Western India Regional Council (WIRC)

Audit Reporting – SA 700 series

Session Chairman – CA. Khurshed Pastakia

Speaker – CA. Hemal Shah
April 2019
 Agenda

Key Drivers Which Have Lead To The Change

New And Revised Auditor Reporting Standards

SA 701- Communicating Key Audit Matters in the Independent Auditor’s Report

► How To Identify KAM
► Key Insights From Those Countries That Have Implemented KAM So Far
► KAM Practical Considerations
► How To Write KAM
► Interaction With Other Parts Of Audit Report
► Documentation Considerations
► Examples

SA 720 (Revised) – The Auditor’s Responsibilities relating to Other Information

► Objective and Scope
► What Does The Change Mean
► Consideration of the Other Information
► Responding requirements

Page 2 Audit Repor ting – SA 700 series Chairman – CA. Khurshed Pastakia
Speaker – CA. Hemal Shah
Key Drivers Which Have Lead To The Change

Out siders wanted ways to focus the at tention of management and directors and the audit
committee members on t he big problems. If a company has big risks, or problems, regulators
want to know that auditors have focused their Report ing on these issues which tells us that
the auditor focused on these issues during t he audit.
Jim Sylph, Co-Chair of IAASB’s Auditor Reporting Implementation Task Force

The auditor ’s opinion is valued, and users want to hear more from the auditor -more pert inent ,
and more t ailored informat ion about the specific audit performed on an entity’s financial
statement s.There is symbolic value in t he current audit report, but lit t le communicat ive
value- and the users see the potential for the auditor to provide more value and more
transparency. So now is t he time to lay t he foundat ion for the auditor ’s report of t he fut ure.
Prof Arnold Schilder, Chairman IAASB

Financial crisis led investors, regulators and other stakeholders to ask whether Auditors, Directors
and Audit committee were:
 Having the right conversat ions; and

 Addressing the risks appropriately when necessary and

 Wanted an insight into the above

Page 3 Audit Repor ting – SA 700 series Chairman – CA. Khurshed Pastakia
Speaker – CA. Hemal Shah
New And Revised Auditor Reporting Standards

New and Revised SAs Description of changes

SA 700 (Revised), Forming an Opinion and Revisions to establish new required reporting elements
Reporting on Financial Statements

SA 701, Communicating Key Audit Matters New Standard to establish requirements and guidance in
in the Independent Auditor’s Report for the auditor’s determination and communication of
Key Audit Matters (KAMs) .

SA 705 (Revised), Modification of the Clarification of how the new reporting requirements are
Opinion in the Independent Auditor’s Report affected when expressing a modified opinion

SA 706 (Revised), Communication with Required auditor communication with TCWG will now
Those Charged with Governance(TCW G) include the significant risks identified by the auditor and
the circumstances that required significant modification of
the auditor’s planned approach to the audit, KAM etc

SA 720 (Revised), The Auditor’s Auditor is required to read and consider the Other
Responsibilities Relating to Other Information to ascertain cases material inconsistency
Information between Other information and auditors knowledge
obtained in the audit.

Page 4 Audit Repor ting – SA 700 series Chairman – CA. Khurshed Pastakia
Speaker – CA. Hemal Shah
 Key Changes In Audit Report In A Nutshell
Existing format of audit report Key changes
 Audit Report commences wit h management  Audit report will start wit h audit opinion.
responsibilit y on f inancial stat ement s.

 No separat e reference in Basis for Opinion paragraph.  New Basis for Opinion paragraph t o follow t he audit
Indirect reference t o compliance wit h independence opinion and will st ate t hat t he auditor is independent of
requirement s cont ained in Audit or’s Responsibilit y the entity being audited in accordance wit h t he Code of
paragraph, wherein it was st ated t hat “ we comply wit h Et hics issues by (ICAI) toget her wit h t he et hical
et hical requirement s” . requirement s t hat are relevant t o t he audit of t he
f inancial st atement s under t he provisions of t he
Companies Act , 2013 and t he Rules t hereunder, and t he
auditor has f ulfilled et hical responsibilit ies in accordance
wit h t hese requirement s and t he Code of Et hics.

 Management ’s Responsibilit y for t he f inancial  Management ’s Responsibilit y for t he f inancial stat ement s
stat ement s paragraph used to convey t he paragraph t o cont inue t o convey t he responsibilit y of
responsibilit y of Company’s Board of Directors w.r.t Company’s Board of Directors w.r.t t o preparat ion of
preparat ion of f inancial stat ement s and relat ed f inancial stat ement s and t o stat e management is
matt ers. responsible for assessing t he entity’s ability to continue
as a going concern, disclosing as applicable, matt ers
relat ed t o going concern and using t he going concern
basis of account ing unless management eit her int ends t o
liquidat e t he ent it y or t o cease operat ions, or has no
realist ic alt ernat ive but t o do so.

 Explicit requirement t o stat ed t hat Board of Direct ors are

also responsible f or overseeing the entity’s financial
reporting process.

Page 5 Audit Repor ting – SA 700 series Chairman – CA. Khurshed Pastakia
Speaker – CA. Hemal Shah
 Key Changes In Audit Report In A Nutshell
Existing format of audit report Key changes

 Audit or’s Responsibilit y paragraph used t o convey  Audit or’s Responsibilit y paragraph reworded and stat es
t hat audit was planed and performed t o obt ain t o stat e t hat t he object ive is t o obt ain reasonable
reasonable assurance about whet her t he f inancial assurance about whet her t he financial st atement s as a
stat ement are f ree f rom mat erial misst atement . whole, are f ree f rom mat erial misstat ement , whether due
to fraud or error AND defines what is reasonable
assurance. Paragraph also states that “Misstatements
can arise from fraud or error and are considered material
if, individually or in t he aggregat e t hey could reasonably
be expect ed to influence the economic decisions of users
taken on the basis of these financial statements.”

 Furt her, Audit or’s Responsibilit y paragraph used to

 The reworded paragraph excludes t he wording relat ed to
convey t hat procedures select ed depended on
procedures and audit or’s judgment as aforement ioned.
audit or’s judgment , including assessment of risk of
material misstat ement of f inancial stat ement s,
whet her due to fraud or error. In making t hose
assessment s, t he audit or considers int ernal f inancial
cont rol relevant to t he Company’s preparat ion of t he f
inancial stat ement s t hat give a t rue and fair view in
order t o design audit procedures t hat are appropriate
in t he circumst ances.

 Audit report does not require report ing of KAM.  Audit ors of listed companies must report t he KAM.

Page 6 Audit Repor ting – SA 700 series Chairman – CA. Khurshed Pastakia
Speaker – CA. Hemal Shah
Auditors’ Report – Changes in Report Structure

Page 7 Audit Repor ting – SA 700 series Chairman – CA. Khurshed Pastakia
Speaker – CA. Hemal Shah
 How To Identify KAM
► KAM are defined as t hose mat t ers t hat , in t he auditor’s professional judgment,
were of most significance in t he audit of t he f inancial statement s of the current
period

Matters t hat were communicated wit h those charged

with governance (TCWG)

Mat ters t hat required significant

auditor attention
Matters of most significance
in t he
audit

Key Audit Matters

Page 8 Audit Repor ting – SA 700 series Chairman – CA. Khurshed Pastakia
Speaker – CA. Hemal Shah
 How To Identify KAM

Mat ters t hat were communicat ed Mat ters t hat required significant
auditor attention
wit h TCWG

The auditor will always consider

 Areas of higher assessed risks of material misstatements or significant risks (i.e.risks

requiring special audit considerat ion)
 Significant auditor judgment s relat ing to areas of significant management judgment
(e.g., complex account ing est imates)

 Effect on t he audit of significant event s or transact ions

Page 9 Audit Repor ting – SA 700 series Chairman – CA. Khurshed Pastakia
Speaker – CA. Hemal Shah
 How To Identify KAM
Matters t hat required Mat ters of most significance
significant auditor attention in t he audit

KAM are determined by t he auditor ’s considerat ion of t he:

 Matters which involved most communicat ion wit h TCWG
 Matters determined to be impor tant to t he users of financial statement s
 Where management’s select ion of an appropriate account ing policy was complex
or involved subject ivity
 Whether t here were any misstatement s ident ified t hat related to t he matter
 Matters which required most audit effor t
 Areas where t here have been difficult ies in applying audit procedures, evaluat ing
t he result s of t hose procedures, and obtaining relevant and reliable evidence
 Areas affected by a severe cont rol deficiency relevant to t he matter (if any)
 Whether t here were any misstatement s ident ified t hat related to t he matter
 Areas where t here have been difficult ies in applying audit procedures, evaluat ing
t he result s of t hose procedures, and obtaining relevant and reliable evidence

Page 10 Audit Repor ting – SA 700 series Chairman – CA. Khurshed Pastakia
Speaker – CA. Hemal Shah
 Key Audit Matters
International Experience

Page 11 Audit Repor ting – SA 700 series Chairman – CA. Khurshed Pastakia
Speaker – CA. Hemal Shah
 KAM Sector wise insights
► Based on survey of audit or ’s repor t of 128 ent it ies KPMG viewed between 01 July and 19
September 2017 of ASX 200 wit h June 30, 2017 year ends applying exclusively t he Aust ralian auditing
standards. (Source: Key audit matters, Auditor ’s report snapshot September 20, 2017, KPMG Publication)
Particulars Consumer Other Real Financial Energy & Infrastructure, Total
& Retail Corporates Estate Natural Government
Resources & Health
Goodwill (and related CGU 11 28 5 11 7 18 80
assets)
Revenue 6 13 6 4 4 4 37
Taxation 1 5 2 2 10 6 26
Acquisitions 10 9 2 - 1 3 25

Inventory 8 5 5 - 5 1 24

Provisions 2 4 - 5 10 1 22

Property investments - - 17 1 - 2 20

Receivables & allowances 6 3 1 3 4 2 19

Investment in related - 6 2 1 3 2 14
entities
Investments - 1 - 13 - - 14

Insurance related - - - 11 - 1 12
PPE & finite life intangibles 4 4 - 1 1 2 12

Page 12 Audit Repor ting – SA 700 series Chairman – CA. Khurshed Pastakia
Speaker – CA. Hemal Shah
KAM Sector wise insights Cont..

Particulars Consumer Other Real Financial Energy & Infrastructure, Total

& Retail Corporates Estate Natural Government &
Resources Health
Exploration & Evaluation - 1 - - 10 - 11
Financial instruments - - 3 2 3 1 9
Other 2 2 1 3 - 1 9
Disposals & assets held 3 3 - - 1 1 8
for sale
Interest bearing liabilities - 3 1 - 1 1 6

IT systems 2 2 - 2 - - 6
Trade & other payables - 3 - - 2 1 6

Expenses - 1 - 3 - - 4

Going concern related - - - - - - -

Total 55 93 45 62 62 47 364

Page 13 Audit Repor ting – SA 700 series Chairman – CA. Khurshed Pastakia
Speaker – CA. Hemal Shah
Key Insights From Those Countries That Have
Implemented KAM So Far

United Kingdom

• Conciseness
Investors value information particularly highly when it is present ed in a concise way. Auditors
are expected to convey granular information about highly technical matters in a concise and
easy to understand way.

Average word count in the risk sections of extended auditor’s reports

Firm Deloitte EY KPMG PwC Others

Average word count (All) 893 971 992 1,557 787
Average word count (FTSE 100) 972 1,046 1,205 1,858 1,256

Page 14 Audit Repor ting – SA 700 series Chairman – CA. Khurshed Pastakia
Speaker – CA. Hemal Shah
 KAM Practical Considerations
► Applicability
► Interim financial statements / Regulation 3 3 or 52 of LODR
► Tax financial statements
► Unlisted entities
► In process of getting listed
► Early adoption
► Can an item be KAM if t here is no relevant disclosures required in the financial statements?
► Can KAM be different for different years?
► How many number of KAMs to be reported?
► Can there by no KAM?
► Circumstances in which KAM is not reported
► Should conclusion be provided for every KAM?
► Order of KAMs
► KAM on CFS
► KAM in case of Joint audit
► Interplay between EOM (Emphasis of matter) and KAM (Key Audit Matters)

Page 15 Audit Repor ting – SA 700 series Chairman – CA. Khurshed Pastakia
Speaker – CA. Hemal Shah
 How To Write KAM
What is included in t he Descript ion?
 The descr ipt ion always includes
– Why the matter is considered to be a KAM
○ Economic condit ions t hat affect auditor ’s ability to obtain audit evidence, eg: illiquid
market s for cert ain financial inst rument s.
○ New/emerging account ing policies, eg: indust ry specific matters on which engagement
team consulted wit hin t he fi rm.
○ Changes in t he ent ity’s st rategy or business model t hat had a material effect on t he
financial statement s.

– How the matter was addressed in the audit

○ Aspect s of t he audit or ’s approach or response.
○ Brief overview of procedures per formed.
○ Indication of t he out come of t he audit or ’s procedures.
○ Key observat ions wit h respect t o t he mat ter.

– Reference to the related disclosure(s), if any

Page 16 Audit Repor ting – SA 700 series Chairman – CA. Khurshed Pastakia
Speaker – CA. Hemal Shah
 How To Write KAM
 KAM should be ent ity-specific and avoid standardized or overly technical language
 Description of a KAM should not

• Imply t hat t he matter has not been appropriately resolved by t he auditor in forming t he
opinion on t he financial statement s
• Contain or imply discrete opinions on separate element s of t he financial statement s (a “
piecemeal opinion” )

• How f ar should audit or ’s go in describing findings?

• Year on year considerat ions
• A KAM is not a substitute for
– disclosures in financial st at ement s
– a modified opinion
– report ing a mat erial uncert aint y relat ed t o going concern

Page 17 Audit Repor ting – SA 700 series Chairman – CA. Khurshed Pastakia
Speaker – CA. Hemal Shah
 How To Write KAM
INFOSYS March 31, 2019
Key audit mat t er How our audit addressed the key audit mat t er

Evaluation of uncertain tax positions

Principal Audit Procedures:

The Company has material uncertain tax
positions including matters under dispute Obtained details of completed tax assessments and
demands for the year ended March 31, 2019 from
which involves significant judgment to
management. We involved our internal experts to
determine the possible outcome of these
challenge the management’s underlying assumptions in
disputes. estimating the tax provision and the possible outcome of
the disputes. Our internal experts also considered legal
precedence and other rulings in evaluating management’s
Refer Notes 1.4b and 2.22 to the position on these uncertain tax positions. Additionally, we
Standalone Financial Statements considered the effect of new information in respect of
uncertain tax positions as at April 1, 2018 to evaluate
whether any change was required to management’s
position on these uncertainties.

Page 18 Audit Repor ting – SA 700 series Chairman – CA. Khurshed Pastakia
Speaker – CA. Hemal Shah
 How To Write KAM
INFOSYS March 31, 2019
Key audit mat t er How our audit addressed the key audit mat t er
Accuracy of recognition, measurement, presentation and disclosures of revenues and other
related balances in view of adoption of Ind AS 115 “Revenue from Contracts with Customers”
(new revenue accounting standard)
Principal Audit Procedures:
The application of the new revenue  Selected a sample of continuing and new contracts and
accounting standard involves certain key performed the following procedures:
judgements relating to identification of • Read, analysed and identified the distinct performance
obligations in these contracts.
distinct performance obligations, • Compared these performance obligations with that identified
determination of transaction price of the and recorded by the Company.
identified performance obligations, the • Considered the terms of the contracts to determine the
appropriateness of the basis used to transaction price including any variable consideration to verify
the transaction price used to compute revenue and to test the
measure revenue recognised over a basis of estimation of the variable consideration.
period. • Samples in respect of revenue recorded for time and
material contracts were tested using a combination of
approved time sheets including customer
acceptances, subsequent invoicing and historical trend
of collections and disputes.
• In respect of samples relating to fixed price contracts,
progress towards satisfaction of performance
obligation used to compute recorded revenue was verified
with actual and estimated efforts from the time recording and
budgeting systems. We also tested the access and change
management controls relating to these systems.

Page 19 Audit Repor ting – SA 700 series Chairman – CA. Khurshed Pastakia
Speaker – CA. Hemal Shah
 How To Write KAM
INFOSYS March 31, 2019
Key audit mat t er How our audit addressed the key audit mat t er
Accuracy of recognition, measurement, presentation and disclosures of revenues and other
related balances in view of adoption of Ind AS 115 “Revenue from Contracts with Customers”
(new revenue accounting standard)
Principal Audit Procedures:
Additionally, new revenue accounting We assessed the Company’s process to identify the impact of
standard contains disclosures which adoption of the new revenue accounting standard. Our audit
involves collation of information in respect approach consisted testing of the design and operating
effectiveness of the internal controls and substantive testing as
of disaggregated revenue and follows:
periods over which the remaining
performance obligations will be satisfied  Evaluated the design of internal controls relating to
subsequent to the balance sheet date. implementation of the new revenue accounting standard.

 Selected a sample of continuing and new contracts, and

Refer Notes 1.4a and 2.16 to the tested the operating effectiveness of the internal control,
Standalone Financial Statements relating to identification of the distinct performance obligations
and determination of transaction price. We carried out a
combination of procedures involving enquiry and observation,
reperformance and inspection of evidence in respect of
operation of these controls.

 Tested the relevant information technology systems’ access

and change management controls relating to contracts and
related information used in recording and disclosing revenue
in accordance with the new revenue accounting standard.

Page 20 Audit Repor ting – SA 700 series Chairman – CA. Khurshed Pastakia
Speaker – CA. Hemal Shah
 How To Write KAM
NOVARTIS AG 2018
Key audit mat t er How our audit addressed the key audit mat t er

Carrying value of Alcon goodwill

 We assessed and tested the design and operating effectiveness of

The Group has goodwill of USD 35.3 billion at
the Group’s controls over the assessment of the carrying value of
December 31, 2018, of which USD 8.9 billion relates Alcon goodwill and concluded that these operate effectively. We
to Alcon. The assessment of the carrying value of the tested, with the support of our valuation specialists, the Alcon
goodwill balances is dependent on the estimation of goodwill carrying value as at December 31, 2018. We also
future cash flows. In particular, those assessments challenged management to substantiate their key assumptions
and judgments made to support the carrying value of including growth rate in the cash flow projections during the forecast
the goodwill allocated to the Alcon Division were period and the terminal growth rate assumption. We also evaluated
critical, given the performance of the business in prior management’s intention and ability to execute their strategic
initiatives and evaluated the reasonableness of the discount rate
years, which led the Group to initiate a turnaround
applied to those future cash flows.
plan, followed by the ongoing strategic review.
 We assessed management’s sensitivity analysis around key
estimates to quantify the downside changes in assumptions that
Refer to “Note 1. Significant accounting policies” could result in an impairment and the disclosures included in “Note
(pages F-6 to F-15) and “Note 10. Goodwill and 10. Goodwill and intangible assets” (pages F-37 to F-39) of the
intangible assets” (pages F-37 to F-39). Annual Report. In conjunction with the intended spin-off of Alcon,
management provided a range of estimate for the valuation of the
business that indicates the value of the goodwill is not impaired.
 Finally, we did not identify any material differences between
management cash flow forecasts from last year and the actual results
reached this year. As a result of our procedures, as discussed with
the Audit and Compliance Committee, we determined that the
conclusions reached by management with regard to the carrying
value of Alcon goodwill were reasonable and supportable.

Page 21 Audit Repor ting – SA 700 series Chairman – CA. Khurshed Pastakia
Speaker – CA. Hemal Shah
 How To Write KAM
NOVARTIS AG 2018
Key audit mat t er How our audit addressed the key audit mat t er

Carrying value of the Innovative Medicines division intangible assets other than goodwill,
including newly acquired intangible assets

The Group has intangible assets in its Innovative Medicines  We assessed and tested the design and operating effectiveness of the
division other than goodwill totalling USD 26.0 billion at Group’s controls over the assessment of the carrying value of
December 31, 2018, comprising research and development intangible assets other than goodwill and concluded that these
acquired, currently marketed products, and other intangible operate effectively, specifically in respect to the identification of
assets. The Group recognized specific impairments of impairment triggering events.
intangible assets in its Innovative Medicines division other
than goodwill of USD 592 million during the year. In 2018,  We assessed and tested the design and operating effectiveness of the
the Group entered into significant transactions, including the Group’s controls over the identification and the valuation of intangible
acquisitions of Advanced Accelerator Applications S.A., assets acquired in a business combination. We utilized a risk-based
AveXis, Inc. and Endocyte, Inc. The related purchase price approach to select certain significant intangible assets to test the
allocations resulted in the identification and recognition of a carrying value calculations and assess the key assumptions. For the
fair value of USD 12.5 billion in newly acquired intangible currently marketed products, these assumptions specifically included
assets, excluding goodwill. The assessment of the carrying pricing, market size and share, and competitive environment
values of intangible assets is dependent on future cash assumptions.
flows. The assessments of carrying values per-formed by the
Group contain a number of significant judgments and  Finally, we did not identify any material differences between
estimates such as scientific success, revenue growth, the management cash flow forecasts from last year and the actual results
success of new product launches, profit margins and reached this year.
discount rates.

Page 22 Audit Repor ting – SA 700 series Chairman – CA. Khurshed Pastakia
Speaker – CA. Hemal Shah
 How To Write KAM
NOVARTIS AG 2018
Key audit mat t er How our audit addressed the key audit mat t er

Carrying value of the Innovative Medicines division intangible assets other than goodwill,
including newly acquired intangible assets

The carrying value assessments of the following intangible  For selected currently marketed products and products in
assets include the most significant risk and highest development, with the support of our valuation specialists, we
level of judgment: considered third-party sources to challenge expected future revenues
• Certain currently marketed products that have performed due to actions by competitors or due to changes in relevant markets.
below management’s expectation or were, in our view, at a  Furthermore, for products in development, we also considered key
greater risk of impairment scientific developments.
• Currently marketed products recognized as intangible  We performed our own sensitivity analysis around these key estimates
assets in the purchase price allocation to ascertain the extent of change in those assumptions that either
• Products in development, as the assessment of their individually or collectively would be required for the intangible assets
carrying value is challenging due to management being tested to be impaired.
required to make judgments both as to the probability of  As a result of our procedures, we did not propose any adjustments to
scientific success and regulatory approval of the the amount of impairment recognized in 2018 or to the value of
developments across indications, as well as the probability intangible assets recognized in the purchase price allocations. For
of commercial success of the subsequent product launches intangible assets other than goodwill where management determined
that no impairment was required, we found that the assessments
Refer to “Note 1. Significant accounting policies” (pages F-6 made by management were based upon reasonable assumptions,
to F-15), “Note 10. Goodwill and intangible assets” (pages consistently applied.
F-37 to F-39), “Note 2. Significant transactions in 2018”
(pages F-16 to F-18) and “Note 23. Acquisitions of business”
(page F-57).

Page 23 Audit Repor ting – SA 700 series Chairman – CA. Khurshed Pastakia
Speaker – CA. Hemal Shah
 How To Write KAM
NOVARTIS AG 2018
Key audit mat t er How our audit addressed the key audit mat t er

Rebates, discounts and sales returns

Commencing in 2018, the Group has applied IFRS 15

“Revenue from Contracts with Customers”. The Group  We performed procedures to assess the design and operating
distributes its products primarily through wholesale effectiveness of the controls related to the recording of rebates,
distributors In many cases the ultimate net selling prices are discounts and sales returns, and the estimation of related period-end
determined based on government mandated rebates as well reserves. We obtained management’s calculations for the respective
as contractual arrangements that the Group has with the estimates and performed one or more of the following procedures on
ultimate patient’s insurer or other payment program. Under each of them: developed an independent expectation of the reserve
IFRS 15, revenue is recognized when control has passed to and/or tested management’s estimation process to assess the
the customer, which is usually upon shipment to the reasonableness of the recorded reserve balances, performed
distributor. The transaction price is the amount of retrospective reviews, and assessed subsequent events. We also per-
consideration an entity expects to be entitled to from a formed testing of credits issued and payments made throughout the
customer in exchange for providing the goods or services. year, reviewed related contracts, and performed procedures to
IFRS15 requires an entity to estimate the amount of variable validate contractual terms and inventory levels of significant customers
consideration to which it will be entitled to the extent that and wholesalers. We did not identify any material differences between
such amount is not highly probable to reverse. Variable our expectations and the accruals, and we found the judgments
consideration may include rebates, discounts and sales
returns. The estimate depends on contract terms and
regulation, historical experience, as well as forecasts of
sales volumes by sales channel.

Page 24 Audit Repor ting – SA 700 series Chairman – CA. Khurshed Pastakia
Speaker – CA. Hemal Shah
 How To Write KAM
NOVARTIS AG 2018
Key audit mat t er How our audit addressed the key audit mat t er

Rebates, discounts and sales returns

Additionally, the dispensing of the product to the patient and

the final determination of the net selling price may be several  For selected currently marketed products and products in
months later. This key audit matter is focused on the development, with the support of our valuation specialists, we
valuation and accuracy of the accruals for rebates, discounts considered third-party sources to challenge expected future revenues
and sales returns recognized at the year-end because, due to actions by competitors or due to changes in relevant markets.
specifically for US Medicaid and Medicare or similar  Furthermore, for products in development, we also considered key
programs, the estimation processes involves large volumes scientific developments.
of data, requires significant judgment, and contains risk of  We performed our own sensitivity analysis around these key estimates
management bias. The provision reported as of December to ascertain the extent of change in those assumptions that either
31, 2018, for revenue deductions related to rebates, individually or collectively would be required for the intangible assets
discounts, allowances and sales returns amounted to USD tested to be impaired.
5.3 billion.  As a result of our procedures, we did not propose any adjustments to
the amount of impairment recognized in 2018 or to the value of
intangible assets recognized in the purchase price allocations. For
Refer to “Note 21. Provisions and other current liabilities” intangible assets other than goodwill where management determined
(pages F-53 and F-55). that no impairment was required, we found that the assessments
made by management were based upon reasonable assumptions,
consistently applied.

Page 25 Audit Repor ting – SA 700 series Chairman – CA. Khurshed Pastakia
Speaker – CA. Hemal Shah
Interaction With Other Parts Of Audit Report

Modified Opinion KAM

Qualified Include the usual KAM Sect ion; AND

Reference t he Basis for Qualified Opinion in t he KAM Section:

“ In addit ion to the mat ter described in t he Basis for Qualified

Opinion sect ion, we have determined t he matters described below
to be t he key audit mat ters to be communicated in our repor t”

Adverse Include the usual KAM Sect ion; AND

Reference t he Basis for Qualified Opinion in t he KAM Section:

“ In addit ion to t he mat ter described in the Basis for Adverse

Opinion sect ion, we have determined t he matters described below
to be t he key audit mat ters to be communicated in our repor t”

Disclaimer There must not be a KAM section

Page 26 Audit Repor ting – SA 700 series Chairman – CA. Khurshed Pastakia
Speaker – CA. Hemal Shah
 Interaction With Going Concern

Evaluate the appropriateness of the going concern assumption when the financial statements have
been prepared on the basis that the entity is a going concern

Appropriate, but No or inadequate

Appropriate, no
material Inappropriate assessment of
concerns
uncert aint y exist s going concern

Unmodif ied Adequate Inadequate Limit at ion of

audit ors report Disclosure Disclosure scope

• Emphasis of Adverse & KAM

Matt er & • Qualif ied &
Qualif ied
• KAM • KAM

Disclaim &
No KAM

Page 27 Audit Repor ting – SA 700 series Chairman – CA. Khurshed Pastakia
Speaker – CA. Hemal Shah
 KAM Documentation Considerations

 SA 70 1 requires t he audit or t o document t he professional judgment s made about

• Why a mat ter t hat required signif icant auditor at t ent ion is or is not a KAM
• If t here are no KAM, t he rat ionale why
• Why a mat t er det ermined t o be a KAM is not communicated

Page 28 Audit Repor ting – SA 700 series Chairman – CA. Khurshed Pastakia
Speaker – CA. Hemal Shah
 What Does The Change Mean
FOR DIRECTORS/ AUDIT COMMITTEE
► More proact ive engagement wit h t he audit ors and improved discussions wit h t he audit ors, t o
ensure t hat invest ors receive relevant and well descr ibed infor mat ion t hat is consist ent across all
communicat ion in t he annual repor t .
► Sharing wit h t he public what used t o be closed door informat ion will require an even shar per focus.
Early act ion is required t o ensure t hat t he first revised audit or ’s repor t s go well in 20 18.
► Risk t hat audit commit t ee may be challenged by shareholders, regarding adequacy of disclosures
in financial st at ement s af t er reading t he KAM.

FOR AUDITOR
► It is t he audit or ’s repor t , but management and audit commit tee are keenly int erest ed
o Discussions on t he audit repor t may lead management t o decide t o enhance or change t heir
disclosures t oo.
► Getting t he key audit mat t ers r ight is a very challenging t ask
o Being precise about par t icular areas of f ocus is diff icult t o ar t iculate.
► Ant icipat e t he time involved
o Engage ear ly wit h st akeholders t o finalise in time.

Page 29 Audit Repor ting – SA 700 series Chairman – CA. Khurshed Pastakia
Speaker – CA. Hemal Shah
SA 720 (Revised) – The Auditor’s Responsibilities relating to Other Information
Meaning of Other Information
Financial or non-financial information (other than financial statements and the auditor’s report thereon) included
in an entity’s annual report.
Depending on the applicable law, regulation or custom, one or more of the following documents may for part of
the annual report
Director’s Report
Management Discussion and Analysis
Corporate Governance Statement/reports
Chairman’s Statement
Business Responsibility Report

Following are not ‘Other Information’ within the scope SA 720 (Revised)
Separate industry report or regulatory reports (for eg: capital adequacy reports), such as may be prepared in
the banking, insurance and pension industries.
Sustainability reports.
Corporate Social Responsibility (CSR) Report
Diversity and equal opportunity reports.
Product responsibility reports.
Labour practices and working condition reports.
Human rights reports.
Other regulatory filings with the Government agencies such as Registrar of Companies.

SA 720 (Revised) does not apply to preliminary announcements of financial information or securities offering
documents, including prospectuses.

Appendix 1 to SA 720 (Revised) contains examples of amounts/ other items that may be included in the
Other Information.

Page 31 Audit Repor ting – SA 700 series Chairman – CA. Khurshed Pastakia
Speaker – CA. Hemal Shah
Objective and Scope
Objective:

Auditor is required to read and consider the Other Information to ascertain cases where:
There is a material inconsistency between the Other Information and the financial statements; (or)
There is material a material inconsistency between the Other Information and the auditor’s knowledge
obtained in the audit.

Material inconsistency identified by the auditor may indicate that there is:
material misstatement of the financial statements (or)
material misstatement of the Other information

Either of the above may:

undermine the credibility of the financial statements and the auditor’s report thereon.
Inappropriately influence the economic decisions of the users for whom the auditor’s report is prepared.

Scope:

Auditor’s responsibilities under this SA do not constitute an assurance engagement or impose an obligation on
the auditor to obtain assurance about the Other Information.

Page 32 Audit Repor ting – SA 700 series Chairman – CA. Khurshed Pastakia
Speaker – CA. Hemal Shah
 Reading and Considering the Other Information
Reading the Other Information*
* Make appropriate arrangement with management of Company to obtain information in a timely manner
and if possible prior to the date of auditor’s report.

Material Inconsistency between the Material Misstatement in the Financial

Other Information and the financial Statements Exists or Auditor’s
statements Understanding of the Entity and its
environment needs to be updated

Information obtained prior Information obtained after

to the date of the auditor’s the date of the auditor’s o Revision of auditor’s risk assessment (SA 315)
report and remains report and remains o Evaluate effect of identified misstatements on the
uncorrected after uncorrected after audit and of uncorrected misstatements, if any on the
communicating WTCWG communicating WTCWG financial statements (SA 450)
o Responsibilities relating to subsequent events
(SA 560)
Modified Opinion on Withdrawal from the Consider auditor’s legal rights and obligations to seek to have the
Other information engagement where uncorrected material misstatement appropriately brought to the
Disclaimer of opinion possible under attention of users for whom auditor’s report is prepared:
on the financial applicable law or o Providing new/ amended auditor’s report to management and
statements in rare regulation requesting management to provide the same to users
circumstances
o Bringing the same to attention of appointing authority
o Communicating with regulator where required by law
Page 33 Audit Repor ting – SA 700 series Chairman – CA. Khurshed Pastakia
Speaker – CA. Hemal Shah
Reporting requirement w.r.t. Other Information
Listed entity:
Auditor’s report shall include a separate section with a heading ‘Other Information’:
If any Other Information is received after the auditor’s report date, it would need to be identified and
stated separately.

Other Information:
The Company’s Board of Director is responsible for the other information. The other information comprises the
Director’s Report, Secretarial Audit Report (but does not include the standalone Ind AS financial statements and
our auditor’s report thereon), which we obtained prior to the date of this auditor’s report, and the Chairman’s
Statement, which is expected to be made available to us after that date.

Unlisted entity:
Auditor’s report shall include a separate section with a heading ‘Other Information’:
If any Other Information is received before the auditor’s report date, it would need to be identified and
stated separately.

Other Information:
The Company’s Board of Director is responsible for the other information. The other information obtained at the
date of this auditor’s report is information included in the Director’s Report, Chairman’s Statement (but does not
include the standalone Ind AS financial statements and our auditor’s report thereon).

Page 34 Audit Repor ting – SA 700 series Chairman – CA. Khurshed Pastakia
Speaker – CA. Hemal Shah
Illustrative - Reporting under SA 720 (Revised)

Other Information

The Company’s Board of Directors is responsible for the other information. The other information
comprises the information included in the Annual report, but does not include the financial statements
and our auditor’s report thereon.

Our opinion on the financial statements does not cover the other information and we do not express any
form of assurance conclusion thereon.

In connection with our audit of the [standalone] Ind AS financial statements, our responsibility is to read
the other information and, in doing so, consider whether such other information is materially inconsistent
with the financial statements or our knowledge obtained in the audit or otherwise appears to be
materially misstated. If, based on the work we have performed, we conclude that there is a material
misstatement of this other information, we are required to report that fact. We have nothing to report in
this regard.

Page 35 Audit Repor ting – SA 700 series Chairman – CA. Khurshed Pastakia
Speaker – CA. Hemal Shah
Reporting requirement w.r.t. Other Information
Auditor has obtained all of the Other Information prior to the date of the auditor’s report and the matter
giving rise to the qualified opinion on the consolidated financial statements also effects the Other
Information:

Other Information:
If, based on the work we have performed, we conclude that there is a material misstatement of this other
information, we are required to report that fact. As described in the ‘Basis for Qualified Opinion’ section above,
we were unable to obtain sufficient appropriate audit evidence about the carrying amount of ABC’s investment in
XYZ as at March 31, ___ . Accordingly, we are unable to conclude whether or not the other information is
materially misstated with respect to this matter.

Other Key Considerations:

When some/all of the document(s) determined as having Other Information will not be available until after the
date of auditor’s report, request management to provide a written representation that the final version of the
document(s) will be provided to the auditor when available and prior to its issuance by the entity, such that the
auditor can complete the procedures required by SA 720 (Revised).

The group auditor may request the management of the group to require the concerned component auditor to
validate that part of the Other Information included in the annual report of the group that relates to the respective
component.

Page 36 Audit Repor ting – SA 700 series Chairman – CA. Khurshed Pastakia
Speaker – CA. Hemal Shah
Auditor’s Responsibilities relating to Other Information

The auditor shall:

(a) Determine, through discussion with management, which document(s) comprises the annual report,
and the entity’s planned manner and timing of the issuance of such document(s);

(b) Make appropriate arrangements with management to obtain in a timely manner and, if possible, prior
to the date of the auditor’s report, the final version of the document(s) comprising the annual report;

(c) When some or all of the document(s) determined in (a) will not be available until after the date of the
auditor’s report, request management to provide a written representation that the final version of the
document(s) will be provided to the auditor when available, and prior to its issuance by the entity,
such that the auditor can complete the procedures required by this SA.

Page 37 Audit Repor ting – SA 700 series Chairman – CA. Khurshed Pastakia
Speaker – CA. Hemal Shah
Thank you