluating management plans for future.
o Consider the reliability of cash flow forecast.
o Considering availability of additional form or information since the date of management assessment.
o Requesting written representation from Management regarding their plan for future action.
SA 580
WRITTEN REPRESENTATION
MEANING
Clarification, confirmation, explanation given by management to auditor during the course of his audit.
 Usually written representation are treated as additional audit evidence, and cannot be treated as substitute audit
evidence. But in some exceptional circumstances they might be the only, audit evidence avail able.
E.g. Long term/ short term investments intention to hold the asset.
 Written representation should be checked in the light of other audit evidence available.
 Reassess the reliability of already received written representation if:-

i) management denied to provide written representation on any other matter.
ii) if person providing written representation appear to be fake.
iii) if person providing written representation found in a fraud.
 If auditor ask management and if they give only oral consent, then the auditor can make a letter of is understanding
and get it acknowledged by the management.
Q. In the course of audit of ABC Ltd. its management refuses to provide written representations. As an auditor
what is your duty?
Ans: Duty of an Auditor if management refuses to provide written representations.
As per SA 580 (Revised), “Written Representations”, if the management does not provide one or more of the
requested written representation, the auditor shall:
I. Discuss the matter with management.
II. Reevaluate the Integrity of the management and evaluate the effect that this may have on the reliability
of representation (oral or written) and audit evidence in general and;

III. Take appropriate actions, including determining the possible effects on the opinion in the auditor’s
report.
The auditor should disclaim an opinion on the financial statements if management does not provide
representations.
SA 600
USING WORK OF ANOTHER AUDITOR
NAME
Using work of another auditor.
DEFINITION
Using work of branch auditor and auditor of subsidiary company.
WHY ?
Under Co's Act principal auditor is required to consider and incorporate branch auditor’s report.
CO-ORDINATION
[Key Code - PIC]
P: Planning stage: Meeting at planning stage/suggestion/important

consideration at the planning state from principal auditor to branch
auditor.
I: Information: Mutual exchange of information for relevant importance.
C: Completion date: Expected date of completion and reporting.
EVALUATING-WORK & USE

1) Review all branch auditors report (Not evaluate) branch auditors , report (Not evaluate)
2) Ask explanation if required.
3) Document followings:
i) Branch auditor's name
ii) Significant findings
iii) Treatment of significant findings in his report.
iv) Procedure applied by other auditor.
Q. Auditor of Holding Co. wishes to access working papers of Subsidiary’s Auditor. Comment.
• The Principal auditor of an enterprise do not have right to access to audit working papers of Branch auditor's
• As per SA 230 & SQC 1, Audit documentation is 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 is not required to provide to client or other auditor access to working papers.
• As per SA 600, Auditor can rely on work of another auditor without having 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

SA 610 (REVISED)
"USING THE WORK OF INTERNAL AUDITORS"
SCOPE OF THIS SA
1. This SA deals with the external auditor's responsibilities if using th, work of internal auditors. This includes
(a) using the work of the internal audit function in obtaining audit evidence and
(b) using internal auditors to provide direct assistance under the direction, supervision and review of the external
auditor.
2. This SA does not apply if the entity does not have an internal audit function.
3. In some cases, the external auditor may be prohibited, or restricted to some extent, by law or regulation from using
the work of the internal audit function or using internal auditors to provide direct assistance. The SAs do not override
laws or regulations that govern an audit of F.S. Such prohibitions or restrictions will therefore not prevent the external
auditor from complying with the SAs.
THE EXTERNAL AUDITOR'S RESPONSIBILITY FOR THE AUDIT

 The external auditor has sole responsibility for the audit opinion expressed, and that responsibility is not
reduced by the external auditor's use of the work of the internal audit function or internal auditors Lo provide
direct assistance on the engagement.
 Although they may perform audit procedures similar to those performed by the external auditor, neither the
internal audit function nor the internal auditors arc independent of the entity as is required of the external
auditor in an audit of financial statements in accordance with SA 200.
 This SA, therefore, defines the conditions that are necessary for the external auditor to be able to use the work
of internal auditors.
ACTIVITIES RELATING TO INTERNAL CONTROL
1. Evaluation of internal control

Internal audit function may be assigned specific internal control responsibility for reviewing controls, evaluating
their operation and recommending improvements thereto.
2. Examination of financial and operating information

Internal audit function may be assigned to review the means used to identify, recognize, measure, classify and
report financial and operating information, and to make specific inquiry into individual items, including detailed
testing of transactions, balances and procedures.
3. Review of operating activities

The internal audit function may be assigned to review the economy, efficiency and effectiveness of operating
activities, including non-financial activities of an entity.
4. Review of compliance with laws and regulations

Internal audit function may be assigned to review compliance with laws, regulations and other external
requirements, and with management policies and directives and other internal requirements.
OBJECTIVES OF AUDITOR
(a) To determine whether the work of the internal audit function or direct assistance from internal auditors can be
used, and if so, in which areas and to what extent ;
(b) If using the work of the internal audit function, to determine whether that work is adequate for purposes of the
audit ; and

(c) If using internal auditors to provide direct assistance, to appropriately direct, supervise and review their work.
DEFINITIONS
1. Internal audit function
A function of an entity that performs assurance & consulting activities designed to evaluate and improve the
effectiveness of the entity's governance, risk management and internal control processes.
2. Direct Assistance
The use of internal auditors to perform audit procedures under the direction, supervision and review of external
auditor.
REQUIREMENTS OF SA 610 (REVISED)
EVALUATING THE INTERNAL AUDIT FUNCTION

The external auditor shall determine whether the work of the internal audit function can be used for purposes of the
audit by evaluating the following :
(a) Objectivity of the internal auditors ;
(b) Level of competence; and
(c) Application of Systematic and disciplined approach.
The external auditor shall not use the work of the internal audit function if the external auditor determines that :
(a) The function's organizational status and relevant policies and procedures do not adequately support the objectivity
of internal auditors ;
(b) The function lacks sufficient competence ; or
(c) The function does not apply a systematic and disciplined approach.
A. FACTORS AFFECTING OBJECTIVITY, COMPETENCY AND APPROACH

1. Objectivity of Internal Auditor: Objectivity. refers to 'the ability to perform without allowing bias to override
professional judgments. Factors that may affect the external auditor's evaluation include the following :
(a) Organizational status of the internal audit function;
(b) Conflicting responsibilities.
(c) Oversight functions of TCWG w.r.t. employment decisions related to the internal audit function.
(d) Constraints or restrictions placed on the internal audit function by management or TCWG.
2. Level of Competency: Competence of the internal audit function refers to the attainment of knowledge and
skills to enable assigned tasks to be performed diligently. Factors that may affect the external auditor's
determination include the following :
(a) Policies for hiring, training and assigning internal auditors to internal audit engagements.
(b) Adequate of technical training and auditing of internal auditors.
(c) Knowledge of internal auditors w.r.t. entity's financial reporting and the applicable FRF.
(d) Membership of relevant professional bodies that oblige internal auditors to comply with the relevant
professional standards.
3. Systematic and Disciplined Approach: Factors that may affect tine external auditor's determination of
whether the internal audit function applies a systematic and disciplined approach include the following :
 Existence, adequacy and use of documented internal audit procedures.
 Existence of appropriate quality control policies and procedures for internal audit function.

B. DETERMINING THE NATURE AND EXTENT OF WORK OF THE INTERNAL AUDIT FUNCTION THAT CAN BE USED
 The external auditor shall consider the nature and scope of the work that has been performed, or is planned
to be performed, by the internai audit function and its relevance to the external auditor's overall audit strategy
and audit plan.
 The external auditor shall make all significant judgments in the audit engagement and, to prevent undue use
of the work of the internal audit function, shall plan to use less of the work of the function and perform more
of the work directly.
 The external auditor shall also evaluate whether, in aggregate, using the work of the internal audit function to
the extent planned would still result in the external auditor being sufficiently involved in the audit, given the
external auditor's sole responsibility for the audit opinion expressed.
 The external auditor shall, in communicating with TCWG an overview of the planned scope and timing of the
audit in accordance with SA 260, communicate how the external auditor has planned to use thi work of the
internal audit function.
USING THE WORK OF THE INTERNAL AUDIT FUNCTION

1. If the external auditor plans to use the work of the internal audit function. the external auditor shall discuss the
planned use of its work.
2. The external auditor shall read the reports of the internal audit function relating to the work of the function that the
external auditor plans to use to obtain an understanding of the nature and extent of audit procedures it performed
and the related findings.
3. The external auditor shall perform sufficient audit procedures on the work of the internal audit function as a whole
that the external auditor plans to use to determine its adequacy for purposes of the audit, including evaluating whether
:
a. The work of the function had been properly planned, performed, supervised, reviewed and documented ;
b. Sufficient appropriate evidence had been obtained to enable the function to draw reasonable conclusions; and
c. Conclusions reached are appropriate in the circumstances and the reports prepared by the function are
consistent with the results of the work performed.
4. The nature and extent of the external auditor's audit procedures shall be responsive to the external auditor's
evaluation of :
a. The amount of judgment involved ;
b. The assessed risk of material misstatement ;
c. The extent to which the internal audit function's organizational status and relevant policies and procedures
support the objectivity of the internal auditors ; and
d. The level of competence of the function; and shall include re-performance of some of the work.
5. The external auditor shall also evaluate whether the external auditor's conclusions regarding the internal audit
function and the determination of the nature and extent of use of the work of the function for purposes of the audit
remain appropriate.
DETERMINING WHETHER, IN WHICH AREAS, AND TO WHAT EXTENT INTERNAL AUDITORS CAN BE
USED TO PROVIDE DIRECT ASSISTANCE
A. DETERMINING WHETHER INTERNAL AUDITORS CAN BE USED TO PROVIDE DIRECT ASSISTANCE FOR PURPOSES
OF THE AUDIT

1. The external auditor may be prohibited by law or reguiation from obtaining direct assistance from internal
auditors.
2. If using internal auditors to provide direct assistance is not prohibited by law or regulation, and the external
auditor plans to use internal auditors to provide direct assistance on the audit, the external auditor shall evaluate
the existence and significance of threats to objectivity and the level of competence of th, internal auditors who
will be providing such assistance.
3. The external auditor shall not use an internal auditor to provide direct assistance if :
a. There are significant threats to the objectivity of the internal auditor; or
b. The internal auditor lacks sufficient competence to perform the proposed work.
B. DETERMINING THE NATURE AND EXTENT OF WORK THAT CAN BE ASSIGNED TO INTERNAL AUDITORS
PROVIDING DIRECT ASSISTANCE
1. In determining the nature and extent of work that may be assigned to internal auditors and the NTE of direction,
supervision and review that is appropriate in the circumstances, the external auditor shall consider :
a. The amount of judgment involved in Planning and performing relevant audit procedures; and Evaluating
the audit evidence gathered ;
b. The assessed risk of material, misstatement ; and
c. The external auditor's evaluation of the existence and significance of threats to tie objectivity and level of
competence of the internal auditors who will he providing such assistance.
2. The external auditor shall not use internal auditors to provide direct assistance to perform procedures that:
a. Involve making significant judgments in the audit ;
b. Relate to higher assessed risks of material misstatement ;
c. Relate to work with which the internal auditors have been involved; or
d. Relate to decisions the external auditor makes in accordance with this SA regarding the internal audit
function and the use of its work or direct assistance.
3. Having appropriately evaluated whether and, if so, to what extent internal auditors can be used to provide direct
assistance on the audit. the external auditor shall, in communicating with TCWG an overview of the planned scope
and timing of the audit in accordance with SA 260, communicate the nature and extent of the planned use of
internal auditors to provide direct assistance so as to reach a mutual understanding that such use is not excessive
in the circumstances of the engagement.
USING INTERNAL AUDITORS TO PROVIDE DIRECT ASSISTANCE
1. Prior to using internal auditors to provide direct assistance for purposes of the audit, the external auditor shall :
a. Obtain written agreement from an authorized representative of the entity that the internal auditors will be
allowed to follow the external auditor's instructions, and that the entity will not intervene in the work the
internal auditor performs for the external auditor; and
b. Obtain -written agreement from the internal auditors that they will keep confidential specific matters as
instructed by the external auditor and inform the external auditor of any threat to their objectivity.
2. The external auditor shall direct, supervise and review the work performed by internal auditors on the engagement
in accordance with SA 220.
3. The direction, supervision and review by the external auditor of the work performed by the internal auditors shall
be sufficient in order for the external auditor to be satisfied that the internal auditors have obtained sufficient
appropriate audit evidence to support the conclusions based on that work.

DOCUMENTATION
A. DOCUMENTS W.R.T. USE OF WORK OF INTERNAL AUDIT FUNCTION BY EXTERNAL AUDITOR

(a) Whether the function's organizational status and relevant policies and procedures adequately support the
objectivity of the internal auditors;
(b) The level of competence of the function; and
(c) Whether the function applies a systematic and disciplined approach, including quality control ;
(d) The nature and extent of the work used and the basis for that decision; and
(e) The audit procedures performed by the external auditor to evaluate the adequacy of the work used.
B. DOCUMENTS W.R.T. DIRECT ASSISTANCE OF INTERNAL AUDITOR USED BY EXTERNAL AUDITOR

(a) The evaluation of the existence and significance of threats to objectivity of the internal auditors, and the level
of competence of the internal auditors used to provide direct assistance;
(b) The basis for the decision regarding the nature and extent of the work performed by the internal auditors;
(c) Who reviewed the work performed and the date and extent of that review in accordance with SA 230 ;
(d) The written agreements obtained from an authorized representative of the entity and the internal auditors;
and
(e) The working papers prepared by the internal auditors who provided direct assistance on the audit
engagement.
Q1. In the course of the statutory audit of Z Ltd, its statutory auditors, having determined that the work of internal
auditor is likely to be adequate for the purpose of statutory audit, wanted to use the work of internal auditor in
respect of physical verification of fixed assets. I-low an evaluation of this specific work done by the internal auditor
can be done?
Ans: Evaluation of Specific Work Done by Internal Auditor: As per SA 610, “Using the Work of Internal Auditors”,
External auditor may rely on work performed by internal auditor after due considerations explained therein. According
to this SA the nature, timing and extent of the audit procedures performed on specific work of the internal auditors
will depend on the external auditor’s assessment of the risk of material misstatement, the evaluation of the internal
audit function, and the evaluation of the specific work of the internal auditors. Such audit procedures may include
supplemental tests (examination of items already examined by the internal auditors). To determine the adequacy of
specific work performed by the internal auditors for the external auditor’s purposes, the external auditor shall evaluate
whether:
(1) The work was performed by internal auditors having competence and skill;
(2) The work was properly supervised, reviewed and documented i.e. due professional care has been take;
(3) Adequate audit evidence has been obtained to enable the internal auditors to draw reasonable conclusions;
(4) Conclusions reached are appropriate in the circumstances and any reports prepared by the internal auditors are
consistent with the results of the work performed; and
(5) Any exceptions or unusual matters disclosed by the internal auditors are properly resolved.
If auditor follows above procedures he will arrive at a conclusion whether to rely on internal auditors or not.
Q2. You are appointed statutory auditor of X Ltd. X Ltd. has an internal audit system and reports for the same are
given to you. Mention the factors you will consider to ensure that the said system of internal audit of X Ltd. is
commensurate with the size of the company and nature of its business?
Ans: According to SA-610 (R), Auditor shall consider following before relying on the internal auditor’s report:
1. What is status of the internal audit function within the entity?

2. Whether the internal audit function reports to those charged with governance or an officer with appropriate
authority?
3.Whether the internal auditors are free of any conflicting responsibilities (i.e. maker
and cheaker)?
4. Whether there are any constraints or restrictions placed on the internal audit function by management or those
charged with governance?
5. Whether, and to what extent, management acts on the recommendations of the internal audit function, and
how such action is evidenced?
6. Whether the internal auditors have adequate technical training and proficiency as internal auditors?
7. Whether activities of the internal audit function are properly planned, supervised, reviewer and documented?
8. The existence and adequacy of audit manuals or other similar documents, work programs and audit
documentation.
After considering the above auditor shall conclude, whether the internal audit system is commensurating with
the nature and size of the business.
SA 620
USING WORK OF AN EXPERT
NAME:
Using work of an expert.
DEFINITION
Specified body of knowledge other than auditing and accounting
WHY ?
Expert's work constitutes audit evidences m respect of matters which are:
Complex
Material
CO-ORDINATION
[Key - FD]
F: Form: Expected form and content of his report. (e.g. flow chart, pie diagram etc.)
D: Date:Expected date of completion.
EVALUATING-WORK & USE:

1) Check membership no. From authorised institute/ licence no.
2) Experience and reputation.
3) Relationship with client.
4) Restrictions on scope.
5) Evaluate whether data given to expert were reliable and sufficient.
6) If data is complex, ask experts to explain how he relied on data.
7) Evaluate method and assumptions and their consistency

If change in method explanation required from expert.
8) Evaluate expert’s work in the light of other audit evidence.
*SHALL AUDITOR MENTION NAME OF THE EXPERT IN HIS AUDIT REPORT ?

When expressing an unqualified opinion - auditor should not refer to the work of an expert in his report. If auditor
express other than an unqualified opinion-it may be beneficial to reader of the report if the auditor, in explaining the
nature of their reservation, describe the work of expert.
Regarding the mention of Name of the expert in his audit report, he can do so only after obtaining the prior consent
of the expert.
Q. Shall auditor mention name of the expert in its audit report?

Ans.: The auditor shall refer to the work of an auditor’s expert in an auditor’s report containing an unmodified opinion
unless required by law or regulation to do so. If such reference is required by law or regulation, the auditor shall
indicate in the auditor’s report that the reference does not reduce the auditor’s responsibility for the audit opinion.
Further, If the auditor makes reference to the work of an auditor’s expert in the auditor’s report because such
reference is relevant to an understanding of a modification of the auditor’s opinion, the auditor shall indicate in the
auditor’s report that such reference does not reduce the auditor’s responsibility for that opinion.
SA 700, 705, 706

TYPES OF AUDIT REPORT
Unmodified Audit Report Modified Audit Report
In the same format specified by

institute Modification does Modification affect
not affect Opinion opinion SA 705
Unqualified Report
SA700
Unqualified Disagreed Limitation
+ With mgmt. of Scope
But Emphazing
The matter
SA 706
Reservation /
Disclaimer Opinion
When affect Otherwise

entire FS
Qualified
Adverse

SA 700
FORMING AN OPINION AND REPORTING OF FINANCIAL STATEMENTS
BASIC ELEMENTS OF AUDITORS REPORT

1) TITLE:
“Independent Auditor Report”
OR
“Independent Auditor’s Report”
(in case of joint Auditor)
2) ADDRESSEE: (Shareholders, Govt. etc.)
3) OPENING & INTRODUCTORY PARA:
We have audited the accompanying financial statements of ABC Ltd.
Comprises of:
(i) Balance Sheet as at 31st March, 2015
ii) State the profit and loss and cash flow statement for the year ending
iii) And Summary of significant accounting policies and other explanatory notes.
4) MANAGEMENT RESPONSIBILITY FOR THE FINANCIAL STATEMENT:
 Books of accounts prepared in accordance with accounting standard
(financial reporting framework)
 and other responsibilities of Management
5) AUDITOR(S) RESPONSIBILITY:
 Followed accounting standards, standards on auditing and other guidelines
 Other responsibilities (SA 200)
6) OPINION:
In our opinion and the best of our information and according to explanation given to us, the financial statement
gives the information required by the act in a manner so required and gives true and fair view in conformity with
the accounting principles generally accepted in India.
7) SIGN
8) DATE
9) PLACE OF SIGNING THE REPORT
Q1. What is the meaning of financial statement in revised SA 700?
Ans. Financial statement in this standard “a complete set of general purpose financial statements, including the related
notes.” The related notes ordinarily comprise a summary of significant accounting policies and other explanatory
information. The requirements of the applicable financial reporting framework determine the form and content of the
financial statements, and what constitutes a complete set of financial statements. For example in case of a company
companies act requires
# A Balance sheet
# A Profit and Loss account
# A Cash Flow Statement (if required)
# Notes to the accounts and significant accounting policies as referred in accounting standards under CASR (Company
Accounting Standard Rules) 2006.
Q2. What is auditor’s duty under this SA?

Ans. The auditor shall form an opinion on whether the financial statements are prepared, in all material respects, in
accordance with the applicable financial reporting framework. For this, the auditor shall conclude as to whether the

auditor has obtained reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error.
That conclusion shall take into account:
(a) The auditor’s conclusion in accordance with SA 330, whether sufficient appropriate audit evidence has been
obtained;
(b) The auditor’s conclusion, in accordance with SA 450, whether uncorrected misstatements are material, individually
or in aggregate; and
(c) In particular, the auditor shall evaluate whether, in view of the requirements of the applicable financial reporting
framework:
(i) The financial statements adequately disclose the significant accounting policies selected and applied;
(ii) The accounting policies selected and applied are consistent with the applicable financial reporting framework
and are appropriate;
(iii) The accounting estimates made by the management are reasonable;
(iv) The information presented in the financial statements is relevant, reliable, comparable and understandable
SA 701
COMMUNICATING KEY AUDIT MATTERS IN THE INDEPENDENT AUDITOR’S
REPORT
DEFINITION
Key Audit Matters – Those matters that, in the auditor’s professional judgement, were of most significance in the audit
of financial statements of the current period. Key audit matters are selected from matters communicated with TCWG.
SCOPE OF THIS SA
Communicating key audit matters in the auditor’s report is not:
a) A Substitute for disclosures in the financial statements that the AFRF requires management to make, or that are
otherwise necessary to achieve fair presentation.
b) A substitute for the auditor expressing, a modified opinion when required by the circumstances of a specific audit
engagement in accordance with SA 705 (Revised)
c) A substitute for reporting in accordance with SA 570 (Revised) when a material uncertainty exists relating to events
or conditions that may cast significant doubt on an entity’s ability to continuous as a going concern; or
d) A separate opinion on individual matters.
DETERMINING KEY AUDIT MATTERS

The auditor shall determine, from the matters communicated with TCWG, those matters that required significant
auditor attention in performing the audit. In making this determination, the auditor shall take into account the
following:
a) Areas of higher assessed risk of material misstatement, or significant risks identified in accordance with SA
315.
b) Significant auditor judgements relating to areas in the financial statements that involved significant
management judgement, including accounting estimates that have been identified as having high estimation
uncertainty.

c) The effect on the audit of significant events or transactions that occurred during the period.
The auditor shall determine which of the matters determined were of most significance in the audit of the financial
statements of the current period and therefore are the key audit matters.
COMMUNICATING KEY AUDIT MATTERS

The auditor shall describe each key audit matter, using an appropriate sub heading, in a separate section of the
auditor’s report under the heading “Key Audit Matters”
The introductory language in this section of the auditor’s report shall state that:
a) Key audit matters are those matters that, in the auditor’s professional judgement, were of most significance
in the audit of the financial statements [of the current period]; and
b) These matters were addressed in the context of the audit of the financial statements as a whole, and in forming
the auditor’s opinion thereon, and the auditor does not provide a separate opinion on these matters.
DETERMINATION OF MATTERS OF MOST SIGNIFICANCE

 Matters that required significant interaction with TCWG
 The importance of the matter to intended users’ understanding of the financial statements.
 The nature of the underlying accounting policy relating to the matter or the complexity or subjectivity involved
in management selection of an appropriate policy.
 The nature and materiality, quantitatively or qualitatively, of corrected and accumulated uncorrected
misstatements.
 The nature and extent of audit effort needed to address the matter, including:
o The extent of specialized skill or knowledge needed to apply audit procedures to address the matter
or evaluate the results of those procedures, if any;
o The nature of consultations outside the engagement team regarding the matter.
 The nature and severity of difficulties in applying audit procedures, evaluating the results of those procedures,
and obtaining relevant and reliable evidence on which to base the auditor’s opinion.
 The severity of any control deficiencies identified relevant to the matter.
 Whether the matter involved a number of separate, but related, audit considerations. For example, long-term
contracts may involve significant auditor attention with respect to revenue recognition, litigation or other
contingencies, and may have an effect on other accounting estimates.
DESCRIPTION OF INDIVIDUAL KEY AUDIT MATTERS

The description of each key audit matter in the Kay Audit Matters section of the auditor’s report shall include a
reference to the related disclosure(s), if any, in the financial statements and shall address:
a) Why the matter was considered to be one of most significance in the audit and therefore determined to be a
key audit matter; and
b) How the matter was addressed in the audit.
NO KEY AUDIT MATTERS TO BE COMMUNICATED

The following illustrates the presentation in the auditor’s report if the auditor has determined there are no key audit
matters to communicate:
Key Audit Matters
[Except for the matter described in the Basis for Qualified (Adverse Opinion Section or Material Uncertainty Related
to Going Concern Section]. We have determined that there are no [other] key audit matters to communicate in our
report.

SA 705 (REVISED)
MODIFICATION TO THE OPINION IN THE INDEPENDENT AUDITOR’S REPORT
TYPES OF MODIFIED OPINIONS

This SA establishes three types of modified opinions, namely, a qualified opinion, an adverse opinion, and a disclaimer
of opinion. The decision regarding which type of modified opinion is appropriate depends upon:
a) The nature of the matter giving rise to the modification, that is, whether the financial statements are materially
misstated or, in case of an inability to obtain sufficient appropriate audit evidence, may be materially
misstated; and
b) The auditor’s judgement about the pervasiveness of the effects or possible effects of the matter on the
financial statements.
DETERMINING THE TYPE OF MODIFICATION TO THE AUDITOR’S OPINION

Nature of Matter Giving Rise to the Auditor’s Judgement about the Pervasiveness of the Effects or Possible
Modification Effects on the Financial Statements
Material but not Pervasive Material and Pervasive
Financial Statements are materially Qualified Opinion (True and Fair

Adverse Opinion (Not True and Fair)
misstated except for the effect of)
Qualified Opinion (True and Fair Disclaimer of Opinion (Not in

Inability to obtain SAAE
except for the POSSIBLE effect of) position to express and opinion)
QUALIFIED OPINION
The auditor shall express a qualified opinion when:
a) The auditor, having obtained SAAE, concludes that misstatements, individually or in the aggregate, are
material, but not pervasive, to the financial statements; or
b) The auditor is unable to obtain SAAE on which to base the opinion, but the auditor concludes that the possible
effects on the financial statements of undetected misstatements, if any, could be material but not pervasive.
ADVERSE OPINION
The auditor shall express an adverse opinion when the auditor, having obtained SAAE, concludes that misstatements,
individually or in the aggregate, are both material and pervasive to the financial statements.
DISCLAIMER OF OPINION
The auditor shall disclaim an opinion when the auditor is unable to obtain SAAE on which to base the opinion, and the
auditor concludes that the possible effects on the financial statements of undetected misstatements, if any, could be
both material and pervasive.
CONSEQUENCES OF AN INABILITY TO OBTAIN SAAE DUE TO A MANAGEMENT – IMPOSED

LIMITATION AFTER THE AUDITOR HAS ACCEPTED THE ENGAGEMENT
If, after accepting the engagement, the auditor becomes aware that management has imposed a limitation on the
scope of the audit that the auditor considers likely to result in the need to express a qualified opinion or to disclaim an
opinion on the financial statements, the auditor shall request that management remove the limitation.

If management refuses to remove the limitation, the auditor shall communicate the matter to TCWG, unless all of
TCWG are involved in managing the entity, and determine whether it is possible to perform alternative procedures to
obtain SAAE.
If auditor is unable to obtain SAAE, the auditor shall determine the implications as follows:
(a) If the auditor concludes that the possible effects on the financial statements of undetected misstatements, if any,
could be material and pervasive, the auditor shall qualify the opinion; or
(b) If the auditor concludes that the possible effect on the financial statements of undetected misstatements, if any,
could be both material and pervasive so that a qualification of the opinion would be inadequate to communicate
the gravity of the situation, the auditor shall:
a. Withdraw from the audit, where practicable and possible under applicable law or regulation; or
b. If withdrawal from the audit before issuing the auditor’s report is not practicable or possible, disclaim an
opinion on the financial statements.
If the auditor withdraws then, before withdrawing, the auditor shall communicate to TCWG any matters regarding
misstatements identified during the audit that would have given rise to a modification of the opinion.
FORM AND CONTENT OF THE AUDITORS REORT WHEN THE OPINION IS MODIFIED
1. AUDITOR’S OPINION: When the auditor modifies the audit shall use the heading “Qualified Opinion”, “Adverse
Opinion”, or “Disclaimer of Opinion”. As appropriate, for the Opinion Section.
2. BASIS FOR OPINION: When the auditor modifies the opinion on the financial statements, the auditor shall, in
addition to the specific elements required by SA 700 (Revised):
a) Amend the heading “Basis for Opinion” required by SA 700 (Revised) to “Basis for Qualified Opinion”, “Basis
for Adverse Opinion” or “Basis for Disclaimer of Opinion” as appropriate; and
a. Within this section, include a description of the matter giving rise to the modification.
When the auditor expresses a qualified or adverse opinion, the auditor shall amend the statement about whether
the audit evidence obtained is sufficient and appropriate to provide a basis for the auditor’s opinion required by
SA 700 (Revised) to include the word “Qualified” or “Adverse”, as appropriate.
When the auditor disclaims an opinion on the financial statements, the auditor’s report shall not include the
following elements required by SA 700 (Revised). Those elements are:
a) A reference to the section of the auditor’s report where the auditor’s responsibilities are described; and
b) A statement about whether the audit evidence obtained is sufficient and appropriate to provide a basis for
the auditor’s opinion.
3. DESCRIPTION OF AUDITOR’S RESPONSIBILITIES FOR THE AUDIT OF THE FINANCIAL STATEMENTS WHEN THE
AUDITOR DISCLAIMS AN OPINION ON THE FINANCIAL STATEMENTS: When the auditor disclaims an opinion on
the financial statements due to an inability to obtain SAAE, the auditor shall amend the description of the auditor’s
responsibilities required by SA 700 (Revised) to include only the following:
a) A statement that the auditor’s responsibility is to conduct an audit of the Financial Statements in accordance
with SAs and to issue an auditor’s report;
b) A statement, that, however, because of the matter(s) described in the Basis for Disclaimer of Opinion section,
the auditor was not able to obtain SAAE to provide a basis for an audit opinion on the financial statements;
and
c) The statement about auditor independence and other ethical responsibilities required by SA 700.
4. CONSIDERATIONS WHEN THE AUDITOR DISCLAIMS AN OPINION ON THE FINANCIAL STATEMENTS: Unless
required by law or regulation, when the auditor disclaims an opinion on the financial statements, the auditor’s
report shall not include a Key Audit Matter section in accordance with SA 701.

5. COMMUNICATION WITH THOSE CHARGED WITH GOVERNANCE: When the auditor expects to modify the opinion
in the auditors report, the auditor shall communicate with TCWG the circumstances that led to the expected
modification and the wording of the modification.
PARTICULARS QUALIFIED OPINION ADVERSE OPINION DISCLAIMER OF OPINION

MODIFIED OPINION Qualified Opinion Adverse Opinion Disclaimer of Opinion
MODIFIED OPINION Except for the Because of the significance Because if the significance
PARAGRAPH WORDINGS effects/possible effects of of the matter(s) described of the matter(s) described
the matter(s) described in in the Basis for Adverse in the Basis for Disclaimer
the basis for Qualified Opinion paragraph the of Opinion paragraph, the
Opinion paragraph the financial statements are no auditor does not express
financial statements are true and fair / not an opinion on the financial
true and fair / prepared. prepared. statements.
MOFIDIED OPINION We have audited We have audited We were engaged to
PARAGRAPH audit…..
Because of the significance
of the matter described in
the Basis for Disclaimer of
Opinion section of our
report, we have not been
able to obtain SAAE to
provide a basis for an audit
opinion on these
standalone financial
statements.
BASIS FOR MODIFICATION Basis for Qualified Opinion Basis for Adverse Opinion Basis for Disclaimer of
PARAGRAPH Opinion
BASIS FOR MODIFIES We believe that the audit We believe that the audit
OPINION PARAGRAHPH evidence we have evidence we have
LAST LINE obtained is sufficient and obtained is sufficient and
appropriate to provide a appropriate to provide a
basis for out qualified audit basis for our adverse audit
opinion opinion.
Q. X Ltd has significant operations in foreign country. Due to civil & political unrest in that country physical
verification of inventory & fixed assets could not carried out & you are not in position to obtain audit evidence
through other audit procedures also. Value of fixed assets & Inventory forms part of 80% of asset value of company.
As auditor of X Ltd what factors do you consider in your reporting responsibility. Also draft suitable report to be
incorporated in main audit report (Reporting under CARO need not be considered).
Ans.
As per SA-501, if attendance at physical inventory counting is impracticable, auditor shall perform alternative audit
procedures to obtain SAAE regarding existence & condition of inventory.
If it is not possible to do so, auditor shall modify opinion in auditor’s report as per SA 705.
In given case, auditor has to modify his report by issuing a DISCLAIMER of opinion because auditor is unable to obtain
SAAE that FS are free from MM & matter is MATERIAL AND PERVASIVE.
Hence Following factors are to be considered in auditor’s reporting responsibility: -
• Inventories and the Fixed Assets are material and PERVASIVE to FS
• Auditor unable to attend physical verification of inventories and fixed assets In other words, physical verification
becomes impracticable due to civil and political unrest in foreign country, where inventory & fixed assets are

located, posing threats to safety of auditor.

• Auditor failed to obtain SAAE even by alternative audit procedures.
= Draft of suitable report to be incorporated in main audit report: -
AUDITORS RESPONSIBILITY PARA

Our responsibility is to express opinion on these financial statements based on our audit as per Standards on
Auditing 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 an audit opinion.
Basis for Disclaimer of Opinion PARA

We were appointed as auditors of the Company and we report that we could not observe counting of physical
inventories and physical verification of fixed assets due to civil and political unrest in foreign country where the
company has significant operation. We were also unable to satisfy ourselves by alternative means concerning the
inventory quantities and fixed assets of company held at March 31st 20XX, which are stated in B/S at Rs. XXX & Rs.
XXX respectively.
Disclaimer of Opinion
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 audit opinion. Accordingly, we do not express Opinion on FS.
Report on Other Legal and Regulatory Requirements

As required by section 143 (3) of Companies 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.
SA 706 (REVISED)
EMPHASIS OF MATTER PARAGRAPHS AND OTHER MATTER PARAGRAPHS IN
THE INDEPENDENT AUDITOR’S REPORT
OBJECTIVE
The objective of the auditor, having formed an opinion on the financial statements, is to draw users attention, when
in the auditors judgement it is necessary to do so, by way of clear additional communication in the auditor’s report,
to:
a) A Matter, although appropriately presented or disclosed in the financial statements, that is of such importance
that it is fundamental to users understanding of the financial statements; or
b) As appropriate, any other matter that is relevant to users understanding of the audit, the auditor’s responsibilities
or the auditor’s report.
EMPHASIS OF MATTER PARAGRAPHS IN THE AUDITOR’S REPORT

The auditor shall include an Emphasis of Matter paragraph in the auditor’s report provided:
a) The auditor would not be required to modify the opinion in accordance with SA 705 (Revised) as a result of the
matter; and
b) When SA 701 applies, the matter has not been determined to be a key audit matter to be communicated in the
auditor’s report.
When the auditor includes an Emphasis of Matter paragraph in the auditor’s report, the auditor shall:

a) Include the paragraph within a separate section of the auditor’s report with an appropriate heading that includes
the term “Emphasis of matter”;
b) Include in the paragraph a clear reference to the matter being emphasized and to where relevant disclosures that
fully describe the matter can be found in the financial statements. The paragraph shall refer only to the information
presented or disclosed in the financial statements; and
c) Indicate that the auditor’s opinion is not modified in respect of the matter emphasized.
EXAMPLES OF EMPHASIS OF MATTER

 When a financial reporting framework prescribed by law or regulation would be unacceptable but for the fact that
it is prescribed by law or regulation. (SA 210)
 To alert users that the financial statements are prepared in accordance with a special purpose framework (SA 800)
 When facts become known to the auditor after the date of the auditor’s report and the auditor provides a new or
amended auditor’s report (SA 560)
 An uncertainty relating to the future outcome of exceptional litigation or regulatory action.
 A significant subsequent event that occurs between the date of the financial statements and the date of the
auditor’s report.
 Early application (where permitted) of a new accounting standard that has a material effect on the financial
statements.
 A major catastrophe that has had, or continues to have, a significant effect on the entity’s financial position.
OTHER MATTER PARAGRAPHS IN THE AUDITOR’S REPORT

The auditor shall include an Other matter paragraph in the auditor’s report, provided:
a) This is not prohibited by law or regulation; and
b) When SA 701 applies, the matter has not been determined to be a key audit matter to be communicated in the
auditor’s report.
When the auditor includes an Other Matter paragraph in the auditor’s report, the auditor shall include the paragraph
within a separate section with the heading “Other Matter”, or other appropriate heading.
EXAMPLES OF OTHER MATTER

 Reason why auditor is unable to resign from the engagement even though there is a limitation on scope
 Law, regulation or generally accepted practice in a jurisdiction may require or permit the auditor to elaborate on
matters that provide further explanation.
 Auditor has been asked to perform and report on additional specified procedures, or to express an opinion on
specific matters.
 Another set of financial statements has been prepared by the same entity In accordance with another general
purpose framework and that the auditor has issued a report on those financial statements.
 Auditor’s report is intended solely for the intended users, and should not be distributed to or used by other parties.
 Law or regulation may require the auditor to communicate about planning and scoping matters in the auditor’s
report, or the auditor may consider it necessary to communicate about such matters in an Other matter paragraph
(SA 260).
COMMUNICATION WITH TCWG

If the auditor expects to include an Emphasis of Matter or an Other Matter paragraph in the auditor’s report, the
auditor shall communicate with TCWG regarding this expectation and the wording of this paragraph.

PLACEMENT OF EMPHASIS OF MATTER PARAGRAPHS AND OTHER MATTER PARAGRAPHS IN THE

AUDITOR’S REPORT
The placement of an Emphasis of Matter paragraph or Other Matter paragraph in the auditor’s report depends on the
nature of the information to be communicated, and the auditor’s judgement as to the relative significance of such
information to intended users compared to other elements required to be reported in accordance with SA 700
(Revised)
Q. Beta Limited, is a company registered with SEBI, having five subsidiaries. MIs XYZ, Chartered Accountants, have
been appointed as Statutory Auditors for the audit of the Consolidated Financial. Statements for the year ending
March 31, 2016. Out of five subsidiaries, the audit of one subsidiary was conducted by another auditor, M/s B & Co.
CAs. "Opinion" Para of audit report furnished by M/s X & Co. CAs is given below: -
Opinion: - In our opinion and to best of our info & according to explanations given to us Consolidated FS give True and
Fair view, except FS of 1 subsidiary whose accounts were audited by M/s B & Co. CAs & about same we are not in a
position to express our opinion as audit has not been performed by us: -
(i) In case of consolidated Balance Sheet, of state of affairs of the Company as at March 31, 2016. (ii)In case of
consolidated Profit & Loss Account, of P/L for year ended on that date.
Do you find any deficiencies in Opinion Para? If yes you are required to give your suggestions & Redraft it.
= Yes, the Opinion Para contains the following deficiencies: -
• Out of 5 subsidiaries, audit of 1 subsidiary was conducted by another auditor, M/s B & Co. which would be reported
in OM Para.
• After Point no. (i ) & (ii) in Opinion Para, it needs to appear Point no, (iii) as under: -
“In case of consolidated Cash Flow Statement, of cash flows for year ended on that date.”
= The Redrafted Opinion Para & OM Para are given hereunder as per SA 706: -
Opinion Para
In our opinion & to best of our info & according to explanations given to us & based on consideration of reports of
other auditors on FS of subsidiaries as noted below, consolidated financial statements give True & Fair view in
conformity with accounting principles general y accepted in India: -
(i) In case of consolidated Balance Sheet, of State of affairs of Company as at March 31, 2016.
(ii) In case of consolidated Profit & Loss Account, of P/L for Year ended on that date.
(iii) In case of consolidated Cash Flow Statement, of Cash flows for year Ended on that date.
Other Matter Para

We did not audit FS of 1 subsidiary, whose FS reflect total assets (net) of Rs. XXX as at March 31, 2016, total revenues
of Rs. XXX & net cash outflows amounting to Rs. XXX for year then ended. These FS have been audited by other auditors
M/s B & Co. CAs whose reports have been furnished to us by Management & our opinion is based solely on reports of
other auditors. Our opinion is not qualified in respect of this matter.
SA 710 (REVISED)
COMPARATIVE INFORMATION– CORRESPONDING FIGURES AND COMPARATIVE
FINANCIAL STATEMENTS
• The objectives of the auditor are to obtain sufficient appropriate audit evidence about whether the comparative
information included in the financial statements has been presented, in all material respects, in accordance with
the requirements for comparative information in the applicable financial reporting framework; and to report in
accordance with the auditor’s reporting responsibilities

• The frameworks and methods of presentation that are referred to in this SA are corresponding figures where
amounts and other disclosures for preceding period are included as an integral part of current period financial
statements and Comparative Financial Statements where amounts and other disclosures for preceding period are
included for comparison with financial statements of current period
• Auditor should obtain sufficient appropriate audit evidence that the comparative information meet the
requirements of relevant financial reporting framework. This involves verifying whether accounting policies used
for corresponding figures are consistent with those of current period and whether corresponding figures agree
with amounts and other disclosures presented in prior period
• If the financial statements of the prior period were audited by a predecessor auditor and the auditor is permitted
by law or regulation to refer to the predecessor auditor’s report on the corresponding figures and decides to do
so, the auditor shall state in an Other Matter paragraph in the auditor’s report that the financial statements of the
prior period were audited by the predecessor auditor; the type of opinion expressed by the predecessor auditor
and, if the opinion was modified, the reasons therefore; and the date of that report. When auditor’s report on
prior period, as previously issued, included a qualified opinion or a disclaimer of opinion or an adverse opinion and
concerned matter is not resolved, auditor’s report should also be modified regarding corresponding figures
• When prior period financial statements are not audited, incoming auditor should state the fact in auditor’s report
in an Other Matter paragraph
• When comparative financial statements are presented, the auditor’s opinion shall refer to each period for which
financial statements are presented and on which an audit opinion is expressed.
Q. What is objective of the auditor under this SA?
Ans. According to SA 710 The objectives of the auditor are:
(a) To obtain sufficient appropriate audit evidence about whether the comparative information included in the
financial statements has been presented, in all material respects, in accordance with the requirements for comparative
information in the applicable financial reporting framework; and
(b) To report in accordance with the auditor’s reporting responsibilities.
Q. What are the requirements of Audit Reporting under this SA?
Ans. In relation to Corresponding Figures following may be the different situation:-
Situation – 1 Current years report is unqualified and previous auditor’s report was also unqualified:- When
corresponding figures are presented, the auditor’s opinion usually shall not refer to the corresponding figures.
Unqualified opinion as such implies auditors satisfaction related to corresponding figures.
Situation – 2: If the auditor’s report on the prior period, as previously issued, included a qualified opinion, a
disclaimer of opinion, or an adverse opinion and the matter which gave rise to the modification is resolved:- the
auditor shall modify the auditor’s opinion on the current period’s financial statements.
Situation – 3: If the auditor obtains audit evidence that a material misstatement exists in the prior period financial
statements on which an unmodified opinion has been previously issued:- the auditor shall verify whether the
misstatement has been dealt with as required under the applicable financial reporting framework and, if that is not
the case, the auditor shall express a qualified opinion or an adverse opinion in the auditor’s report on the current
period financial statements, modified with respect to the corresponding figures included therein.
Situation – 4: If the prior financial statements were not audited:- the auditor shall state in an Other Matter paragraph
in the auditor’s report that the corresponding figures are unaudited. Such a statement does not, however, relieve the
auditor of the requirement to obtain sufficient appropriate audit evidence that the opening balances do not contain
misstatements that materially affect the current period’s financial statements.
As in Indian FRF no corresponding FS are there we are not discussing the same.

P a g e | 321
AUDIT REPORTING
CORRESPONDING COMPARATIVE FINANCIAL
FIGURES STATEMENT
Prior period Prior period

Prior period Opinion Prior period
report misstatement
audited by Prior period differs as audited by Prior period
modified – – but
predecessor unaudited compared to predecessor unaudited
matter not unmodified
auditor prior period auditor
resolved opinion
Modify Other Matter Other Matter
Other Matter Other Matter Other Matter
Modify Current Paragraph Paragraph
Paragraph Paragraph Paragraph
Current opinion w.r.t. Figures are Reasons for
• Predecessor • Predecessor Figures are
Report Corresponding unaudited difference of
Auditor Auditor unaudited
Figures (Also follow opinion
• Type of • Type of
Opinion SA 510) Opinion
• Date of • Date of
Report Report
Prof. Khushboo Girish Sanghavi

If misstatement identified, communicate to
management and request that predecessor auditor be
informed.
(SA 560 to be followed by him)
SA 720 (Revised)
THE AUDITOR’S RESPONSIBILITY IN RELATION TO OTHER INFORMATION IN
DOCUMENTS CONTAINING AUDITED FINANCIAL STATEMENTS
PURPOSE
Auditor is not required to express an opinion on other information in documents containing audited Financial
Statements (Eg. Annual Report), however, auditor reads the other information because credibility of Financial
Statements may be undetermined by Material inconsistencies between the audited financial statements and other
information.
AUDITOR’S PROCEDURES
Make appropriate arrangements with Management & TCWG to obtain the other information prior to the date of
auditor report & read the information so obtained. If information is not available prior to date of auditors report,
read the other information as soon as practicable.
MATERIAL INCONSISTENCIES IDENTIFIED IN OTHER INFORMATION:
1. Prior to the date of auditor’s report:

a. Revision of audited Financial Statements becomes necessary but Management Refuses,
 Auditor shall modify the opinion in accordance with relevant SA.
b. Revision of information is necessary but Management Refuses,
 Auditor shall communicate this matter to TCWG; and
 Include in the auditor’s report describing the inconsistencies; or
 Withdraw from the engagement.
2. Subsequent to the date of auditor’s report

a. Revision of audited financial statements becomes necessary
 The auditor shall follow the relevant requirements of SA 560
b. Revision of other information is necessary but management refuses
 Auditor shall notify his concern to TCWG and take the appropriate action.
MATERIAL MISSTATEMENT OF FACTS FOUND OUT

Misstatement of Facts: Other information that is unrelated to matters appearing in audited Financial Statements
that is correctly stated.
Auditor shall request management to consult with a qualified third party and he shall consider the advice received.
If he concludes existence of material misstatement of facts, but management refuses to correct

OTHER INFORMATION SECTION

Statement that management is responsible for other information.
Identification of other information obtained prior to the date of auditor’s report.
In case of listed entity, identification of other information expected to be obtained after date of auditor’s report.
A statement that auditor’s opinion on the financial statements does not cover the other information and
accordingly auditor does not express any opinion or conclusion

SA 800
AUDITS OF FINANCIAL STATEMENTS PREPARED IN ACCORDANCE WITH SPECIAL
PURPOSE FRAMEWORKS
AUDITS OF FINANCIAL STATEMENTS PREPARED IN ACCORDANCE WITH SPECIAL PURPOSE
FRAMEWORKS
According to SA-800 A financial reporting framework designed to meet the financial information needs to specific
users. The financial reporting framework may be a fair presentation framework or a compliance Framework. For
example if an entity is presenting the cash receipts and disbursements basis of accounting for cash flow information
that an entity may be requested to prepare for creditors; or another example may be? The financial reporting
provisions established by a regulator to meet the requirements of that regulator; suppose for the purpose of
sanctioning a grant.
Consideration are required to conduct audit of such special purpose financial statements
In an audit of special purpose financial statements, the auditor shall obtain an understanding of:
(a) The purpose for which the financial statements are prepared;
(b) The intended users; and
(c) The steps taken by management to determine that the applicable financial reporting framework is acceptable
in the circumstances.
SA 700 (Revised) deals with the form and contents of the auditor’s report. In the case of an auditor’s report on special
purpose financial statements:
(a) The auditor’s report shall also describe the purpose for which the financial statements are prepared and, if
necessary, the intended users, or refer to a note in the special purpose financial statements that contains that
information; and
(b) If management has a choice of financial reporting frameworks in the preparation of such financial statements,
the explanation of management’s responsibility for the financial statements shall also make reference to its
responsibility for determining that the applicable reporting framework is acceptable in the circumstances.
Single financial statement means a part of complete set of financial statement (for example, a cash flow statement)
and special elements (for example, cash and bank balances). Sometimes management requires an audit of the same
for example The financial statement has been prepared by management of the entity in accordance with the cash
receipts and disbursements basis of accounting to respond to a request for cash flow information received from a
creditor. Now auditor is required to audit the same. This kind of requirement of audit may found in special items like
audit of Accounts receivable, allowance for doubtful accounts receivable, inventory, the liability for accrued benefits
of a private pension plan, the recorded value of identified intangible assets, or the liability for “incurred but not
reported” claims in an insurance portfolio, including related notes.
Considerations are required to conduct such an audit

Auditor shall follow all SAs applicable to circumstances and should report accordingly. How to and express opinion and
how to emphasize the matter is illustrated below.
Opinion
In our opinion, the financial statement presents a true and fair view of the cash receipts and disbursements of ABC
Company Ltd. For the year ended March 31, 20X1 in accordance with the cash receipts and disbursements basis of
accounting described in Note X.
Basis of Accounting
Without modifying our opinion, we draw attention to Note X to the financial statement, which describes the basis of
accounting. The financial statement is prepared to provide information to XYZ Creditor. As a result, the statement may
not be suitable for another purpose.

SA 805 - SPECIAL CONSIDERATIONS – AUDIT OF SINGLE PURPOSE FINANCIAL

STATEMENTS AND SPECIFIC ELEMENTS, ACCOUNTS OR ITEMS OF A FINANCIAL
STATEMENT
According to SA 806 Historical financial information that is derived from financial statements but that contains less
detail than the financial statements, while still providing a structural representation consistent with that provided by
the financial statements of the entity’s economic resources or obligations at a point in time or the changes therein for
a period of time 3. Different jurisdictions may use different terminology to describe such historical financial
information.
Auditors duty
The auditor shall, ordinarily, accept an engagement to report on summary financial statements in accordance with this
SA only when the auditor has been engaged to conduct an audit in accordance with SAs of the financial statements
from which the summary financial statements are derived. Before accepting an engagement to report on summary
financial statements, the auditor shall:
(a) Determine whether the applied criteria are acceptable;
(b) Obtain the agreement of management that it acknowledges and understands its responsibility:
i. For the preparation of the summary financial statements in accordance with the
applied criteria;
ii. To make the audited financial statements available to the intended users of the summary financial statements
without undue difficulty and
iii. To include the auditor’s report on the summary financial statements in any document that contains the
summary financial statements and that indicates that the auditor has reported on them.
PROCEDURE FOR THE AUDIT

The auditor shall perform the following procedures, and any other procedures that the auditor may consider necessary,
as the basis for the auditor’s opinion on the summary financial statements:
(a) Evaluate whether the summary financial statements adequately disclose their summarized nature and identify
the audited financial statements.
(b) When summary financial statements are not accompanied by the audited financial statements, evaluate
whether they describe clearly:
(i) From whom or where the audited financial statements are available; or
(ii) The law or regulation that specifies that the audited financial statements need not be made available
to the intended of the summary financial statements and establishes the criteria for the preparation
of the summary financial statements.
(c) Evaluate whether the summary financial statements adequately disclose the applied criteria.
(d) Compare the summary financial statements with the related information in the audited financial statements
to determine whether the summary financial statements agree with or can be re-calculated from the related
information in the audited financial statements.
(e) Evaluate whether the summary financial statements are prepared in accordance with the applied criteria.
(f) Evaluate, in view of the purpose of the summary financial statements, whether the summary financial
statements contain the information necessary, and are at an appropriate level of aggregation, so as to be
misleading in the circumstances.
(g) Evaluate whether the audited financial statements are available to the intended users of the summary financial
statements without undue difficulty, unless law or regulation provides that they need not be made available
and establishes the criteria for the preparation of the summary financial statements.
SA 810
ENGAGEMENTS TO REPORT ON SUMMARY FINANCIAL STATEMENTS
DEFINITIONS
Applied Criteria: The criteria applied by management in the preparation of the summary financial statements.

Summary Financial Statements: Historical financial information that is derived from financial statements but that
contains less detail than the financial statements, while still providing a structured representation consistent with that
provided by the financial statements of the entity’s economic resources or obligations at a point of time or the changes
therein for a period of time. Different jurisdiction may use different terminology to describe such historical financial
information.
SCOPE OF THIS SA
This SA deals with the auditor’s responsibilities when undertaking an engagement to report on summary financial
statements derived from financial statements audited in accordance with SAs by that same auditor.
OBJECTIVES OF THE AUDITOR

a) Determine whether it is appropriate to accept the engagement to report on summary financial statements;
b) Form an opinion on the summary financial statements based on an evaluation of the conclusions drawn from the
evidence obtained; and
c) Express clearly that opinion through a written report that also describe the basis for that opinion.
ENGAGEMENT ACCEPTANCE
The auditor shall, ordinarily, accept an engagement to report on summary financial statements in accordance with this
SA only when the auditor has been engaged to conduct an audit in accordance with SAs of the financial statements
from which the summary financial statements are derived.
Before accepting an engagement to report on summary financial statements, the auditor shall:
a) Determine whether the applied criteria are acceptable;
b) Obtain the agreement of management that it acknowledges and understands its responsibility:
i. For the preparation of the summary financial statements in accordance with the applied criteria;
ii. To make the audited financial statements available to the intended users of the summary financial
statements without undue difficulty (or, if law or regulation provides that the audited financial statements
need not be made available to the intended users of the summary financial statements and established
the criteria for the preparation of the summary financial statements and establishes the criteria for the
preparation of the summary financial statements) and;
iii. To include the auditor’s report on the summary financial statements in any document that contains the
summary financial statements and that indicates that the auditor has reported on them.
c) Agree with management the form of opinion to be expressed on the summary financial statements.
NATURE OF PROCEDURES
a) Evaluate whether the summary financial statements adequately disclose their summarised nature and identify the
audited financial statements.
b) When summary financial statements are not accompanied by the audited financial statements, evaluate whether
they describe clearly:
i. From whom or where the audited financial statements are available; or
ii. The law or regulation that specifies that the audited financial statements need not be made available to
the intended users of summary financial statements and establishes the criteria for the preparation of the
summary financial statements.
c) Evaluate whether the summary financial statements adequately disclose the applied criteria.
d) Compare the summary financial statements with the related information in the audited financial statements to
determine whether the summary financial statements agree with or can be re-calculated from the related
information in the audited financial statements.
e) Evaluate whether the summary financial statements are prepared in accordance with the applied criteria.
f) Evaluate, in view of the purpose of the summary financial statements, whether the summary financial statements
contain the information necessary, and are at an appropriate level odd aggregation, so as not to be misleading in
the circumstances.

g) Evaluate whether the audited financial statements are available to the intended users of the summary financial
statements without undue difficulty, unless law or regulation provides that they need not be made available and
establishes the criteria for the preparation of the summary financial statements.
FORM OF OPINION
When the auditor has concluded that an unmodified opinion on the summary financial statements is appropriate, the
auditor’s opinion shall, unless otherwise required by law or regulation, use one of the following phrases:
a) The summary financial statements are consistent, in all material respects, with the audited financial statements,
in accordance with [the applied criteria]; or
b) The summary financial statements are a fair summary of the audited financial statements, in accordance with [the
applied criteria]
AUDITOR’S REPORT ON SUMMARY FINANCIAL STATEMENTS

The auditor’s report on summary financial statements shall include the following elements:
a) A title clearly indicating it as the report of an independent auditor.
b) An addressee.
c) An introductory paragraph that:
i. Identifies the summary financial statements on which the auditor is reporting, including the title of each
statement included in the summary financial statements;
ii. Identifies the audited financial statements;
iii. Refers to the auditor’s report on the audited financial statements, the date of that report, the fact that an
unmodified opinion is expressed on the audited financial statements;
iv. If the date of the auditor’s report on the summary financial statements is later than the date of the
auditor’s report on the audited financial statements, states that the summary financial statements and the
audited financial statements do not reflect the effects of events that occurred subsequent to the date of
the auditor’s report on the audited financial statements; and
v. A statement indicating that the summary financial statements do not contain all the disclosure required
by the financial reporting framework applied in the preparation of the audited financial statements, and
that reading the summary financial statements is not a substitute for reading the audited financial
statements.
vi. A description of management’s responsibility for the summary financial statements, explaining that
management is responsible for the preparation of the summary financial statements in accordance with
the applied criteria.
vii. A statement that the auditor is responsible for expressing an opinion on the summary financial statements
based on the procedures required by SA.
viii. A paragraph clearly expressing an opinion.
ix. The auditor’s signature along with the firm registration number, wherever applicable, and the membership
number assigned by the ICAI.
x. The date of the auditor’s report.
xi. The place of signature.
INTRODUCTORY PARAGRAPH ILLUSTRATION

The accompanying summary financial statements, which comprise the summary balance sheet as at March 31, 20XX,
the summary statements of profit & Loss, and summary cash flow statement for the year then ended, and related
notes, are derived from the audited financial statements of ABC Company Ltd. For the year ended March 31, 20XX. We
expressed an unmodified audit opinion on those financial statements in our report dated May 15, 20XX. Those financial
statements, and the summary financial statements, do not reflect the effects of events that occurred subsequent to
the date of our report on those financial statements. The summary financial statements do not contain all disclosures
required by the Accounting Standards referred to in section 133 of the Companies Act, 2013 [applied in the preparation

of the audited financial statements of ABC Company Ltd] Reading the summary financial statements, therefore, is not
a substitute for reading the audited financial statements of ABC Company Ltd.
MODIFICATIONS TO THE OPINION, EMPHASIS OF MATTER PARAGRAPH OR OTHER MATTER

PARAGRAPH IN THE AUDITOR’S REPORT ON THE AUDITED FINANCIAL STATEMENTS
When the auditor’s report on the audited financial statements contains a qualified opinion, and Emphasis on Matter
Paragraph, or an Other Matter paragraph, but the auditor is satisfied that the summary financial statements are
consistent, in all material respects, with or are a fair summary of the audited financial statements, in accordance with
the applied criteria, the auditor’s report on the summary financial statements shall, in addition to the elements
discussed above:
a) State that the auditor’s report on the audited financial statements contains a qualified opinion, an Emphasis of
Matter paragraph, or an Other Matter Paragraph; and
b) Describe
i. The basis for the qualified opinion on the audited financial statements, and that qualified opinion; or the
Emphasis of Matter of the Other Matter Paragraph in the auditor’s report on the audited financial
statements; and
ii. The effect thereof on the summary financial statements; and
When the auditor’s report on the audited financial statements contains an adverse opinion or a disclaimer of opinion,
the auditor’s report on the summary financial statements shall, in addition to the elements discussed above:
a) State that the auditor’s report on the audited financial statements contains an adverse opinion or disclaimer of
opinion;
b) Describe the basis for that adverse opinion or disclaimer of opinion; and
c) State that, as a result of the adverse opinion or disclaimer of opinion, it is inappropriate to express an opinion on
the summary financial statements.
MODIFIED OPINION ON THE SUMMARY FINANCIAL STATEMENTS

If the summary financial statements are not consistent, in all material respects, with or are not a fair summary of the
audited financial statements, in accordance with the applied criteria, and management does not agree to make the
necessary changes, the auditor shall express an adverse opinion on the summary financial statements.
STANDARD ON QUALITY CONTROL (SQC)
SQC 1
QUALITY CONTROL FOR FIRMS THAT PERFORM AUDITS AND REVIEWS OF
HISTORICAL FINANCIAL INFORMATION AND OTHER ASSURANCE AND RELATED
SERVICE ENGAGEMENTS
LEADERSHIP RESPONSIBILITIES FOR QUALITY CONTROL

a) Promote internal culture w.r.t.:
 Essential of quality in engagements.
 Compliance with professional standards, regulatory legal requirements.
 Issue of reports appropriate in circumstances.
b) Require CEO / Managing Partner to assume ultimate responsibility for Quality Control
c) Recognize & reward high quality work.
ETHICAL REQUIREMENTS

Establish policies & procedures to reasonable assure that Firm & Personnel comply with relevant ethical requirements
of
 Integrity.
 Objectivity.
 Professional Competence & Due Care.
 Confidentiality.
 Professional Behaviour.
INDEPENDENCE
Policies & Procedures should enable:
 Communication of independence requirements to personnel & others
 Identification of circumstances threatening Independence
 Take appropriate action for elimination of threats / withdrawal from engagement.
 Resolution of breaches of independence
Maintenance of Independence of Personnel

 Engagement partners to provide firm with relevant information about client.
 Prompt notification of threats to independence.
 Accumulation & Communication of relevant information to appropriate personnel.
Other Points:
 Firm should obtain Annual Written Confirmation as to compliance with Independence requirements.
 Create Policies to reduce Familiarity threat e.g. rotation of engagement partner atleast every seven years in
case of audit of listed entities.
CLIENT ACCEPTANCE / CONTINUANCE

Establish policies / procedures to reasonably assure that clients accepted / continued only where:
 Client integrity has been considered.
 Firm is competent to perform engagement w.r.t. capability, time & resources.
 Firm can comply with ethical requirements.
If any issue raised, document how it can be resolved.
Establish Policies w.r.t. withdrawal from engagement and communication requirements, if circumstances warrant.
HUMAN RESOURCES
Establish policies / procedures to reasonable assure that:
 Firm has sufficient personnel with capabilities, competence & commitment to ethical principles; &
 Responsibility of engagement partner clearly defined & communicated to him / her.
ENGAGEMENT PERFORMANCE
Establish policies / procedures to reasonably assure w.r.t.
 Compliance with professional standards
 Compliance with laws / regulations
 Engagement partner issues reports appropriate in the circumstances
Important aspects of engagement performance

 Supervision
 Review
 Consultation

 Differences of opinion
 Engagement Quality Control review
 Engagement documentation.
MONITORING
Establish policies / procedures to reasonably assure that Quality Control Procedures / Policies are::
 Relevant
 Adequate
 Operating Effectively
 Complies with in practice
It also includes on going consideration & evaluation of Quality Control system, periodic inspection of completed
Assignments
STANDARDS ON REVIEW ENGAGEMENTS (SREs)
SRE 2400
ENGAGEMENTS TO REVIEW FINANCIAL STATEMENTS
 To establish standards and provide guidance on the practitioner’s professional responsibilities when a practitioner,
who is not the auditor of an entity, undertakes an engagement to review financial statements and on the form and
content of the report that the practitioner issues in connection with such a review
 The objective of a review of financial statements is to enable a practitioner to state whether, on the basis of
procedures which do not provide all the evidence that would be required in an audit, anything has come to the
practitioner’s attention that causes the practitioner to believe that the financial statements are not prepared, in
all material respects, in accordance with the applicable financial reporting framework (negative assurance)
 The practitioner should comply with the Code of Ethics issued by the ICAI
 The procedures required to conduct a review of financial statements should be determined by the practitioner
having regard to the requirements of this SRE, relevant professional bodies, legislation, regulation and, where
appropriate, the terms of the review engagement and reporting requirements
 A review engagement provides a moderate level of assurance that the information subject to review is free of
material misstatement; this is expressed in the form of negative assurance. For the purpose of expressing negative
assurance in the review report, the practitioner should obtain sufficient appropriate evidence primarily through
inquiry and analytical procedures to be able to draw conclusions
 The practitioner and the client should agree on the terms of the engagement • When using work performed by
another practitioner or an expert, the practitioner should be satisfied that such work is adequate for the purposes
of the review
 The practitioner should document matters which are important in providing evidence to support the review report,
and evidence that the review was carried out in accordance with this SRE
 The practitioner should apply judgment in determining the specific nature, timing and extent of review procedures.
The practitioner should apply the same materiality considerations as would be applied if an audit opinion on the
financial statements were being given
 Based on the work performed, the practitioner should assess whether any information obtained during the review
indicates that the financial statements do not give a true and fair view in accordance with the applicable financial
reporting framework

SRE 2410
REVIEW OF INTERIM FINANCIAL INFORMATION PERFORMED BY THE
INDEPENDENT AUDITOR OF THE ENTITY
• To establish standards and provide guidance on the auditor’s professional responsibilities when the auditor
undertakes an engagement to review interim financial information of an audit client, and on the form and content
of the report
• The auditor should comply with the ethical requirements relevant to the audit of the annual financial statements
of the entity. The auditor should implement quality control procedures that are applicable to the individual
engagement. The auditor should plan and perform the review with an attitude of professional skepticism
• The objective is to enable the auditor to express a conclusion whether, on the basis of the review, anything has
come to the auditor’s attention that causes the auditor to believe that the interim financial information is not
prepared, in all material respects, in accordance with an applicable financial reporting framework
• The auditor and the client should agree on the terms of the engagement
• The auditor should have an understanding of the entity and its environment, including its internal control, as it
relates to the preparation of both annual and interim financial information, sufficient to plan and conduct the
engagement
• The auditor should make inquiries, primarily of persons responsible for financial and accounting matters, and
perform analytical and other review procedures to enable the auditor to conclude whether, on the basis of the
procedures performed, anything has come to the auditor’s attention that causes the auditor to believe that the
interim financial information is not prepared, in all material respects, in accordance with the applicable financial
reporting framework
• The auditor should obtain evidence that the interim financial information agrees or reconciles with the underlying
accounting records and should inquire whether management has identified all events up to the date of the review
report that may require adjustment to or disclosure in the interim financial information
• The auditor should inquire whether management has changed its assessment of the entity’s ability to continue as
a going concern. If adequate disclosure is made in the interim financial information, the auditor should add an
emphasis of matter paragraph to the review report to highlight a material uncertainty relating to an event or
condition that may cast significant doubt on the entity’s ability to continue as a going concern. If a material
uncertainty that casts significant doubt about the entity’s ability to continue as a going concern is not adequately
disclosed in the interim financial information, the auditor should express a qualified or adverse conclusion, as
appropriate. The report should include specific reference to the fact that there is such a material uncertainty
• When a matter comes to the auditor’s attention that leads the auditor to question whether a material adjustment
should be made, the auditor should make additional inquiries or perform other procedures to enable the auditor
to express a conclusion in the review report
• The auditor should evaluate, individually and in the aggregate, whether uncorrected misstatements that have
come to the auditor’s attention are material to the interim financial information
• The auditor should obtain written representations from management
• The auditor should read the other information that accompanies the interim financial information to consider
whether any such information is materially inconsistent with the interim financial information. If a matter comes
to the auditor’s attention that causes the auditor to believe that the other information appears to include a
material misstatement of fact, the auditor should discuss the matter with the entity’s management
• When, as a result of performing the review of interim financial information, a matter comes to the auditor’s
attention that causes the auditor to believe that it is necessary to make a material adjustment to the interim
financial information, the auditor should communicate this matter as soon as practicable to the appropriate level
of management. When, in the auditor’s judgment, management does not respond appropriately within a
reasonable period of time, the auditor should inform those charged with governance
• The auditor should issue a written report that contains the nature, extent and results of the review of interim
financial information

• The auditor should express a qualified or adverse conclusion when a matter has come to the auditor’s attention
that causes the auditor to believe that a material adjustment should be made to the interim financial information
for it to be prepared, in all material respects, in accordance with the applicable financial reporting framework
• When the auditor is unable to complete the review, the auditor should communicate, in writing, to the appropriate
level of management and to those charged with governance the reason why the review cannot be completed, and
consider whether it is appropriate to issue a report
• The auditor should consider modifying the review report by adding a paragraph to highlight a significant
uncertainty (other than a going concern problem) that came to the auditor’s attention, the resolution of which is
dependent upon future events and which may affect the interim financial information
• The auditor should prepare review documentation that is sufficient and appropriate to provide a basis for the
auditor’s conclusion and to provide evidence that the review was performed in accordance with this SRE and
applicable legal and regulatory requirements
STANDARDS ON ASSURANCE ENGAGEMENTS (SAE)

Other than Audits or Reviews of Historical Financial Information
SAE 3400
THE EXAMINATION OF PROSPECTIVE FINANCIAL INFORMATION
 In an engagement to examine prospective financial information, auditor should obtain sufficient appropriate
evidence as to whether:
 management’s best–estimate assumptions are not unreasonable and, in the case of hypothetical assumptions
such assumptions are consistent with the purpose of information
 prospective financial information is properly prepared on the basis of assumptions
 prospective financial information is properly presented and all material assumptions are adequately disclosed,
including whether they are best–estimate assumptions or hypothetical assumptions, and
 prospective financial information is prepared on a consistent basis with historical financial statements, using
appropriate accounting principles
 While evidence may be available to support assumptions on which prospective financial information is based, such
evidence is itself generally future–oriented and, therefore, speculative in nature, as distinct from evidence
ordinarily available in examination of historical financial information. Auditor is, therefore, not in a position to
express an opinion as to whether the results shown in prospective financial information will be achieved
Auditor should:
 not accept, or should withdraw from, an engagement when assumptions are clearly unrealistic or when
s/he believes that prospective financial information will be inappropriate for its intended use o obtain a
sufficient level of knowledge of business and become familiar with entity’s process to be able to evaluate
whether all significant assumptions required for preparation of prospective financial information have
been identified o consider extent to which reliance on entity’s historical financial information is justified.
Auditor should consider period of time covered by prospective financial information.
Sufficient appropriate evidence supporting such assumptions would be obtained from internal and
external sources
 would consider whether, when hypothetical assumptions are used, all significant implications of such
assumptions have been taken into consideration
 should obtain written representations from management regarding intended use of prospective financial
information, completeness of significant management assumptions and management’s acceptance of its
responsibility for prospective financial information

 should assess the presentation and disclosures in prospective financial statement are adequate
 should document matters, which are important in providing evidence to support his/ her report on
examination of prospective financial information, and evidence that such examination was carried out in
accordance with this SA
 When auditor believes that presentation and disclosure of prospective financial information is not adequate, the
auditor should express a qualified or adverse opinion in the report on prospective financial information, or
withdraw from engagement as appropriate
 When auditor believes that one or more significant assumptions do not provide a reasonable basis for prospective
financial information prepared on basis of best–estimate assumptions or that one or more significant assumptions
do not provide a reasonable basis for prospective financial information given the hypothetical assumptions, the
auditor should either express an adverse opinion setting out reasons in the report on prospective financial
information, or withdraw from engagement
 When examination is affected by conditions that preclude application of one or more procedures considered
necessary in the circumstances, auditor should either withdraw from engagement or disclaim the opinion and
describe the scope limitation in the report on prospective financial information
SAE 3402
ASSURANCE REPORTS ON CONTROLS AT A SERVICE ORGANIZATION
 This SAE deals with assurance engagements undertaken by a professional accountant in public practice to provide
a report for use by user entities and their auditors on the controls at a service organization that provides a service
to user entities that is likely to be relevant to user entities’ internal control as it relates to financial reporting
 The objectives of the service auditor are: (a) To obtain reasonable assurance about whether, in all material
respects, based on suitable criteria: (i) The service organization’s description of its system fairly presents the
system as designed and implemented throughout the specified period; (ii) The controls related to the control
objectives stated in the service organization’s description of its system were suitably designed throughout the
specified period; (iii) Where included in the scope of the engagement, the controls operated effectively to provide
reasonable assurance that the control objectives stated in the service organization’s description of its system were
achieved throughout the specified period; (b) To report on the matters in (a) above in accordance with the service
auditor’s findings
 The service auditor shall comply with relevant ethical requirements, including those pertaining to independence,
relating to assurance engagements
 Where this SAE requires the service auditor to inquire of, request representations from, communicate with, or
otherwise interact with the service organization, the service auditor shall determine the appropriate person(s)
within the service organization’s management or governance structure with whom to interact
 If the service organization requests a change in the scope of the engagement before the completion of the
engagement, the service auditor shall be satisfied that there is a reasonable justification for the change
 The service auditor shall assess whether the service organization has used suitable criteria in preparing the
description of its system, in evaluating whether controls are suitably designed, and, in the case of a type 2 report,
in evaluating whether controls are operating effectively
 When planning and performing the engagement, the service auditor shall consider materiality with respect to the
fair presentation of the description, the suitability of the design of controls and, in the case of a type 2 report, the
operating effectiveness of controls
 The service auditor shall obtain an understanding of the service organization’s system, including controls that are
included in the scope of engagement
 The service auditor shall obtain and read the service organization’s description of its system, and evaluate whether
those aspects of the description included in the scope of engagement are fairly presented

 The service auditor shall determine which of the controls at the service organization are necessary to achieve the
control objectives stated in the service organization’s description of its system, and shall assess whether those
controls were suitably designed
 If the service organization has an internal audit function, the service auditor shall obtain an understanding of the
nature of the responsibilities of the internal audit function and of the activities performed in order to determine
whether the internal audit function is likely to be relevant to the engagement
 In order for the service auditor to use specific work of the internal auditors, the service auditor shall evaluate and
perform procedures on that work to determine its adequacy for the service auditor’s purposes
 The service auditor shall request the service organization to provide written representations
 The service auditor shall inquire whether the service organization is aware of any events subsequent to the period
covered by the service organization’s description of its system up to the date of the service auditor’s assurance
report that could have a significant effect on the service auditor’s assurance report
 The service auditor’s assurance report shall include the basic elements prescribed by this SAE
SAE 3420
ASSURANCE ENGAGEMENTS TO REPORT ON THE COMPILATION OF PROFORMA
FINANCIAL INFORMATION INCLUDED IN A PROSPECTUS
DEFINITIONS
a) Applicable Criteria: The criteria used by the responsible party when compiling the proforma financial information.
Criteria may be established by an unauthorized or recognized standard setting organization or by law or regulation.
Where established criteria do not exist, they will be developed by the responsible party.
b) Proforma adjustments: In relation to unadjusted financial information, these include:
i. Adjustments to unadjusted financial information that illustrate the impact of a significant event or
transaction as if the event had occurred or the transaction had been undertaken at an earlier date selected
for purposes of the illustration, and
ii. Adjustments to unadjusted financial information that are necessary for the proforma financial information
to be compiled on a basis consistent with the Applicable Financial Reporting Framework of the reporting
entity and its accounting policy under that framework.
c) Proforma Financial Information: Financial information shown together with adjustments to illustrate the impact
of an event or transaction on unadjusted financial information as if the event had occurred or the transaction
had been undertaken at an earlier date selected for purposes of the illustration undertaken.
In this SAE, it is presumed that proforma financial information is presented in columnar format consisting of (a) the
unadjusted financial information; (b) the proforma adjustments; and (c) the resulting proforma column.
OBJECTIVES
a) To obtain reasonable assurance about whether the proforma financial information has been compiled, in all
material respects, by the responsible party on the basis of the applicable criteria; and
b) To report in accordance with the practitioner’s findings.
PURPOSE OF PRO FORMA FINANCIAL INFORMATION INCLUDED IN A PROSPECTUS

The purpose of pro forma financial information included in a prospectus is solely to illustrate the impact of a significant
event or transaction on unadjusted financial information of the entity as if the event had occurred or the transaction
had been undertaken at an earlier date selected for purposes of the illustration. This is achieved by applying proforma
adjustments to the unadjusted financial information. Pro forma financial information does not represent the entity’s
actual financial position, financial performance, or cash flows.
ENGAGEMENT ACCEPTANCE

a) Determine that the practitioner has the capabilities and competence to perform the engagement;
b) On the basis of a preliminary knowledge of the engagement circumstances and discussion with the responsible
party, determine that the applicable criteria are suitable and that it is unlikely that the proforma financial
information will be misleading for the purpose for which it is retained.
c) Evaluate the wording of the opinion prescribed by the relevant law or regulation, if any, to determine that the
practitioner will likely be able to express the opinion so prescribed based on performing the procedures specified
in the SAE;
d) Where the sources from which the unadjusted financial information and any acquire or divestee financial
information have been extracted have been audited or reviewed and a modified audit opinion or review conclusion
had been expressed, or the report contains an Emphasis of Matter paragraph, consider whether or not the relevant
law or regulation permits the use or , or reference in the practitioner’s report to, the modified audit opinion or
review conclusion or the report containing the Emphasis of Matter paragraph with respect to such sources;
e) If the entity’s historical financial information has never been audited or reviewed, consider whether the
practitioner can obtain a sufficient understanding of the entity and its accounting and financial reporting practices
to perform the engagement.
f) If the event or transaction includes an acquisition and the acquiree’s historical financial information has never
been audited or reviewed, consider whether the practitioner can obtain a sufficient understanding of the acquire
and its accounting and financial reporting practices to perform the engagement; and
g) Obtain the agreement of the responsible party that it acknowledges and understands its responsibility for:
i. Adequately disclosing and describing the applicable criteria to the intended users if these are not publicly
available;
ii. Compiling the proforma financial information on the basis of the applicable criteria; and
iii. Providing the practitioner with:
1) Access to all information (including, when needed for purposes of the engagement, information
of the acquire(s) in a business combination), such as records, documentation and other material,
relevant to evaluating whether the proforma financial information has been compiled, in all
material respects, on the basis of the applicable criteria;
2) Additional information that the practitioner may request from the responsible party for the
purpose of the engagement;
3) Access to those within the entity and the entity’s advisors from whom the practitioner determines
it necessary to obtain evidence relating to evaluating whether the proforma financial information
has been compiled, in all material respects, on the basis of the applicable criteria; and
4) When needed for purposes of the engagement, access to appropriate individuals within the
acquire(s) in a business combination.
PLANNING AND PERFORMING THE ENGAGEMENT

Assessing the Suitability of the Applicable Criteria
The practitioner shall assess whether the applicable criteria are suitable, as required by the Framework for Assurance
Engagements, and in particular shall determine that they include, at a minimum, that:
a) The unadjusted financial information be extracted from an appropriate source
b) The proforma adjustments be:
i. Directly attributable to the event or transaction
ii. Factually supportable; and
iii. Consistent with the entity’s Applicable Financial Reporting Framework and its accounting policies under
that framework; and
c) Appropriate presentation be made and disclosures be provided to enable the intended users to understand the
information conveyed.
In addition, the practitioner shall assess whether the applicable criteria are:

a) Consistent, and do not conflict, with relevant law or regulation; and

b) Unlikely to result in proforma financial information that is misleading.
Obtaining an Understanding of How the Responsible Party Has Complies the Pro forma Financial Information and
Other Engagement Circumstances, The practitioner shall obtain an understanding of:
a) The event or transaction in respect of which the pro forma financial information being compiled;
b) How the responsible party has compiled the pro forma financial information
c) The nature of the entity and any acquire or divestee, including:
i. Their operations;
ii. Their assets and liabilities; and
iii. The way they are structured and how they are financed;
d) Relevant industry, legal and regulatory, and other external factors pertaining to the entity and any acquire or
divestee; and
e) The Applicable Financial Reporting Framework and the accounting and financial reporting practices of the entity
and of any acquire or divestee, including their selection and application of accounting policies.
STANDARDS ON RELATED SERVICES (SRS)
SRS 4400
ENGAGEMENTS TO PERFORM AGREED–UPON PROCEDURES REGARDING
FINANCIAL INFORMATION
 In an engagement to perform agreed–upon procedures, auditor is engaged by client to issue a report of factual
findings, based on specified procedures performed on specified matters of a financial statement. As the auditor
simply provides a report of factual findings of agreed–upon procedures, no assurance is expressed by them in the
report. Report is restricted to those parties that have agreed to procedures to be performed since others, unaware
of reasons for the procedures, may misinterpret results
 To comply with Code of Ethics, issued by ICAI
 Where Auditor is not independent, a statement to that effect should be made in the report of factual findings.
Terms of engagement should be well defined so as to avoid any misunderstandings
 To plan the work so that an effective engagement will be performed and documentation of important matters to
be done which provides evidence to support the report of factual findings
 The report describes the purpose and agreed–upon procedures of engagement in sufficient detail to enable the
reader to understand the nature and extent of work performed. The report should also clearly mention that no
audit or review has been performed
SRS 4410
ENGAGEMENTS TO COMPILE FINANCIAL INFORMATION
 In such types of engagements, accountant uses accounting expertise as against auditing expertise to collect,
classify and summarise financial information
 The accountant should comply with the "Code of Ethics", issued by ICAI. However, where accountant is not
independent, a statement to that effect should be made in the accountant’s report. It should be ensured that there

is a clear understanding between the client and accountant regarding terms of engagement by means of an
engagement letter or such other suitable form of contract
 To obtain an acknowledgement from management of its responsibility for appropriate preparation and
presentation of financial statements or other information and of its approval of such information to be compiled
 Accountant should also obtain an acknowledgement from management of its responsibility for accuracy and
completeness of underlying accounting data and complete disclosure of all material and relevant information
 To plan the work so that an effective engagement will be performed. Accountant should obtain a general
knowledge of business and operations of the entity and should be familiar with accounting principles. Accountant
should request management representation letter covering significant information or explanations given orally on
which they consider representations are required
 There are few special considerations which the accountant has to take care of i.e. s/he should ensure that financial
statements or other financial information compiled, comply with requirements of identified financial reporting
framework & where there is no specific financial reporting framework, client may specify that accounts should be
compiled on, for example, based on requirements of Income Tax Act. If any accounting standard is not complied
with, the fact should be disclosed in the notes to accounts
If accountant becomes aware of any material misstatement, s/he must report this to management or must withdraw
from engagement if management doesn’t act. Financial information compiled should be approved by client before
compilation report is signed by accountant.


AMENDMENTS IN COMPANIES ACT, 2013
AMENDMENT IN PREVIOUSLY AFTER AMENDMENT

Now after authorities concerned, the
words any other persons concerned
shall also be inserted. It has also been
Tribunal upon receiving the
newly inserted Reopening order cannot
application for reopening of
Sec 130 account was required to give
be made in respect to Books of Accounts
relating to a period earlier than eight
REOPENING OF BOOKS notice to CG, Income Tax
financial years immediately preceding
Authorities, SEBI or any other
OF ACCOUNT statutory regulatory body or
the current financial year unless CG has
given the direction under Section 128(5)
authorities concerned.
to keep books of accounts for more than
8 years.
INDIVIDUALS
Minimum Rs. 1 lakh rupees and
Maximum Rs. 5 times of fees received
FIRMS
Power of NFRA to impose penalty Minimum Rs. 5 lakh rupees and
sec. 132 on CA/CA firm for professional or Maximum Rs. 10 times of fees received.
other misconduct - earlier it was
NFRA Rs. 10 Lakh 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.
132(6) to (9) have been omitted.

Following Proviso shall be added:
Provided that if the copies of the date of meeting, they shall, notwithstanding
that fact, be deemed to have been duly sent if it is so agreed by members –
sec. 136(1) (a) Holding majority in number entitled to vote & who represent ≥ 95%
Right of members to of such part of PUSC of company as gives a right to vote at meeting (if
copies of audited company has no share capital)
Financial Statements (b) Having ≥ 95% of total voting power exercisable at the meeting (if
company has no share capital)
Provided also that every listed company having a subsidiary shall place
parts audited accounts in respects subsidiary on its website, if any.

Provided also that a listed company which has a subsidiary incorporated

outside India (known as foreign subsidiary)-
i. Where such foreign subsidiary is statutorily required to prepare CFS
under any law of the country of its incorporation, the requirement of
this proviso shall be met if CFS of such foreign subsidiary is placed in
website of listed company,
ii. Where such foreign subsidiary is not required to get its FS audited
under any law of the country of its incorporation & which does not
get such FS audited, the holding Indian listed co. may place such
unaudited FS on its websites & where such FS is in a language other
than English shall also be placed on website.
(These amendments are already inserted in handwritten book as well)

New proviso inserted:
sec. 136(2) A company shall allow every
member or trustee of holder of
“provided that every company having a
Right of members or debentures to inspect documents
subsidiary or subsidiaries shall provide a
debenture trustees to started under section 136(1) at is
copy of separate audited or unaudited
FS, as the case may be, as prepared in
inspect financial registered office during business
respect of each of its subsidiary to any
statements etc. hours
member of the company who asks for it.
sec. 139 Earlier, the appointment of Now the requirement of ratification has
Appointment of auditor was to be ratified every been removed.
year at the AGM.
Statutory Auditor
sec. 140 If the auditor does not comply

If the auditor does not comply
 Minimum fine Rs. 50,000 or Audit
Removal of Statutory  Minimum fine Rs. 50,000 or
fees whichever is lower.
Auditor  Maximum fine Rs. 5,00,000.
 Maximum fine Rs. 5,00,000.
In sub-section (3), for clause (i),

the following clause shall be
sec. 141 Person whose Subsidiary or
Associate Company or any other
substituted, namely:
Qualification and form of Entity, is engaged as on
(i) a person who, directly or indirectly,
renders any service referred to in
Disqualification of an the date of appointment, in
Section 144 to the company or its
Auditor consulting and specialised
holding company or its subsidiary
services as provided in Sec 144.
company.
Sub-section (1) – The auditor of Sub-section (1) – The auditor of the

the holding company shall also holding company shall also have the
sec. 143 have the right of access to the
records of all its subsidiaries in so
right of access to the records of all its
subsidiaries and associate companies in
Powers and Duties of an far as it relates to the so far as it relates to the consolidation of
Auditor consolidation of its financial its financial statements with that of its
statements with that of its subsidiaries. {The word associate
subsidiaries. company has been newly inserted}.

Sub Section (3) - Whether the Sub-section (3) - in clause (i), for the
Company has adequate Internal words "internal financial controls
Financial Controls system in place system", the words "internal financial
and the operating effectiveness of controls with reference to financial
such controls, statements" shall be substituted.
Sub Section (14) - Sec. 143 (in In sub-section (14), in clause (a), for the
entirety) shall be applicable for— words "cost accountant in practice", the
(a) A Cost Accountant in words "cost accountant" shall be
Practice, conducting Cost Audit substituted.
u/s 148,
sec. 147 REFER TABLE AT THE END

Penalty Section
sec. 148 Cost Audit shall be conducted by In various places the words “Cost
a Cost Accountant in practice Accountant” in practice has been
Cost Auditor (either Individual or Firm) substituted by Cost Accountant.
[ ]
NATURE OF PERSON
SEC. PUNISHMENT
ACT/OMISSION PUNISHABLE
Find of Minimum Rs. 25,000 Maximum
Company
Rs. 5,00,000
Contravention of
147 (1)
Sec. 139 to Sec. 146  Imprisonment of Maximum 1 Year, or
Every Officer in  Find of Minimum Rs. 10,000 Maximum
Default ₹ 1,00,000, or
 Both of the above.

(a) Normal: Fine of Minimum

Rs. 25,000 which can extend upto
Maximum Rs. 5,00,000 or 4 times
amount of remuneration whichever is
less
(b) If done knowingly or willfully, with

intention to deceive the Company or its
Contravention of
147(2) Auditor Shareholders or Creditors or Tax
Sec. 139, 143, 144, 145
Authorities:
 Imprisonment of Maximum
1 Year, or Fine of Minimum Rs. 50,000
(before amendment Rs. 1,00,000)
which can extent upto Maximum Rs.
25,00,000/- or 8 times amount of
Remuneration whichever is less; or
 Both of the above
Situation Where it is proved that the Partner or Partners of the Audit Firm has or have —
acted in a fraudulent manner, or

abetted or colluded in any fraud by, or in relation to or by, the Company or its Directors
or Officers
Liability The civil or criminal liability, as provided in this Act or in any other law, for such act shall he
of the Partner or Partners concerned of the Audit Firm and of the Firm jointly and severally.
Who acted is fraudulent manner or abetted or colluded will Be held liable
NEW INSERTION
The Central Government shall, by notification, specify any statutory body or authority or an officer
for ensuring prompt payment of damages to the company.
Such body, authority or officer shall pay damages to such company or persons.
File a report with the Central Government in respect of making such damages in such manner as may
be specified in the said notification.
AMENDMENTS IN STANDARDS ON AUDITING (SA)
SA – 299
RESPONSIBILITIES OF JOINT AUDITOR
ADVANTAGES OF JOINT AUDIT:

Pooling and sharing of resources.
Everyone has expertise in different area.
Advantage of mutual discussion.

Better quality of work performance.

Improved services to Client Company.
Lower costs to carry out the audit work.
DISADVANTAGES OF JOINT AUDIT:

Sharing of fees.
Lack of clear definition in case of joint responsibility.
Co-ordination problems in conduct of work.
Areas of common concern being neglected.
Problems when firms of different standing are associated.
REQUIREMENTS OF SA 299
The engagement partner and other key members of the engagement team from each of the joint
auditors shall be involved in planning the audit.
The joint auditors shall jointly establish an overall audit strategy that sets the scope. Timing and direction
of the audit.
Development of Audit Plan (Principles of SA 300 will be applicable).
Identification of Risk of Material Mis-statements.
Allocation of work.
JOINTLY & SEVERALLY RESP. INDIVIDUALLY RESP.
1) Discussion of work, overall audit plan and

decision taken regarding audit procedure.
7) Individually divided working area.
2) Matters raised by one of the joint auditor
8) Audit procedure decide by him.
but solved mutually by all joint auditors.
9) Use of other’s work.
3) Unallocated and undivided work
10) Conclusion of his procedure.
4) Verification of compliance of statutes
11) Reviewing the reports of the branches
relating to Financial Statement, accounting
allocated to him
policies and format of FS
12) Written representation by management
5) Disclosure requirements regarding FS
for a particular area. .
6) For obtaining an evaluation written
representation of mgmt.
JOINT AUDITORS ARE NOT REQUIRED TO REVIEW THE WORK OF OTHER JOINT AUDITORS. HE CAN DEEM THAT THE
WORK DONE BY OTHER JOINT AUDITORS IS IN ACCORDANCE WITH GENERALLY ACCEPTED AUDITING PROCEDURES.
JOINT AUDIT REPORT:

Usually Joint auditor are of unanimous opinion but if one or more joint auditor is not in agreement over
the opinion, each disagreed joint auditor may submit his report on the disagreed point separately

SA 720 (Revised)
THE AUDITOR’S RESPONSIBILITY IN RELATION TO OTHER INFORMATION IN
DOCUMENTS CONTAINING AUDITED FINANCIAL STATEMENTS
PURPOSE
Auditor is not required to express an opinion on other information in documents containing audited Financial
Statements (Eg. Annual Report), however, auditor reads the other information because credibility of Financial
Statements may be undetermined by Material inconsistencies between the audited financial statements and other
information.
AUDITOR’S PROCEDURES
Make appropriate arrangements with Management & TCWG to obtain the other information prior to the date of
auditor report & read the information so obtained. If information is not available prior to date of auditors report,
read the other information as soon as practicable.
MATERIAL INCONSISTENCIES IDENTIFIED IN OTHER INFORMATION:
3. Prior to the date of auditor’s report:

a. Revision of audited Financial Statements becomes necessary but Management Refuses,
 Auditor shall modify the opinion in accordance with relevant SA.
b. Revision of information is necessary but Management Refuses,
 Auditor shall communicate this matter to TCWG; and
 Include in the auditor’s report describing the inconsistencies; or
 Withdraw from the engagement.
4. Subsequent to the date of auditor’s report

a. Revision of audited financial statements becomes necessary
 The auditor shall follow the relevant requirements of SA 560
b. Revision of other information is necessary but management refuses
MATERIAL MISSTATEMENT OF FACTS FOUND OUT

Misstatement of Facts: Other information that is unrelated to matters appearing in audited Financial Statements
that is correctly stated.
Auditor shall request management to consult with a qualified third party and he shall consider the advice received.
If he concludes existence of material misstatement of facts, but management refuses to correct

OTHER INFORMATION SECTION

Statement that management is responsible for other information.
Identification of other information obtained prior to the date of auditor’s report.
In case of listed entity, identification of other information expected to be obtained after date of auditor’s report.
A statement that auditor’s opinion on the financial statements does not cover the other information and
accordingly auditor does not express any opinion or conclusion

AMENDMENTS IN FISCAL AUDIT
APPLICABILITY OF TAX AUDIT U/S 44AD
AMENDMENTS W.R.T. REVISED FORM 3CD

CLAUSE 31 (A)*: Particulars of each loan or deposit in an amount exceeding the limit specified in section 269SS
taken or accepted during the previous year:-
(vii) name, address and permanent account number (if available with the assessee) of the lender or
depositor;
(viii) amount of loan or deposit taken or accepted;
(ix) whether the loan or deposit was squared up during the previous year;
(x) maximum amount outstanding in the account at any time during the previous year;
(xi) whether the loan or deposit was taken or accepted by cheque or bank draft or use of electronic clearing
system through a bank account;
(xii) in case the loan or deposit was taken or accepted by cheque or bank draft, whether the same was taken
or accepted by an account payee cheque or an account payee bank draft.
*(These particulars need not be given in the case of a Government company, a banking company or a corporation
established by a Central, State or Provincial Act.)
Section 269SS prescribes the mode of taking or accepting certain loans and deposits. As per this section, no person
shall take or accept from any other person any loan or deposit otherwise than by an account payee cheque or
account payee bank draft if,-
d) the amount of such loan or deposit or the aggregate amount of such loan and deposit; or
e) on the date of taking or accepting such loan or deposit, any loan or deposit taken or accepted earlier by such
person from the depositor is remaining unpaid (whether repayment has fallen due or not), the amount or the
aggregate amount remaining unpaid; or
f) the amount or the aggregate amount referred to in clause (a) together with the amount or the aggregate
amount referred to in clause (b),
is twenty thousand rupees or more.
For the purposes of section 269SS "loan or deposit" means loan or deposit of money.

If the total of all loans/deposits from a person exceed Rs. 20,000 but each individual item is less than Rs. 20,000,
the information will still be required to be given in respect of all such entries starting from the entry when the
balance reaches Rs. 20,000 or more and until the balance goes down below Rs. 20,000. As such the tax auditor
should verify all loans/deposits taken or accepted where balance has reached Rs. 20,000 or more during the year
for the purpose of reporting under this clause.
CLAUSE 31 (B): Particulars of each specified sum in an amount exceeding the limit specified in section 269SS
taken or accepted during the previous year:-
(v) name, address and Permanent Account Number (if available with the assessee) of the person from
whom specified sum is received;
(vi) amount of specified sum taken or accepted;
(vii) whether the specified sum was taken or accepted by cheque or bank draft or use of electronic clearing
system through a bank account;
(viii) in case the specified sum was taken or accepted by cheque or bank draft, whether the same was taken
or accepted by an account payee cheque or an account payee bank draft.
(Particulars at (a) and (b) need not be given in the case of a Government company, a banking company or a
corporation established by the Central, State or Provincial Act.)
CLAUSE 31 (C): Particulars of each repayment of loan or deposit or any specified advance in an amount exceeding
the limit specified in section 269T made during the previous year:-
(vi) name, address and Permanent Account Number (if available with the assessee) of the payee;
(vii) amount of the repayment;
(viii) maximum amount outstanding in the account at any time during the previous year;
(ix) whether the repayment was made by cheque or bank draft or use of electronic clearing system through
a bank account;
(x) in case the repayment was made by cheque or bank draft, whether the same was taken or accepted by
an account payee cheque or an account payee bank draft.
This sub-clause requires particulars of each repayment of loan or deposit in an amount exceeding the limits
specified in section 269T made during the previous year. Section 269T is attracted where repayment of the loan
or deposit is made to a person, where the aggregate amount of loans or deposits held by such person either in his
own name or jointly with any other person on the date of such repayment together with interest, if any, payable
on such deposit is ` 20,000 or more. The tax auditor should verify such repayments and report accordingly.
CLAUSE 31 (D): Particulars of repayment of loan or deposit or any specified advance in an amount exceeding the
limit specified in section 269T received otherwise than by a cheque or bank draft or use of electronic clearing
system through a bank account during the previous year:-
(iii) name, address and Permanent Account Number (if available with the assessee) of payer;
(iv) amount of loan or deposit or any specified advance received otherwise than by a cheque or bank draft
or use of electronic clearing system through a bank account during the previous year.
CLAUSE 31 (E): Particulars of repayment of loan or deposit or any specified advance in an amount exceeding the
limit specified in section 269T received by a cheque or bank draft which is not an account payee cheque or
account payee bank draft during the previous year:
(iii) name, address and Permanent Account Number (if available with the assessee) of the payer;
(iv) amount of loan or deposit or any specified advance received by a cheque or a bank draft which is not an
account payee cheque or account payee bank draft during the previous year.

(Particulars at (c), (d) and (e) need not be given in the case of a repayment of any loan or deposit or any specified
advance taken or accepted from the Government, Government company, banking company or a corporation
established by the Central, State or Provincial Act).
AMENDMENTS IN PROFESSIONAL ETHICS
RECENT DECISIONS OF ETHICAL STANDARDS BOARD

1. A Chartered Accountant in practice may be an equity research adviser, but he cannot publish retail report, as it
would amount to other business or occupation.
2. A Chartered Accountant, who is a member of a Trust, cannot be the auditor of the said trust.
3. A Chartered Accountant in practice may engage himself as Registration Authority (RA) for obtaining digital
signatures for clients.
4. A Chartered accountant can hold the credit card of a bank when he is also the auditor of the bank, provided the
outstanding balance on the said card does not exceed Rs. 10000 beyond the prescribed credit period limit on
credit card given to him.
5. A Chartered Accountant in practice can act as mediator in Court, since acting as a “mediator” would be deemed
to be covered within the meaning of “arbitrator’; which is inter-alia permitted to members in practice as per
Regulation 191 of the Chartered Accountants Regulations, 1988.
6. A Chartered Accountant in practice is not permitted to accept audit assignment of a bank in case he has taken
loan against a Fixed Deposit held by him in that bank.
7. The Ethical Standards Board in 2013 generally apply the stipulations contained in the then amended Rule 11U of
Income Tax generally, wherein statutory auditor /tax auditor cannot be the valuer of unquoted equity shares of
the same entity. The Board has at its recent Meeting (January, 2017) has reviewed the above, and decided that
where law prohibits for instance in the Income Tax Act and the rules framed thereunder, such prohibition on
statutory auditor/tax auditor to be the valuer will continue, but where there is no specific restriction under any
law, the said eventuality will be permissible, subject to compliance with the provisions, as contained in the Code
of Ethics relating to independence.
8. The Ethical Standards Board had in 2011 decided that it is not permissible for a member who has been Director
of a Company, upon resignation from the Company to be appointed as an auditor of the said Company, and the
cooling period for the same may be 2 years. The Board has at its recent Meeting (January, 2017) has reviewed the
above, and noted that the Section 141 of Companies Act, 2013 on disqualification of auditors does not mention
such prohibition; though threats pertaining to the said eventuality have been mentioned in Code of Ethics.
Further, the Board was of the view that a member may take decision in such situation based on the provisions of
Companies Act, 2013 and provisions of Code of Ethics.
9. A chartered accountant in practice cannot become Financial Advisors and receive fees/commission from Financial
Institutions such as Mutual Funds, Insurance Companies, NBFCs etc.
10. A chartered accountant cannot exercise lien over the client documents/records for non - payment of his fees.
11. It is not permissible for CA Firm to print its vision and values behind the visiting cards, as it would result in
solicitation and therefore would be violative of the provisions of Clause (6) of Part-I of First Schedule to the
Chartered Accountants Act, 1949.
12. It is not permissible for chartered accountants in practice to take agencies of UTI, GIC or NSDL.
13. It is permissible for a member in practice to be a settlor of a trust.
14. A member in practice cannot hold Customs Brokers Licence under section 146 of the Customs Act, 1962 read with
Customs Brokers Licensing Regulations, 2013 in terms of the provisions of Code of Ethics.
15. A Chartered accountant in service may appear as tax representative before tax authorities on behalf of his
employer, but not on behalf of other employees of the employer.

16. A chartered accountant who is the statutory auditor of a bank cannot for the same financial year accept stock
audit of the same branch of the bank or any of the branches of the same bank or sister concern of the bank, for
the same financial year.
17. A CA Firm which has been appointed as the internal auditor of a PF Trust by a Government Company cannot be
appointed as its Statutory Auditor.
18. A concurrent auditor of a bank ‘X’ cannot be appointed as statutory auditor of bank ‘Y’, which is sponsored by ‘X’.
19. A CA/CA Firm can act as the internal auditor of a company & statutory auditor of its employees PF Fund under the
new Companies Act (2013).
20. The Ethical Standards Board while noting that there is requirement for a Director u/s 149(3) of the Companies
Act, 2013 to reside in India for a minimum period of 182 days in the previous calendar year, decided that such a
Director would be within the scope of Director Simplicitor (which is generally permitted as per ICAI norms), if he
is non –executive director, required in the Board Meetings only, and not paid any remuneration except for
attending such Board Meeting.

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Auditing Standards, Statements and Guidance Notes – An Overview

Prof. Khushboo Girish Sanghavi P a g e | 272

AUDITING STANDARDS, STATEMENTS AND GUIDANCE NOTES -

The Importance of this Chapter is emphasised as under:

Prof. Khushboo Girish Sanghavi P a g e | 273

SA 200 – 299  GENERAL PRINCIPLES AND RESPONSIBILITIES

SA 300 – 499  RISK ASSESSMENT AND REPONSE TO ASSESSED RISKS

SA 500 – 599  AUDIT EVIDENCE

Prof. Khushboo Girish Sanghavi P a g e | 274

SA 600 – 699  USING WORK OF OTHERS

SA 700 – 799  AUDIT CONCLUSIONS AND REPORTING

SA 800 – 899  SPECIALIZED AREAS

SRE 2000 – 2699  STANDARDS ON REVIEW ENGAGEMENTS (SREs)

SAE 3000 – 3699  STANDARDS ON REVIEW ENGAGEMENTS (SREs)

SRS 4000 – 4699  STANDARDS ON RELATED SERVICES (SRSs)

Prof. Khushboo Girish Sanghavi P a g e | 275

•GENERAL PRINCIPLES AND RESPONSIBILITIES

•RISK ASSESSMENT AND RESPONSE TO ASSESSED RISK

•USING WORK OF OTHERS

•AUDIT CONCLUSIONS AND REPORTING

b) Objectivity:- This could be achieved only by having independence of mind.

Prof. Khushboo Girish Sanghavi P a g e | 276

III) Professional Judgement :

IV) Requirement to obtain sufficient & appropriate audit evidence.

V) Requirement to follow all standards on auditing.

II) Secondary Scope

Inclusion (Responsibilities of Auditor) Exclusion (Responsibilities of Management)

Prof. Khushboo Girish Sanghavi P a g e | 277

Considerations to be given before acceptance of an audit?

Whether there is common

Prof. Khushboo Girish Sanghavi P a g e | 278

Prof. Khushboo Girish Sanghavi P a g e | 279

Audit procedure Audit Evidence Conclusion

Prof. Khushboo Girish Sanghavi P a g e | 280

BENEFITS OF AUDIT DOCUMENTATION

INTERNAL BENEFITS EXTERNAL BENEFITS

1) Assist engagement team to plan

 audit working papers

 working papers related to computation of income of previous years.

Prof. Khushboo Girish Sanghavi P a g e | 281

 Original acknowledgements of returns filed.

MEANING AND NATURE OF FRAUD

RISK ASSESSMENT PROCEDURES AND RESPONSES TO ASSESSED RISKS

Prof. Khushboo Girish Sanghavi P a g e | 282

Fraudulent Financial Reporting Misappropriation of Assets

IMPACT OF NON-COMPLIANCE OF LAWS AND REGULATIONS

RESPONSIBILITY OF AUDITOR (AUDIT PROCEDURE)

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WHAT IF NON COMPLIANCE IS FOUND?

Q2) What shall be effect of Non Compliance of Auditor’s Report?

Case -2 When auditor has limitations on scope of Audit:-

MEANING OF MANAGEMENT AND TCWG

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FACTORS AFFECTING MODE OF COMMUNICATION

MEANING OF DEFICIENCY IN INTERNAL CONTROL

Prof. Khushboo Girish Sanghavi P a g e | 285

o Explanation of their potential effect.

ADVANTAGES OF JOINT AUDIT:

DISADVANTAGES OF JOINT AUDIT:

JOINTLY & SEVERALLY RESP. INDIVIDUALLY RESP.

1) Discussion of work, overall audit plan and

Prof. Khushboo Girish Sanghavi P a g e | 286

JOINT AUDIT REPORT: