Notes CA+Inter+Audit+May+24
Notes CA+Inter+Audit+May+24
Notes CA+Inter+Audit+May+24
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2. Purpose of Auditing
1. The purpose of external audit engagements is to enhance the degree of confidence of
intended users of financial statements. Such engagements are also reasonable assurance
engagements.
2. This is done by an independent auditor expressing their opinion on whether the financial
statements present a true and fair view of the entity’s affairs.
The person conducting this task should take care to ensure that financial statements would
not mislead anybody. This he can do by satisfying himself that:
1. Accounts have been drawn up with reference to entries in the books of account;
2. Entries in the books of account are adequately supported by sufficient and appropriate
evidence;
3. None of the entries in the books of account has been omitted in the process of compilation
and nothing which is not in the books of account has found place in the statements;
4. Information conveyed by the statements is clear and unambiguous;
5. Financial statement amounts are properly classified, described and disclosed in
conformity with accounting standards; and
6. Statement of accounts present a true and fair picture of the operational results and of the
assets and liabilities.
4. Objective of SA 200
As per SA-200 “Overall Objectives of the Independent Auditor”, in conducting an audit of
financial statements, the overall objectives of the auditor are:
a. To obtain reasonable assurance about whether the financial statements as a
whole are free from material misstatement; and
b. To report on the financial statements, and communicate as required by the SAs,
in accordance with the auditor’s findings.
Summary:
1. Obtaining a reasonable assurance that financial statements as a whole are free from
material misstatement due to fraud or error
2. Gaining a reasonable assurance leads to formation of opinion whether financial statements
are prepared, in all material respects, in accordance with applicable financial reporting
Timeliness of Financial Reporting and the Balance between Benefit and Cost:
Future events
Future events or conditions may affect an entity adversely. Adverse events may seriously
affect ability of an entity to continue its business. The business may cease to exist in future
due to change in market conditions, emergence of new business models or products or due to
onset of some adverse events. Therefore, it is in view of above factors, that an auditor cannot
provide a guarantee that financial statements are free from material misstatements due to
frauds or errors.
9. What is Engagement
Engagement means an arrangement to do something. In the context of auditing, it means a
formal agreement between auditor and client under which auditor agrees to provide auditing
services. It takes the shape of engagement letter.
2. The conclusion aims to increase the confidence of users (other than responsible party) in
the evaluation or measurement of a subject matter against criteria.
3. The practitioner offers an opinion on specific information.
4. This helps information users make confident decisions with reduced risk of inaccuracies.
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#Abhi Nahi toh Kabhi Nahi Page No. 1
Chapter 2
1. Introduction 3
2. Benefits of Planning 3
3. Planning is a CONTINUOUS process 3
4. Planning Process- Elements of Planning 4
5. Audit Plan 6
6. Audit Plan : Auditor’s Responsibility 7
7. Relation between Strategy and Plan 7
8. Changes to Planning during the course of Audit 7
9. Direction Supervision and Review work of Team members 7
10. Documentation 8
11. Meaning of Audit Programme 8
12. Constructing an Audit Programme 9
2. Benefits of Planning
Planning an audit involves establishing the overall audit strategy for the engagement and
developing an audit plan. Adequate planning benefits the audit of financial statements in
several ways, including the following:
1. Ensuring that appropriate attention is devoted to important areas;
2. Identifying and dealing with potential problem areas early;
3. Selecting the right people for the audit team in terms of the skills and experience mix;
4. Ensuring that work gets reviewed properly;
5. Involving third parties such as component auditors, internal auditors and experts.
6. Proper direction and supervision of engagement team and
7. Assist in organising audit in efficient and effective manner
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1. Identify the characteristics of the engagement that define its scope; example:
a. Applicable financial reporting framework applicable to the entity
b. Nature of business segments to be audited including the need for specialized
knowledge
c. Industry specific reporting requirements required by industry regulators
d. Expected use of audit evidence obtained in previous audits
e. Expected audit coverage
f. No. of locations to be included
g. Nature of business segment
h. Need of specialised knowledge
2. Ascertain the reporting objectives of the engagement to plan the timing of the audit and
the nature of the communications required. The cases by which auditor can ascertain the
reporting objective of the engagement are (example):
a. The entity’s timetable for reporting
b. Organization of meetings to discuss of nature, timing and extent of audit work
with management
c. Discussion with management regarding the expected type and timing of reports
to be issued including the auditor’s report
d. Discussion with management regarding the expected communications on the
5. Audit Plan
Once the overall audit strategy has been established, an audit plan can be developed to address
the various matters identified in the overall audit strategy, taking into account the need to
achieve the audit objectives through the efficient use of the auditor’s resources.
10. Documentation
The auditor shall document:
1. The overall audit strategy;
2. The audit plan; and
3. Any significant changes made during the audit engagement to the overall audit strategy
or the audit plan, and the reasons for such changes.
The documentation of the overall audit strategy is a record of the key decisions considered
necessary to properly plan the audit and to communicate significant matters to the engagement
team.
CHAPTER 3
RISK ASSESSMENT AND
INTERNAL CONTROL
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Chapter 3
1. Audit Risk 5
2. Risk of Material Misstatement 5
3. Inherent Risk 5
4. Control Risk 6
5. Detection Risk 6
6. What is not Audit Risk ? 7
7. Combined assessment of ROMM 7
8. Significant Risk 7
9. Assessment of risks- A matter of professional Judgment 8
1. Objective of SA 330 30
2. What is Test of Controls (ICAI Module Point 7) 30
3. Nature and extent of Test of Controls 31
4. Timing of Test of Controls 32
5. Using Audit Evidence Obtained in Previous Audits 32
6. Evaluating the Operating Effectiveness of Controls 32
7. Specific inquiries when deviations from controls are detected 32
8. What is Substantive Procedure 33
9. Nature and Extent of Substantive Procedures 33
1. Objective of SA 320 35
2. Materiality from Financal Perspective 35
3. What is materiality ? 35
4. Performance materiality 35
5. Benchmark 36
6. Other points related to materiality 36
7. Revision of materiality 37
8. Documentation of materiality 37
1. Audit Risk
Audit risk means the risk that the auditor gives an inappropriate audit opinion when the
financial statement are materially misstated. Thus, it is the risk that the auditor may fail to
express an appropriate opinion in an audit assignment.
Audit risk is a function of the risks of material misstatement and detection risk.
From the above, it is clear that –
Audit Risk (AR)= Risk of Material Misstatement (ROMM) x Detection Risk (DR)
Example
1. Charging of an item of capital expenditure to revenue or vice-versa
2. Difference in disclosure of a financial statement item vis-à-vis its requirement in
3. Applicable financial reporting framework
4. Selection or application of inappropriate accounting policies
5. Overstating or understating inventories
6. Overstating of receivables in financial statements by not writing off irrecoverable debts
3. Inherent Risk
The susceptibility of an assertion about a class of transaction, account balance or disclosure
to a misstatement that could be material, either individually or when aggregated with other
misstatements, before consideration of any related controls.
Inherent risk factors are considered while designing tests of controls and substantive
procedures.
Example:
1. An accounting standard provides guidance on some complex issue which might not be
understood by the management. Therefore, recording of this issue in financial statements
carries inherent risk of being misstated.
2. There are large number of business failures in an industry. Therefore, assertions in
financial statements of an entity operating in such an industry carry an inherent risk of
being misstated.
4. Control Risk
The risk that a misstatement that could occur in an assertion about a class of transaction,
account balance or disclosure that could be material, either individually or when aggregated
with other misstatements, will not be prevented, or detected and corrected, on a timely basis
by the entity’s internal control.
Example:
1. A company has devised control that cash and cheque books should be kept in a locked
safe and access is granted to authorized personnel only. There is risk that control is not
being followed.
2. An entity has devised a control that fire extinguishers and smoke detectors are in place and
are in working condition at all times to reduce the risk of damage to inventories caused by
fire. There is a risk that fire extinguishers in place are expired and are not being refilled.
Similarly, there is a possibility that smoke detectors are not working.
3. A company has devised a control relating to petty cash that items of expenditure of only
less than Rs. 10000 should be routed through imprest system of petty cash. There is a risk
that control is not being followed.
5. Detection Risk
The risk that the procedures performed by the auditor to reduce audit risk to an acceptably low
level will not detect a misstatement that exists and that could be material, either individually
or when aggregated with other misstatements.
Detection risk may be reduced by increasing area of checking, testing larger samples and
by including competent and experienced persons in the engagement team
Example:
1. Sizeable work-in-progress inventories are expected in financial statements of a company.
However, auditor of the company does not devote time to attending inventory count.
Instead, he chooses to rely upon alternative audit procedures.
2. The auditor of a company has audited revenue of a company by taking a sample. However,
there is a risk that sample of revenue is not representative of overall revenue.
1. Audit risk does not include the risk that the auditor might express an opinion that the
financial statements are materially misstated when they are not. This risk is ordinarily
insignificant.
2. Further, audit risk is a technical term related to the process of auditing; it does not refer to
the auditor’s business risks such as loss from litigation, adverse publicity, or other events
arising in connection with the audit of financial statements
8. Significant Risk
The auditor shall consider at least the following:
1. Whether the risk is a risk of fraud
2. Risk is related to recent significant economic, accounting or other important development
3. Complexity of transactions
4. Risk involves significant transaction with related parties
5. Risk related to financial item where there is high degree of subjectivity in measurement
6. Risk related to significant transactions outside the normal course of business
1. Objective of SA 315
The objective of the auditor is to:
1. Identify and assess the risks of material misstatement,
2. Whether due to fraud or error,
management, individuals responsible for financial reporting, and other personnel within
the entity.
2. Inquiries from other people within the entity may be useful in providing the auditor with
a perspective different from that of management and those responsible for financial
reporting.
3. Depending on the circumstances, the auditor might make inquiries of:
a. Inquiries directed toward TCWG (e.g., board of directors or audit committee).
b. Inquiries directed toward Internal audit personnel may provide information
about internal audit procedures performed during the year relating to the design
and effectiveness of the entity’s internal control
c. Inquiries directed toward Employees involved in accounting initiating,
authorizing, processing, or recording complex transactions.
d. Inquiries directed toward In-house legal counsel may provide information about
such matters as litigation, compliance with laws and regulations
e. Inquiries directed toward Production, marketing, sales, and other personnel
Analytical Procedures
1. The auditing standards require the use of analytical procedures during the audit planning
phase.
2. By using preliminary analytical procedures, the auditor can gain insight into the entity
and its environment and identify areas that may pose significant risks relevant to the
audit.
3. Analytical procedures are effective in detecting unusual transactions or events, as well as
trends, ratios, and amounts that may affect the audit planning process.
4. While performing analytical procedures, the auditor create reasonable expectations
of the relationships that should exist based on their understanding of the entity and its
environment. However, the results of such high-level analytical procedures are only an
initial indication of whether there may be a significant misstatement.
6. Understanding of Entity
The auditor shall obtain an understanding of the following:
1. Understanding of industry: Relevant industry, regulatory, and other external factors
including the applicable financial reporting framework.
2. Understand the entity: The nature of the entity, including:
a. its operations;
b. its ownership and governance structures;
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c. the types of investments that the entity is making and plans to make, including
investments in special-purpose entities; and
d. the way that the entity is structured and how it is financed; to enable the auditor
to understand the classes of transactions, account balances, and disclosures to be
expected in the financial statements.
Examples of matters that the auditor may consider while obtaining understanding of nature
of entity include:
a. Business operations such as nature of revenue sources, products or services,
conduct of operations, location of production facilities, key customers and
suppliers of goods and services
b. Investment and investment activities such as capital investment activities and
planned or recently executed acquisitions
c. Financing and financing activities such as major subsidiaries, debt structure etc.
d. Financial reporting such as accounting principles and revenue recognition
practices
3. Understanding of accounting system: The entity’s selection and application of accounting
policies, including the reasons for changes.
4. Understanding of financial reporting framework: The auditor shall evaluate whether
the entity’s accounting policies are appropriate for its business and consistent with the
applicable financial reporting framework and accounting policies used in the relevant
industry.
5. Understanding entity’s objective, strategies and business model: The entity’s objectives
and strategies, and those related business risks that may result in risks of material
misstatement.
Examples of matters that the auditor may consider when obtaining an understanding of the
entity’s objectives, strategies and related business risks
a. Industry developments (a potential related business risk might be, for example,
that the entity does not have the personnel or expertise to deal with the changes
in the industry).
b. New products and services (a potential related business risk might be, for example,
that there is increased product liability).
c. Expansion of the business (a potential related business risk might be, for example,
that the demand has not been accurately estimated).
6. The measurement and review of the entity’s financial performance: an understanding of
the entity’s performance measures assists the auditor in considering whether pressures
to achieve performance targets may result in management actions that increase the risks
of material misstatement, including those due to fraud. Examples:
a. Key performance indicators (financial and non-financial) and key ratios,
b. Trends and operating statistics.
1. Designed,
2. Implemented and
3. Maintained
by those charged with governance, management and other personnel to provide reasonable
assurance about the achievement of an entity’s objectives with regard to:
1. Reliability of financial reporting,
2. Effectiveness and efficiency of operations,
3. Safeguarding of assets, and
4. Compliance with applicable laws and regulations.
5. Organisational structure
6. Assignment of authority and responsibility
7. Human resource policies and practices
D. CONTROL ACTIVITIES
Control Activities are the policies and procedures that help ensure management directives
are carried out. During an audit, the auditor assesses the risk and considers only the relevant
control activities related to a significant class of transactions, account balance, and disclosure.
Examples of specific control activities include those relating to audit are the following: [PAPSI]
1. Authorisation
2. Performance reviews
3. Information processing
4. Physical controls
5. Segregation of duties
E. MONITORING OF CONTROLS
The auditor shall obtain an understanding of the major activities that the entity uses to monitor
internal control over financial reporting.
1. Monitoring of controls is a process to assess the effectiveness of internal control
Checklist
1. This is a series of instructions and/or questions which a member of the auditing staff
must follow and/or answer.
Flow Chart
1. Flowchart: graphic presentation of company’s internal control system
2. Most concise way of recording auditor’s review
3. Minimizes narrative explanation
4. Provides bird’s eye view of system and flow of transactions
5. Helps in spotting documentation gaps and suggesting improvements
6. Auditor must study significant features of business and nature of activities
7. Comprehensive study of manufacturing, trading, and administration processes needed
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systems are installed but not properly monitored, leading the auditor to assume they
are operational when they might not be working fully. The auditor can formulate his
entire audit programme only after he has had a satisfactory understanding of the internal
control systems and their actual operation.
complex environment.
3. An example of increased complexity is when a company uses integrated software systems,
indicating higher automation. On the other hand, using off-the-shelf systems implies
lower automation and a less complex environment.
If a company uses an integrated enterprise resource planning system (ERP) viz., SAP, Oracle
etc., then it is considered more complex to audit. On the other hand, if a company is using an
off-the-shelf accounting software, then it is likely to be less automated and hence less complex
environment.
Understanding the entity and its automated environment involves understanding of how IT
department is organised, IT activities, IT dependencies and relevant risks and controls.
The understanding of a company’s IT environment that is obtained should be documented.
Given below are some of the points that an auditor should consider to obtain an understanding
of the company’s automated environment:
1. Information systems being used (one or more application systems and what they are)
2. Their purpose (financial and non-financial)
3. Location of IT systems - local vs global.
4. Architecture (desktop based, client-server, web application, cloud based).
5. Version (functions and risks could vary in different versions of same application).
6. Interfaces within systems (in case multiple systems exist).
7. In-house vs Packaged.
8. Outsourced activities (IT maintenance and support).
Impact on controls
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Impact on reporting
Due to regulatory requirements in respect of internal financial controls (discussed in
subsequent paras) in case of companies, it may lead to modification of auditor’s report in
some instances.
7. General IT Controls
“General IT controls are policies and procedures that relate to many applications and support
the effective functioning of application controls. They apply to mainframe, miniframe, and
end-user environments.
General IT-controls that maintain the integrity of information and security of data commonly
include controls over the following:
1. Data center and network operations
2. Program change
3. Access security
4. Application system acquisition, development, and maintenance (Business Applications)
These are IT controls generally implemented to mitigate the IT specific risks and applied
commonly across multiple IT systems, applications and business processes. Hence, General
IT controls are known as “pervasive” controls or “indirect” controls.
Activities:
1. Change Management Process
2. Change Requests – record, manage, track
3. Making Changes and tracking change request
4. Testing changes
C. Access Security
Objective:
The objective of controls over access security is to ensure that access to programs and data is
authenticated and authorized to meet financial reporting objectives.
Activities:
1. & Security Organization & Management
2. Security Policies & Procedures
3. Application Security
4. Data Security
Activities:
1. Overall Mgmt. of Development Activities
2. Project Initiation
3. Analysis & Design
4. Construction
5. Testing & Quality Assurance
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8. Application Controls
Application controls include both automated or manual controls that operate at a business
process level. Automated Application controls are embedded into IT applications viz., ERPs
and help in ensuring the completeness, accuracy and integrity of data in those systems.
Examples of automated applications include edit checks and validation of input data, sequence
number checks, user limit checks, reasonableness checks, mandatory data fields.
9. IT dependent Controls
IT dependent controls are basically manual controls that make use of some form of data or
information or report produced from IT systems and applications.
In this case, even though the control is performed manually, the design and effectiveness of
such controls depends on the reliability of source data.
Due to the inherent dependency on IT, the effectiveness and reliability of automated application
controls and IT dependent controls require the General IT controls to be effective.
Inquiry is the most efficient audit test but it also gives the least audit evidence.
Reperformance is most effective as an audit test and gives the best audit evidence.
When testing in an automated environment, some of the more common methods are as
follows:
1. Obtain an understanding of how an automated transaction is processed by doing a
walkthrough of one end-to-end transaction using a combination of inquiry, observation
and inspection.
2. Observe how a user processes transactions under different scenarios.
3. Inspect the configuration defined in an application.
4. Inspect technical manual / user manual of systems and applications.
5. Carry out a test check (negative testing) and observe the error message displayed by the
application
5. The use of digital tools enables auditors to conduct more effective audits, focusing on
areas that require greater attention and improving risk identification through technology.
1. The discussion among the engagement team and the significant decisions reached
2. Key elements of the understanding obtained regarding each of the aspects of the entity
and its environment and of each of the internal control components, the sources of
information from which the understanding was obtained; and the risk assessment
procedures performed
3. The identified and assessed risks of material misstatement at the financial statement
level and at the assertion level and
4. The risks identified, and related controls about which the auditor has obtained an
understanding.
3. The identified and assessed risks of material misstatement at the financial statement level
and at the assertion level and
4. The risks identified, and related controls about which the auditor has obtained an
understanding.
1. Objective of SA 330
1. The auditor shall design and implement overall responses to address the assessed risks of
material misstatement at the financial statement level.
2. The auditor shall design and perform further audit procedures whose nature, timing and
extent are based on and are responsive to the assessed risks of material misstatement at
the assertion level.
The auditor shall design and perform tests of controls to obtain sufficient
appropriate audit evidence as to the operating effectiveness of relevant controls
when:
1. The auditor’s assessment of risks of material misstatement at the assertion level includes
an expectation that the controls are operating effectively (i.e., the auditor intends to rely
on the operating effectiveness of controls in determining the nature, timing and extent of
substantive procedures); or
2. Substantive procedures alone cannot provide sufficient appropriate audit evidence at the
assertion level.
In designing and performing tests of controls, the auditor shall obtain more persuasive audit
evidence the greater the reliance the auditor places on the effectiveness of a control.
A higher level of assurance may be sought about the operating effectiveness of controls when
the approach adopted consists primarily of tests of controls, in particular, where it is not
possible or practicable to obtain sufficient appropriate audit evidence only from substantive
procedures.
1. The auditor expects the controls to be operating effectively at the assertion level as part
of their assessment of Risk of Material Misstatement (ROMM) and plans to rely on them
to determine the nature, timing, and extent of substantive procedures.
2. Substantive procedures alone cannot provide enough suitable audit evidence at the
assertion level.
Test of controls may include:
1. Inspection of documents supporting transactions and other events to gain audit evidence
that internal controls have operated properly, for example, verifying that a transaction
has been authorised.
2. Inquiries about, and observation of, internal controls which leave no audit trail, for
example, determining who actually performs each function and not merely who is
supposed to perform it.
3. Re-performance involves the auditor’s independent execution of procedures or controls
that were originally performed as part of the entity’s internal control, for example,
reconciliation of bank accounts, to ensure they were correctly performed by the entity.
4. Testing of internal control operating on specific computerised applications or over the
overall information technology function, for example, access or program change controls.
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Matters the auditor may consider in determining the extent of test of controls
include the following:
1. The frequency of the performance of the control by the entity during the period.
2. The length of time during the audit period that the auditor is relying on the operating
effectiveness of the control.
Example:
Test of Transaction: A purchase transaction may be verified by examining the related purchase
invoice, goods received note, inward gate entry register.
Test of Balance: Verification of assets as well as liabilities like eeviewing entity’s plan
for performing physical verification of fixed assets and obtaining evidence for performance of
physical verification of fixed assets by management.
1. Objective of SA 320
The objective of the auditor is to apply the concept of materiality appropriately in planning
and performing the audit.
What is material ?
1. Misstatements are material if expected to influence the economic decisions of users taken
on the basis of the financial statements:
2. Judgments about materiality are affected by the size or nature of a misstatement: For
example a small amount lost by fraudulent practices of certain employees can indicate a
serious flaw in the enterprise’s internal control system
3. Judgments about matters that are material are based on a consideration of the common
financial information needs of users as a group :.
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3. What is materiality ?
The concept of materiality is applied by the auditor both in planning and performing the
audit, and in evaluating the effect of identified misstatement, uncorrected misstatement and
in forming the opinion in the auditor’s report.
1. Determining the nature, timing and extent of risk assessment process
2. Identifying and assessing the risk of material misstatement
3. Determining nature, timing and extent of further audit procedures
The auditor’s determination of materiality is a matter of professional judgment, and is
affected by the auditor’s perception of the financial information needs of users of the financial
statements.
In this context, it is reasonable for the auditor to assume that users:
1. Have a reasonable knowledge of business and economic activities and accounting and a
willingness to study the information in the financial statements with reasonable diligence;
2. Understand that financial statements are prepared, presented and audited to levels of
materiality;
3. Recognize the uncertainties inherent in the measurement of amounts based on the use of
estimates, judgment and the consideration of future events; and
4. Make reasonable economic decisions on the basis of the information in the financial
statements.
4. Performance materiality
An amount set at less than materiality for the FS as a whole, to reduce to an appropriately
low level the probability that the aggregate of uncorrected and undetected misstatements
exceeds materiality for the FS as a whole.
If applicable, performance materiality also refers to the amount or amounts set by the
auditor at less than the materiality level or levels for particular classes of transactions,
account balances or disclosures.
The auditor sets performance materiality at a value lower than overall materiality, and uses
this lower threshold when designing and performing audit procedures.
This reduces the risk that the auditor will fail to identify misstatements that are material when
added together
5. Benchmark
Determining materiality involves the exercise of professional judgment. A percentage is
often applied to a chosen benchmark as a starting point in determining materiality for the
financial statements as a whole.
Factors that may affect the identification of an appropriate benchmark include the following:
7. Revision of materiality
8. Documentation of materiality
The audit documentation shall include the following amounts and the factors considered in
their determination:
1. Materiality for the financial statements as a whole;
2. If applicable, the materiality level or levels for particular classes of transactions, account
balances or disclosures;
3. Performance materiality; and
4. Any revision of (a)-(c) as the audit progressed
statements, and communicate as required by the SAs, in accordance with the auditor’s findings.
The auditor obtains reasonable assurance by obtaining sufficient appropriate audit evidence
to reduce audit risk to an acceptably low level.
Audit risk is the risk that the auditor expresses an inappropriate audit opinion when the
financial statements are materially misstated. Audit risk is a function of the risks of material
misstatement and detection risk.
Materiality and Audit Risk are considered throughout the audit, in particular, when:
1. Identifying and assessing the risks of material misstatement;
2. Determining the nature, timing and extent of further audit procedures; and
3. Evaluating the effect of uncorrected misstatements, if any, on the financial statements
and in forming the opinion in the auditor’s report.
CHAPTER 4
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Chapter 4
SA 500 6
1. Meaning of Audit Evidence 6
2. Types of audit evidence 6
3. Sufficient and appropriate audit evidence 7
4. Relevance and reliability of audit evidence 8
5. Auditor’s procedure for audit evidence 8
6. Type of audit procedures 9
7. Information to be used as Audit Evidence 10
8. Selecting Items for Testing to Obtain Audit Evidence 12
9. Inconsistency in or Doubts over Reliability of Audit Evidence 13
SA 505 19
1. Meaning of External Confirmation 19
2. Important Terms 19
3. Audit procedures for External Confirmations 19
4. Design of Confirmation Requests 19
5. Management Refusal to send confirmation requests 20
6. Negative Confirmations 21
7. Evaluating the Evidence Obtained 21
SA 510 22
1. Meaning of Initial audit engagement 22
2. Objective of SA 510 22
3. Audit procedures for Opening balances 22
4. Misstatement in Opening Balances 22
SA 520 25
1. Meaning of Analytical Procedures 25
2. Objective of SA 520 25
3. Timing of Analytical Procedure 25
4. Factors to be considered for Analytical Procedures 26
5. Types of Analytical Procedure 27
6. Analytical Procedures as Substantive test 28
7. Suitability of particular analytical procedures for given assertions 29
8. Extent of Reliance on Analytical Procedures 29
9. The reliability of DATA 29
10. Evaluation whether expectationis sufficiently Precise 30
11. Amount of Acceptable Difference 30
12. Investigating results of Analytical Procedures 31
SA 530 32
1. Meaning of Audit Sampling 32
2. Objective of SA 530 32
3. Meaning of Population 32
4. Characteristics of Population 32
5. Approaches to Sampling 32
6. Advantage of Statistical Sampling 33
7. Disadvantage with Non- Statistical Sampling 34
8. Sampling Risk 34
9. Non-Sampling Risk 34
10. Extent on checking on Sampling Plan 34
11. Stratification 34
SA 550 42
1. Meaning of Related Parties 42
2. Nature of Related Party Transactions 42
SA 610 44
1. Definition of Internal Audit Function 44
2. Ways in which the external auditor may make use for audit 44
3. Scope of SA 610 45
4. External Auditor’s Responsibility for the audit 45
5. Objectives of external auditor : Entity has internal audit function 45
6. Evaluating the Internal Audit Function 45
6. Objectivity and its evaluation 46
7. Competence and its evaluation 46
SA 500
Other information
Information that authenticates the accounting records and also supports the auditor’s rationale
behind the opinion, for example:
a. Minutes of the meetings,
b. Written confirmations from trade receivables and trade payables,
c. Manuals containing details of internal control etc
notes, goods received note, inspection report, copies of cash memo, debit and
credit notes, etc.
b. External: The evidence that originates outside the client’s organization is external
evidence. Example: Purchase invoice, supplier’s challan and forwarding note,
debit notes and credit notes coming from parties, quotations, confirmations, etc.
The external evidence is generally considered to be more reliable as they come from third
parties who are not normally interested in manipulation of the accounting information of
others.
However, if the auditor has any reason to doubt the independence of any third party who has
provided any material evidence e.g. an invoice of an associated concern, he should exercise
greater vigilance in that matter.
Materiality
Significance of classes of transactions, account balances and presentation and disclosures to
the users of the financial statements.
Less evidence would be required in case assertions are less material to users of the financial
statements. But on the other hand, if assertions are more material to the users of the financial
statements, more evidence would be required.
required.
Whilst the procedures are similar in nature, their purpose (and relevance) is to test different
assertions regarding inventory balances.
Reliability
Auditors should always attempt to obtain evidence from the most trustworthy and dependable
source possible.
The reliability of evidence is influenced by its nature, source, circumstance in which its
obtained and controls over its preparation:
1. Evidence obtained from an independent external source is more reliable than client
generated evidence.
2. Evidence obtained directly by the auditor is more reliable than evidence obtained
indirectly.
3. Written evidence is more reliable than oral evidence as oral representations can be
withdrawn or challenged.
4. Original documents are more reliable than copies or documents transformed into
electronic form as it may be difficult to see if these have been tampered with.
5. The reliability of audit evidence generated internally is increased when the related
controls, including those over its accuracy and completeness, imposed by the entity are
effective.
a. Test of controls, when required by the SAs or when the auditor has chosen to do
so; and
b. Substantive procedures, including tests of details and substantive analytical
procedures.
When using information produced by the entity, the auditor shall evaluate
whether the information is sufficiently reliable for the auditor’s purposes,
including as necessary in the circumstances:
1. Obtaining audit evidence about the accuracy and completeness of the information;
2. Evaluating whether the information is sufficiently precise and detailed for the auditor’s
purposes.
SA 501
1. Objective of SA 501
The auditor should obtain sufficient appropriate evidence regarding:
1. Existence and condition of inventory
2. Completeness of litigation and claims involving the entity
3. Presentation and disclosure of segment information
3. Inventory
When inventory is material to the financial statements, the auditor shall obtain sufficient
appropriate audit evidence regarding the existence and condition of inventory by:
1. Attendance at physical inventory counting, unless impracticable, to:
a. Evaluate management’s instructions and procedures for recording and controlling
the results of the entity’s physical inventory counting
b. Observe the performance of management’s count procedures;
c. Inspect the inventory; and
d. Perform test counts
2. Performing audit procedures over the entity’s final inventory records to determine
whether they accurately reflect actual inventory count results.
Attendance at Is Impracticable
The auditor shall perform alternative audit procedures to obtain sufficient appropriate audit
evidence regarding the existence and condition of inventory. If it is not possible to do so, the
auditor shall modify the opinion in the auditor’s report in accordance with SA 705.
The matter of general inconvenience to the auditor, however, is not sufficient to support a
decision by the auditor that attendance is impracticable.
Further, as explained in SA 200, the matter of difficulty, time, or cost involved is not in itself a
valid basis for the auditor to omit an audit procedure for which there is noalternative or to be
satisfied with audit evidence that is less than persuasive.
Example of Alternate procedures:
Inspection of documentation of the subsequent sale of specific inventory items acquired or
purchased prior to the physical inventory counting
been identified, or when audit procedures performed indicate that other material litigation or
claims may exist:
1. the auditor shall, in addition to the procedures required by other SAs, seek direct
communication with the entity’s external legal counsel.
2. The auditor shall do so through a letter of inquiry requesting the entity’s external legal
counsel to communicate directly with the auditor.
3. If law and regulation prohibit such direct communication, perform alternate procedures.
If it is considered unlikely that the entity’s external legal counsel will respond
to a letter of general inquiry the auditor may seek direct communication
through a letter of specific inquiry
A letter of specific inquiry includes:
1. A list of litigation and claims;
2. Where available, management’s assessment of the outcome of each of the identified
litigation and claims and its estimate of the financial implications, including costs involved
3. A request that the entity’s external legal counsel confirm the reasonableness of
8. Segment Information
Segment Information refers to information about different types of products and services of
an enterprise and its operations in different geographical areas.
SA 505
1. Meaning of External Confirmation
External confirmation may be defined as audit evidence obtained as a direct written response
to the auditor from a third party (the confirming party), in paper form, or by electronic or
other medium.
2. Important Terms
1. Positive confirmation request – A request that the confirming party respond directly
to the auditor indicating whether the confirming party agrees or disagrees with the
information in the request, or providing the requested information.
2. Negative confirmation request – A request that the confirming party respond directly to
the auditor only if the confirming party disagrees with the information provided in the
request.
3. Non-response – A failure of the confirming party to respond, or fully respond, to a positive
confirmation request, or a confirmation request returned undelivered.
4. Exception – A response that indicates a difference between information requested
6. Negative Confirmations
Negative confirmations provide less persuasive audit evidence than positive confirmations.
Accordingly, the auditor shall not use negative confirmation requests as the sole substantive
audit procedure to address an assessed risk of material misstatement at the assertion level
unless all of the following are present:
1. The auditor has assessed the risk of material misstatement as low and has obtained
sufficient appropriate audit evidence regarding the operating effectiveness of controls
relevant to the assertion;
2. The population of items subject to negative confirmation procedures comprises a large
number of small, homogeneous, account balances, transactions or conditions;
3. A very low exception rate is expected; and
4. The auditor is not aware of circumstances or conditions that would cause recipients of
negative confirmation requests to disregard such requests.
A failure of a confirming party to respond to a negative confirmation request provides
significantly less persuasive audit evidence than does a response to a positive confirmation
request.
SA 510
1. Meaning of Initial audit engagement
Initial audit engagement is an engagement in which either:
1. The financial statements for the prior period were not audited; or
2. The financial statements for the prior period were audited by a predecessor auditor.
2. Objective of SA 510
In conducting an initial audit engagement, the objective of the auditor with respect to opening
balances is to obtain sufficient appropriate audit evidence about whether:
1. Opening balances contain misstatements that materially affect the current period’s
financial statements; and
2. Appropriate accounting policies reflected in the opening balances have been consistently
applied in the current period’s financial statements, or changes made are appropriately
accounted for, presented and disclosed in accordance with the applicable financial
reporting framework.
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The auditor obtains audit evidence that the opening balances contain misstatements that
could materially affect the current period’s financial statements:
1. The auditor shall perform such additional audit procedures as are appropriate in the
circumstances to determine the effect on the current period’s financial statements.
2. If the auditor concludes that such misstatements exist in the current period’s financial
statements, the auditor shall communicate the misstatements with the appropriate level
of management and those charged with governance.
Inventory
In the case of inventories, however, the current period’s audit procedures on the closing
inventory balance provide little audit evidence regarding inventory on hand at the beginning
of the period. Therefore, additional audit procedures may be necessary, and one or more of
the following may provide sufficient appropriate audit evidence:
1. Observing a current physical inventory count and reconciling it to the opening inventory
quantities.
2. Performing audit procedures on the valuation of the opening inventory items.
3. Performing audit procedures on gross profit and cut-off.
6. Audit reporting
If the auditor concludes that:
1. the current period’s accounting policies are not consistently applied in relation to opening
balances in accordance with the applicable financial reporting framework; or
2. a change in accounting policies is not properly accounted for or not adequately presented
or disclosed in accordance with the applicable financial reporting framework,
the auditor shall express a qualified opinion or an adverse opinion as appropriate in accordance
with SA 705.
Reporting Requirement:
1. If the auditor is unable to obtain sufficient appropriate audit evidence regarding the
opening balances, the auditor shall express a qualified opinion or a disclaimer of opinion,
as appropriate, in accordance with SA 705.
2. If the auditor concludes that the opening balances contain a misstatement that materially
affects the current period’s financial statements, and the effect of the misstatement is not
properly accounted for or not adequately presented or disclosed, the auditor shall express
a qualified opinion or an adverse opinion, as appropriate, in accordance with SA 705.
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SA 520
Meaning of Plausible :
Something that appears to be reasonable or believable, although it may not necessarily be true
or accurate.
2. Objective of SA 520
The Objective of the auditor are:
1. To obtain relevant and reliable audit evidence when using substantive analytical
procedures; and
2. To design and perform analytical procedures near the end of the audit that assist the
auditor when forming an overall conclusion as to whether the financial statements are
consistent with the auditor’s understanding of the entity.
SA 315 requires the auditor to perform analytical procedures as a risk assessment procedure.
In planning Stage analytical procedures assist the auditor in:
1. Identify aspects of the entity of which the auditor was unaware.
2. Assist in assessing the risks of material misstatement.
3. Assist in the identification of unusual transactions or events, as well as amounts, ratios,
and trends that could potentially impact an audit.
4. Help identify risks of material misstatement due to fraud.
This information will assist the auditor in determining the nature, timing and extent of his
other audit procedures.
Availability of Data:
The availability of reliable and relevant data will facilitate effective procedures.
Disaggregation:
The degree of disaggregation in available data can directly affect the degree of its usefulness
in detecting misstatements.
Account Type:
Substantive analytical procedures are more useful for certain types of accounts than for others.
Income statement accounts tend to be more predictable because they reflect accumulated
transactions over a period, whereas balance sheet accounts represent the net effect of
transactions at a point in time or are subject to greater management judgment.
Source:
Some classes of transactions tend to be more predictable because they consist of numerous,
similar transactions, (e.g., through routine processes). Whereas the transactions recorded
by non-routine and estimation SCOTs (significant class of transactions) are often subject to
management judgment and therefore more difficult to predict. The reliability of data depends
on the source from which information is received.
Predictability:
Substantive analytical procedures are more appropriate when an account balance or
relationships between items of data are predictable (e.g., between sales and cost of sales
or between trade receivables and cash receipts). A predictable relationship is one that may
reasonably be expected to exist and continue over time.
Nature of Assertion:
Substantive analytical procedures may be more effective in providing evidence for some
assertions (e.g., completeness or valuation) than for others (e.g., rights and obligations).
Predictive analytical procedures using data analytics can be used to address completeness,
valuation/measurement and occurrence.
Trend Analysis:
1. A commonly used technique is comparing current data with the prior period balance or
with a trend in two or more prior period balances.
2. We asses if the current account balance is consistent to the established trend of previous
account balances or if it is influenced by know factors that could lead to variations in the
account
3. This evaluation is an essential aspect of analysing financial information.
4. It helps in identifying potential errors, discrepancies, or irregularities in the financial
data.
5. Example: The auditor may compare the salary paid by the company during the year under
audit with the salary paid by the company for several earlier years. There may be some
percentage increase in the salary expense over the years. However, an unusual increase
in such expense amount may indicate that fraudulent payments are being made to fake
employees.
Ratio Analysis:
1. Ratio analysis is useful for analysing asset and liability accounts as well as revenue and
expense accounts.
2. An individual balance sheet account is difficult to predict on its own, but its relationship
to another account is often more predictable (e.g., the trade receivables balance related
to sales).
3. Ratios can also be compared over time or to the ratios of separate entities within the
group, or with the ratios of other companies in the same industry.
4. Example: Trade receivables or inventory turnover
Reasonableness Test:
1. Unlike trend analysis, this analytical procedure does not rely on events of prior periods,
but upon non-financial data for the audit period under consideration (e.g., occupancy
rates to estimate rental income or interest rates to estimate interest income or expense).
2. These tests are generally more applicable to income statement accounts and certain
accrual or prepayment accounts.
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3. Examples:
a. Interest expense against interest bearing obligations
b. Raw Material Consumption to Production (quantity)
c. Wastage & Scrap % against production & raw material consumption (quantity)
d. Work-in-Progress based on issued of materials & Sales (quantity)
e. Sales discounts and commissions against sales volume
f. Rental revenues based on occupancy of premises
Structural modelling:
A modelling tool constructs a statistical model from financial and/or non-financial data of
prior accounting periods to predict current account balances (e.g., linear regression).
The reliability of data is influenced by its source and nature and is dependent on the
circumstances under which it is obtained. Accordingly, the following are relevant when
determining whether data is reliable for purposes of designing substantive analytical
procedures:
1. Source of the information available. For example, information may be more reliable when
it is obtained from independent sources outside the entity;
2. Comparability of the information available. For example, broad industry data may need to
be supplemented to be comparable to that of an entity that produces and sells specialised
products;
3. Nature and relevance of the information available. For example, whether budgets have
been established as results to be expected rather than as goals to be achieved; and
4. Controls over the preparation of the information that are designed to ensure its
completeness, accuracy and validity. For example, controls over the preparation, review
and maintenance of budgets.
of persuasive evidence.
SA 530
meaningful results.
Sampling Unit: The individual items that make up the population are known as sampling
units.
2. Objective of SA 530
The objective of the auditor when using audit sampling is to provide a reasonable basis for the
auditor to draw conclusions about the population from which the sample is selected.
3. Meaning of Population
Population refers to the entire set of data from which a sample is selected and about which the
auditor wishes to draw conclusions.
4. Characteristics of Population
1. Appropriateness: determine that the population from which the sample is drawn is
appropriate for the specific audit objective.
2. Completeness: The population also needs to be complete, which means that the population
needs to include all relevant items from throughout the entire period.
3. Reliable: The information upon which the audit sampling is performed is sufficiently
complete and accurate.
5. Approaches to Sampling
Audit sampling can be applied using either:
1. Non-statistical
2. Statistical sampling
Statistical sampling
Statistical sampling is an approach to sampling that has the:
1. random selection of the sample items;
2. the use of probability theory to evaluate sample results,
3. the use of probability theory including measurement of sampling risk characteristics
Statistical Sampling More Scientific:
1. Audit testing done through this approach is more scientific than testing based entirely on
the auditor’s own judgment because it involves use of mathematical laws of probability in
determining the appropriate sample size in varying circumstances.
2. Statistical sampling has reasonably wide application where a population to be tested
consists of a large number of similar items.
3. There Is no personal bias of the auditor in case of statistical sampling. Since it is scientific,
Non-Statistical Sampling
Non-Statistical Sampling: A sampling approach that does not have characteristics of statistical
sampling is considered non-statistical sampling.
When non-statistical methods are used, the auditor uses judgment to select the items to be
tested. Whilst this lends itself to auditor bias it does support the risk-based approach, where
the auditor focuses on those areas most susceptible to material misstatement.
The decision whether to use a statistical or non-statistical sampling approach is a matter for
the auditor’s judgment; however, sample size is not a valid criterion to distinguish between
statistical and non-statistical approaches.
5. It may provide a better description of a large mass of data than a complete examination
of all the data, since non-sampling errors such as processing and clerical mistakes are not
as large.
8. Sampling Risk
The risk that the auditor’s conclusion based on a sample may be different from the conclusion
if the entire population were subjected to the same audit procedure. Sampling risk can lead
to two types of erroneous conclusions:
1. In the case of a test of controls, that controls are more effective than they actually are, or
in the case of a test of details, that a material misstatement does not exist when in fact it
does. The auditor is primarily concerned with this type of erroneous conclusion because
it affects audit effectiveness and is more likely to lead to an inappropriate audit opinion.
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2. In the case of a test of controls, that controls are less effective than they actually are, or
in the case of a test of details, that a material misstatement exists when in fact it does
not. This type of erroneous conclusion affects audit efficiency as it would usually lead to
additional work to establish that initial conclusions were incorrect.
9. Non-Sampling Risk
The risk that the auditor reaches an erroneous conclusion for any reason not related to sampling
risk. (In an auditing context, non-sampling risk arises when auditors use an inappropriate
procedure or misinterpret evidence they have obtained.)
11. Stratification
1. Audit efficiency may be improved if the auditor stratifies a population by dividing it into
discrete sub-populations (strata) which have an identifying characteristic.
2. The objective of stratification is to reduce the variability of items within each stratum and
therefore allow sample size to be reduced without increasing sampling risk.
3. When performing tests of details, the population is often stratified by monetary value.
This allows greater audit effort to be directed to the larger value items, as these items
may contain the greatest potential misstatement in terms of overstatement.
4. If a class of transactions or account balance has been divided into strata, the misstatement
is projected for each stratum separately and then combined when considering the
misstatement on class of transactions or account balance level.
Sample Design
When designing an audit sample, the auditor shall consider the purpose of the audit
procedures and the characteristics of the population from which the sample will be drawn.
1. Purposeful Selection: The auditor takes into account the particular objective to accomplish
and determines the set of audit procedures that is most likely to effectively meet that
objective.
2. Understanding Deviation and Misstatement: Auditors analyze the nature of audit
evidence and potential deviations or misstatements to define what should be considered
in the sample and which population to examine.
3. Completeness Verification: Auditors perform procedures to ensure the population from
which the sample is drawn is complete, in line with the requirements of audit evidence
(SA 500)
Sample Size
The auditor shall determine a sample size sufficient to reduce sampling risk to an acceptably
low level.
The level of sampling risk that the auditor is willing to accept affects the sample size required.
The lower the risk the auditor is willing to accept, the greater the sample size will need to
be.
The sample size can be determined by the application of a statistically-based formula or
through the exercise of professional judgment.
population. Therefore, it’s crucial to choose a representative sample that avoids bias,
selecting items typical of the population. With statistical sampling, sample items are
selected in a way that each sampling unit has a known probability of being selected.
2. The selection of items is done by choosing numbers from random number tables and its
like picking them randomly from a drum.
3. The use of random number tables is preferred because they are simple, easy to use, and
provide assurance that bias does not affect the selection.
4. The method is suitable when the population to be sampled consists of similar units that
fall within a reasonable range
3. The auditor needs to ensure that the sampling interval does not correspond with a
particular pattern in the population.
4. To minimize the effect of known patterns, multiple random starting points may be used.
5. The multiple random starting points minimize the risk of the sampling interval pattern
matching the population being sampled
Tolerable misstatement – A monetary amount set by the auditor in respect of which the
auditor seeks to obtain an appropriate level of assurance that the monetary amount set by the
auditor is not exceeded by the actual misstatement in the population.
Tolerable rate of deviation – A rate of deviation from prescribed internal control procedures
set by the auditor in respect of which the auditor seeks to obtain an appropriate level of
assurance that the rate of deviation set by the auditor is not exceeded by the actual rate of
deviation in the population.
Tolerable error is the maximum error in the population that auditor is ready to accept in a
given sample size. Smaller the tolerable error, larger will be the sample size.
SA 550
1. Meaning of Related Parties
A party that is either:
3. A related party as defined in the applicable financial reporting framework; or
4. Where the applicable financial reporting framework establishes minimal or no related
party requirements
a. A person or other entity that has control or significant influence, directly or
indirectly through one or more intermediaries, over the reporting entity;
b. Another entity over which the reporting entity has control or significant influence,
directly or indirectly through one or more intermediaries; or
c. another entity that is under common control with the reporting entity through
having:
- Common controlling ownership;
- Owners who are close family members; or
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3. Whether the entity entered into any transactions with these related parties during the
period and, if so, the type and purpose of the transactions.
The auditor shall inquire of management and others within the entity, and perform other risk
assessment procedures considered appropriate, to obtain an understanding of the controls,
if any, that management has established to:
1. Identify, account for, and disclose related party relationships and transactions in
accordance with the applicable financial reporting framework;
2. Authorise and approve significant transactions and arrangements with related parties;
and
3. Authorise and approve significant transactions and arrangements outside the normal
course of business.
How can an auditor verify the existence of related party relationships and
transactions?
During the audit, the auditor should maintain alertness for related party information while
reviewing records and documents. He may inspect the following records or documents that
may provide information about related party relationships and transactions, for example:
SA 610
2. Ways in which the external auditor may make use for audit
While the objectives of an entity’s internal audit function and the external auditor differ, the
function may perform audit procedures similar to those performed by the external auditor in
an audit of financial statements. If so, the external auditor may make use of the function for
purposes of the audit in one or more of the following ways:
1. To obtain information that is relevant to the external auditor’s assessments of the risks of
material misstatement due to error or fraud.
2. Unless prohibited, or restricted to some extent, by law or regulation, the external auditor,
after appropriate evaluation, may decide to use work that has been performed by the
internal audit function during the period in partial substitution for audit evidence to be
obtained directly by the external auditor.
3. Unless prohibited, or restricted to some extent, by law or regulation, the external auditor
may use internal auditors to perform audit procedures under the direction, supervision
and review of the external auditor (referred to as “direct assistance”).
3. Scope of SA 610
Standard on Auditing (SA) 610 deals with the external auditor’s responsibilities if using the
work of internal auditors. This includes:
1. Using the work of the internal audit function in obtaining audit evidence and
2. Using internal auditors to provide direct assistance under the direction, supervision and
review of the external auditor.
Nothing in this SA requires the external auditor to use the work of the internal audit function
to modify the nature or timing, or reduce the extent, of audit procedures to be performed
directly by the external auditor; it remains a decision of the external auditor in establishing
the overall audit strategy.
1. Objectivity and competence in the internal audit function exist on a continuum, with
organizational support and policies enhancing objectivity and competence facilitating
broader use by external auditors.
2. Strong support for internal auditors’ objectivity through organizational status and policies
cannot offset insufficient competence, and a high level of competence in the internal
audit function cannot compensate for inadequate support for auditors’ objectivity.
10. Determining the Nature and Extent of Work of the Internal Audit
Function that Can Be Used
As a basis for determining the areas and the extent to which the work of the internal audit
function 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 internal audit function and its
relevance to the external auditor’s overall audit strategy and audit plan.
In other words, once the external auditor has determined that the work of the internal audit
function can be used for purposes of the audit, a first consideration is whether the planned
nature and scope of the work of the internal audit function that has been performed, or is
planned to be performed, is relevant to the overall audit strategy and audit plan that the
external auditor has established.
Examples of work of the internal audit function that can be used by the external auditor
include the following:
11. Circumstances in which the external auditor shall plan to use less
of the work of the Internal audit function and perform more of the
work directly
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 if:
1. The more judgment is involved in:
a. (i) Planning and performing relevant audit procedures; and
b. (ii) Evaluating the audit evidence gathered;
Coordination between the external auditor and the internal audit function is
effective when, for example;
1. Discussions take place at appropriate intervals throughout the period.
2. The external auditor informs the internal audit function of significant matters that may
affect the function.
3. The external auditor is advised of and has access to relevant reports of the internal audit
function and is informed of any significant matters that come to the attention of the
function when such matters may affect the work of the external auditor so that the external
The external auditor shall not use an internal auditor to provide direct
assistance if:
1. There are significant threats to the objectivity of the internal auditor; or
2. The internal auditor lacks sufficient competence to perform the proposed work.
The external auditor shall not use internal auditors to provide direct
assistance to perform procedures that:
1. Involve making significant judgments in the audit;
2. Relate to higher assessed risks of material misstatement where the judgment required
in performing the relevant audit procedures or evaluating the audit evidence gathered is
more than limited;
3. Relate to work with which the internal auditors have been involved and which has already
been, or will be, reported to management or those charged with governance by the
internal audit function; or
4. 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.
Distinction between Internal Financial Control and Internal Control over financial reporting:
The term Internal Financial Controls (IFC) refers to the policies and procedures put in place
by companies for ensuring reliability of financial reporting, effectiveness and efficiency of
operations, compliance with applicable laws and regulations, safeguarding of assets and
prevention and detection of frauds.
On the other hand, Internal controls over financial reporting is required where auditors
are required to express an opinion on the effectiveness of an entity’s internal controls over
financial reporting, such opinion is in addition to and distinct from the opinion expressed by
the auditor on the financial statements.
Therefore, “internal financial control” is a wider term where as “internal controls over
financial reporting” is a narrower term restricted to entity’s internal controls over financial
reporting only.
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Chapter 5
1. Share Capital 3
2. Reserves and Surplus 6
3. Borrowings 8
4. Trade Receivables 11
5. Cash and Cash Equivalents 13
6. Inventories 15
7. Audit of PPE 17
8. Audit of Intangible Assets 21
9. Trade Payables and Other Current Liabilities 23
10. Loans and Advances and Other Current Assets 25
11. Provisions and Contingent Liabilities 27
Reduction of Capital
1. Verify shareholder meeting for special resolution, proper convening, and advance
circularisation.
2. Check Articles of Association for authorization of capital reduction.
3. Ensure no default in deposit repayment or interest payment.
4. Examine Tribunal order, its registration, and filing with Registrar of Companies.
5. Verify Registrar’s Certificate for capital reduction.
6. Vouch accounting entries for capital reduction, asset write-down, and compliance with
Schedule III.
7. Confirm proper disclosure of asset revaluation in the Balance Sheet.
8. Verify adjustment in members’ accounts in the Register of Members.
9. Confirm alteration or issuance of new share certificates and cancellation of old ones.
10. Add “and reduced” to the company name if required by the Tribunal.
11. Check compliance with tribunal-imposed terms and conditions.
12. Verify suitable alteration of the Memorandum of Association.
Ensure whether the following disclosure requirements of Schedule III (Part I) to Companies
Act, 2013 have been complied with:
1. Authorization and Issuance:
a. Number and amount of authorized shares.
b. Issued, subscribed, fully paid, and subscribed but not fully paid shares.
c. Par value per share.
2. Reconciliation of shares outstanding at the beginning and end of the reporting period.
3. Rights and Preferences:
a. Rights, preferences, and restrictions for each share class.
b. Restrictions on dividends and capital repayment.
4. Holding Company Details:
a. Shares of each class held by the holding company or ultimate holding company.
b. Shares held by subsidiaries or associates of the holding or ultimate holding
company.
5. Major Shareholders: Shares held by shareholders with more than 5% shares, specifying
the number.
6. Reserved Shares: Shares reserved for issue under options, contracts, commitments, or
disinvestment, including terms and amounts.
7. Historical Data (Last 5 Years):
a. Aggregate number and class of fully paid shares issued without cash receipt.
3. Borrowings
a. From banks.
b. From other parties.
c. Deferred payment liabilities;
d. Deposits;
e. Loans and advances from related parties;
f. Long term maturities of finance lease obligations;
g. Other loans and advances (specify nature).
4. Trade Receivables
4. Confirm that recorded debtors can only be settled through cash receipts or under the
authority of a responsible official.
5. Ensure segregation of duties at various stages of the sales transaction, including
accounting for debtors, collecting payments, and sending reminders.
6. Verify that debtors are collected within the stipulated time frame.
7. Check procedures for sending reminders and initiating legal actions if debtors are not
collected within the specified time.
8. Confirm that balances are regularly reviewed to identify any anomalies or discrepancies.
9. Verify the existence of a robust system for following up on outstanding debts.
10. Ensure that an adequate provision for bad debt is made, supported by the preparation of
an aging schedule for debtors.
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6. Inventories
a. When using a periodic system, conduct inventory counts at the end of the period.
b. For entities using a perpetual system with proper records, inventory counts may
be performed at interim dates.
5. Third-Party Inventory Confirmation: Confirm or investigate any inventory of the entity
held by a third party, especially relevant for job work done in the production process.
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7. Audit of PPE
Recognition Criteria for PPE
The cost of an item of PPE should be recognised as an asset if, and only if:
1. It is probable that future economic benefits associated with the item will flow to the
enterprise, and
2. The cost of the item can be measured reliably.
Elements of Cost
The cost of an item of property, plant and equipment comprises:
1. Purchase price, considering import duties and non-refundable purchase taxes, minus
trade discounts and rebates.
Examples of costs that are not costs of an item of property, plant and
equipment:
internal processes.
7. Check if competitive quotations or tenders were followed in vendor selection for
intangible assets.
8. For deletions, understand the rationale, obtain management approval, and verify the
disposal process.
9. Check documentation for the sale of discarded assets, including competitive quotes and
tenders.
10. Verify accurate recording of deletion details and resultant gain/loss on disposal in the
entity’s books.
2. Ensure all goods received before the period-end are included in trade creditors.
3. Test purchases and expenses from accounts payable ledgers with supporting documents.
4. Match purchase invoice dates to gate entry dates for correct recording periods.
5. Review subsequent expense vouchers to identify transactions within the audit period.
6. Verify customer advances, checking documentation and resolving disputes.
7. Analyze statutory dues liabilities (TDS, GST, etc.) for reasonableness based on sales,
purchases, and employee benefit expenses.
8. Calculate and verify GST and Provident Fund liabilities for the last month, comparing
with entity records.
9. Obtain and verify challans for statutory liability deposits post-period end.
10. Prepare a comprehensive list of statutory dues and address reporting requirements
under CARO, 2020.
Dividend
14. Purchases
Test of Controls for Purchases
1. Identify control points in the purchase cycle, such as segregation of duties, competitive
quotes, purchase committee authorization, goods receipt process, quality checks, invoice
approval, and purchase recognition in the system.
2. Test the effectiveness of controls in the purchase cycle.
3. Effective controls can reduce the need for extensive substantive testing.
4. Common controls include:
a. Competitive quotations,
b. Numbered purchase orders,
c. Authorization limits,
d. GRN generation,
Goods in Transit:
Ensure the correct accounting treatment of goods-in-transit based on agreed terms with the
vendor regarding the transfer of risk and reward of ownership.
Written Representation:
Obtain written representation from management confirming the proper recording of all
purchases throughout the year.
Insurance expense
1. Obtain a summary of insurance policies taken along with their validity period.
2. Verify whether the expense has been correctly classified between prepaid and expense
Undisclosed income
The Company shall give details of any transaction not recorded in the books of accounts that
has been surrendered or disclosed as income during the year in the tax assessments under
the Income Tax Act, 1961 (such as, search or survey or any other relevant provisions of the
Income Tax Act, 1961), unless there is immunity for disclosure under any scheme and also
shall state whether the previously unrecorded income and related assets have been properly
recorded in the books of account during the year.
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Chapter 6
1. Objective of SA 230 4
2. What is Audit documentation (Working Papers) ? 4
3. Purpose/Importance of Audit documentation 4
4. Form content and extent of audit documentation 5
5. Documentation of Significant matters and Judgements 5
6. Completion Memorandum (Audit Summary) 6
7. Audit File 6
8. Assembly of Audit file 6
9. Ownership of Audit documentation 7
The form, content and extent of audit documentation depend on factors such as:
1. Size and complexity of the entity. (Reliance vs Binod Bhai & Co.)
2. Identified risks of material misstatement. (High vs Low)
3. Nature of the audit procedures to be performed. (Substantive vs TOC)
4. Significance of the audit evidence obtained.
5. Nature and extent of exceptions identified. (Misstatement)
6. Audit methodology and tools used.
7. Need to document a conclusion or the basis for a conclusion that isn’t clear from the audit
evidence or from the documentation of the work performed.
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5. Documentation of Significant matters and Judgements
The auditor shall prepare audit documentation that is sufficient to enable an experienced
auditor to understand significant matters arising during the audit.
Judging the significance of a matter requires an objective analysis of the facts and circumstances.
3. If the auditor conducts further investigation to confirm the authenticity of a document due
to identified conditions during the audit, they must provide the basis for their conclusion
on the authenticity of the document, including the use of experts or confirmation
procedures.
7. Audit File
Audit file may be defined as one or more folders or other storage media, in physical or
electronic form, containing the records that comprise the audit documentation for a specific
engagement.
CHAPTER 7
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Chapter 7
SA 260 4
1. Objective of SA 260 4
2. Who are “Those charged with governance”? 4
3. Significance of communication with TCWG 4
4. Matters to be communicated by auditor 5
5. Communication in case of Listed Entities 5
6. The Communication Process 6
7. Adequacy of the communication process 6
8. Documentation 6
SA 265 7
1. Objective of SA 265 7
2. Meaning of Deficiency & Significant Deficiency 7
3. Examples of Matters 7
4. Examples of Indicators 8
5. Communication of Significant deficiencies 8
6. How it should be communicated ? 9
SA 560 10
1. Meaning of Subsequent events 10 CA Inter with CA Himanshu
2. Objective of SA 560 10
3. Audit procedures for Subsequent events 10
4. Fact known After Date of Audit Report but Before Date of Issue of FS 11
5. Fact known After Date of Issue of FS 12
6. Refusal of Mangement to Amend 12
SA 570 13
1. Meaning of Going Concern 13
2. Management’s Responsibility for Assessment of Going Concern 13
3. Objective of SA 570 13
4. Risk Assessment Procedures 13
5. Example of events that may impact Going Concern 14
6. Evaluating Managements Assessment 15
7. Audit procedures : When Event or Conditions are Identified 15
8. Implications for the auditor’s report 16
SA 580 18
1. Meaning of Written Representation 18
2. Objective of SA 580 18
3. Written representation is requested from ? 19
4. Written representation about management’s responsibility 19
5. Why WR about management responsibilities are necessary? 20
6. Other Written Representations 20
7. Written representations about specific assertions 20
5. Date of and Period covered by Written Representations 21
6. Doubt as to the reliability of Written representations 21
7. Management’s refusal to provide representation 21
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8. Disclaimer of opinion in case of Non Realiabililty of WR 21
SA 450 22
1. Objective 22
2. Accumulation of misstatements identified during the audit 22
3. Consideration of identified misstatements as the audit progresses 22
3. Communication and correction of misstatements 22
SA 260
1. Objective of SA 260
The objectives of the auditor are:
1. To communicate clearly with those charged with governance the responsibilities of the
auditor in relation to the financial statement audit, and an overview of the planned scope
and timing of the audit;
2. To obtain from those charged with governance information relevant to the audit
3. To provide those charged with governance with timely observations arising from the
audit that are significant and relevant to their responsibility to oversee the financial
reporting process and
4. To promote effective two-way communication between the auditor and those charged
with governance.
Communication from auditor is important with those charged with governance. An effective
two-way communication is important in assisting:
1. The auditor and TCWG in understanding matters related to the audit in context, and in
developing a constructive working relationship. This relationship is developed while
maintaining the auditor’s independence and objectivity
2. The auditor in obtaining from those charged with governance information relevant to
the audit. For example, TCWG may assist the auditor in understanding the entity and its
environment etc.
3. Those charged with governance in fulfilling their responsibility to oversee the financial
reporting process, thereby reducing the risks of material misstatement of the financial
statements.
3. Significant matters arising during the audit that were discussed, or subject to
correspondence, with management
4. Written representations the auditor is requesting
5. Circumstances that affect the form and content of the auditor’s report, if any and
6. Any other significant matters arising during the audit that, in the auditor’s professional
judgment, are relevant to the oversight of the financial reporting process.
1. A statement that the engagement team and others in the firm as appropriate, the firm
and, when applicable, network firms have complied with relevant ethical requirements
regarding independence.
2. The auditor considers and evaluates all relationships and other factors between the
auditing firm, network firms, and the entity under audit, which, in their professional
judgment, could reasonably be perceived to influence or impact independence.
3. This shall include total fees charged during the period covered by the financial statements
for audit and non-audit services provided by the firm and network firms to the entity and
components controlled by the entity.
4. These fees shall be allocated to categories that are appropriate to assist those charged
with governance in assessing the effect of services on the independence of the auditor
and
5. The related safeguards that have been applied to eliminate identified threats to
independence or reduce them to an acceptable level.
those charged with governance has been adequate for the purpose of the audit. If it has
not, the auditor shall evaluate the effect, if any, on the auditor’s assessment of the risks of
material misstatement and ability to obtain sufficient appropriate audit evidence, and shall
take appropriate action.
8. Documentation
1. Where matters required by SA 260 to be communicated are communicated orally, the
auditor shall include them in the audit documentation, and when and to whom they
were communicated.
2. Where matters have been communicated in writing, the auditor shall retain a copy of
the communication as part of the audit documentation.
SA 265
1. Objective of SA 265
he objective of the auditor is to communicate appropriately to those charged with governance
and management deficiencies in internal control that the auditor has identified during the
audit and that, in the auditor’s professional judgment, are of sufficient importance to merit
their respective attentions.
3. Examples of Matters
Examples of matters that the auditor may consider in determining whether
a deficiency or combination of deficiencies in internal control constitutes a
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significant deficiency:
1. The importance of the controls to the financial reporting process, for example:
a. General monitoring controls (such as oversight of management).
b. Controls over the prevention and detection of fraud.
c. Controls over the selection and application of significant accounting policies.
d. Controls over significant transactions with related parties.
e. Controls over significant transactions outside the entity’s normal course of
business.
f. Controls over the period-end financial reporting process (such as controls over
non-recurring journal entries).
2. The cause and frequency of the exceptions detected as a result of the deficiencies in the
controls.
3. The volume of activity that has occurred or could occur in the account balance or class of
transactions exposed to the deficiency or deficiencies.
4. The subjectivity and complexity of determining estimated amounts, such as fair value
accounting estimates.
5. The susceptibility to loss or fraud of the related asset or liability
4. Examples of Indicators
Examples of Indicators of Significant Deficiency:
1. Absence of a risk assessment process within the entity where such a process would
ordinarily be expected to have been established.
2. Evidence of an ineffective entity risk assessment process, such as management’s failure
to identify a risk of material misstatement that the auditor would expect the entity’s risk
assessment process to have identified.
3. Evidence of an ineffective response to identified significant risks (e.g., absence of controls
over such a risk).
4. Misstatements detected by the auditor’s procedures that were not prevented, or detected
and corrected, by the entity’s internal control.
5. Disclosure of a material misstatement due to error or fraud as prior period items in the
current year’s Statement of Profit and Loss.
6. Evidence of management’s inability to oversee the preparation of the financial statements.
7. Evidence of ineffective aspects of the control environment, such as:
a. Indicatin of significant transactions in which management is financially interested
are not being appropriately scrutinised by those charged with governance.
b. Identification of management fraud, whether or not material, that was not
prevented by the entity’s internal control.
c. Management’s failure to implement appropriate remedial action on significant CA Inter with CA Himanshu
deficiencies previously communicated.
2. Other deficiencies in internal control identified during the audit that have not been
communicated to management by other parties and that, in the auditor’s professional
judgment, are of sufficient importance to merit management’s attention.
SA 560
1. Meaning of Subsequent events
Events occurring between the date of the financial statements and the date of the auditor’s
report, and facts that become known to the auditor after the date of the auditor’s report.
For example: if a company prepares financial statements for the period ending 31 March,
2023, and the auditor issued an unqualified opinion on May 15, 2023, any events or facts that
occurred between 31 March, 2023, and May 15, 2023, would be considered subsequent events.
Financial statements may be affected by certain events that occur after the date of the
financial statements. Many financial reporting frameworks specifically refer to such events.
Such financial reporting frameworks ordinarily identify two types of events:
4. Those that provide evidence of conditions that existed at the date of the financial
statements and
5. Those that provide evidence of conditions that arose after the date of the financial
statements.
Examples of events providing evidence of conditions that existed at the date of the financial
statements
Declaration of insolvency of a major debtor of the entity between the date offinancial
statements and the date of auditor’s report providing evidence on the recoverability of the
money due from debtor as on date of the financial statements.
Examples of events providing evidence of conditions that arose after the date of the financial
statements
1. Issue of new share capital.
2. Planned merger of the company.
3. Destruction of substantial inventories due to fire between the date of the financial
statements and the date of auditor’s report.
2. Objective of SA 560
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1. Obtain sufficient appropriate audit evidence about whether events occurring between
the date of the financial statements and the date of the auditor’s report, that require
adjustment or disclosure are appropriately reflected in accordance with the applicable
financial reporting framework.
2. Respond appropriately to facts that become known to the auditor after the date of the
auditor’s report, that, had they been known to the auditor at that date, may have caused
the auditor to amend the auditor’s report.
4. Fact known After Date of Audit Report but Before Date of Issue of FS
1. Discuss the matter with management and, where appropriate, those charged with
governance.
2. Determine whether the financial statements need amendment and, if so,
3. Inquire how management intends to address the matter in the financial statements.
solely to the amendment of the financial statements described in the relevant note to the
financial statements or
2. Provide a new or amended auditor’s report that includes a statement in an Emphasis of
Matter paragraph or Other Matter(s) paragraph that conveys that auditor’s procedures on
subsequent events are restricted solely to the amendment of the financial statements as
described in the relevant note to the financial statements.
If management does not amends the financial statements, the auditor shall:
1. If the auditor’s report has not yet been provided to the entity, the auditor shall modify the
opinion as required by SA 705 and then provide the auditor’s report or
2. If the auditor’s report has already been provided to the entity, the auditor shall notify
management and, unless all of those charged with governance are involved in managing
the entity, those charged with governance, not to issue the financial statements to third
parties before the necessary amendments have been made. If the financial statements
are nevertheless subsequently issued without the necessary amendments, the auditor
shall take appropriate action, to seek to prevent reliance on the auditor’s report.
SA 570
1. Meaning of Going Concern
Under the going concern basis of accounting, the financial statements are prepared on
the assumption that the entity is a going concern and will continue its operations for the
foreseeable future.
General purpose financial statements are prepared using the going concern basis of accounting,
unless management either:
1. Intends to liquidate the entity or to cease operations, or
2. Has no realistic alternative but to do so.
3. Objective of SA 570
The objectives of the auditor are:
1. To obtain sufficient appropriate audit evidence regarding and conclude on the
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The auditor shall remain alert throughout the audit for audit evidence of events or conditions
that may cast significant doubt on the entity’s ability to continue as a going concern.
Operating
1. Management intentions to liquidate the entity or to cease operations.
2. Loss of key management without replacement.
3. Loss of a major market, key customer(s), franchise, license, or principal supplier(s).
4. Labour difficulties.
Others:
1. Non-compliance with capital or other statutory or regulatory requirements, such as
solvency or liquidity requirements for financial institutions.
2. Pending legal or regulatory proceedings against the entity that may, if successful, result
in claims that the entity is unlikely to be able to satisfy.
3. Changes in law or regulation or government policy expected to adversely affect the entity.
4. Uninsured or under insured catastrophes when they occur.
its assessment, the assumptions on which the assessment is based and management’s plans
for future action and whether management’s plans are feasible in the circumstances.
In evaluating management’s assessment of the entity’s ability to continue as a going concern,
the auditor shall cover the same period as that used by management to make its assessment
as required by the applicable financial reporting framework, or by law or regulation if it
specifies a longer period. If management’s assessment of the entity’s ability to continue as a
going concern covers less than twelve months from the date of the financial statements, the
auditor shall request management to extend its assessment period to at least twelve months
from that date.
The auditor shall obtain sufficient appropriate audit evidence to determine whether or not
a material uncertainty exists related to events or conditions that may cast significant doubt
on the entity’s abili.ty to continue as a going concern through performing additional audit
procedures, including consideration of mitigating factors.
These procedures shall include:
1. Inquire of management about their assessment of the entity’s ability to continue as a
going concern.
2. Evaluate management’s proposed future actions to mitigate going concern issues.
3. Analyse management’s cash flow forecast in terms of management’s plans for future
action by
a. evaluating the reliability of the underlying data of the forecast and
b. determine if there is adequate support for the assumptions underlying the
forecast.
c. Consider whether any significant additional facts have occurred since the date of
the going concern assessment.
d. Request written representations from management regarding their future action
plans and the feasibility of these plans.
Audit procedures that are relevant to the requirement as stated above may include the
following:
1. Analyzing and discussing cash flow
2. Analyzing and discussing the entity’s latest available interim financial statements.
3. Reading the terms of debentures and loan agreements and determining whether any have
been breached.
4. Reading minutes of the meetings of shareholders, those charged with governance and
relevant committees
5. Inquiring of the entity’s legal counsel regarding the existence of litigation and claims
6. Evaluating the entity’s plans to deal with unfilled customer orders.
7. Confirming the existence, terms and adequacy of borrowing facilities CA Inter with CA Himanshu
may cast significant doubt on the entity’s ability to continue as a going concern and,
therefore, that it may be unable to realize its assets and discharge its liabilities in the
normal course of business.
If events or conditions have been identified that may cast significant doubt on the entity’s
ability to continue as a going concern but, based on the audit evidence obtained the auditor
concludes that no material uncertainty exists, the auditor shall evaluate whether, in view of
the requirements of the applicable financial reporting framework, the financial statements
provide adequate disclosures about these events or conditions.
705.
2. In the Basis for Qualified (Adverse) Opinion section of the auditor’s report, state that
a material uncertainty exists that may cast significant doubt on the entity’s ability to
continue as a going concern and that the financial statements do not adequately disclose
this matter.
C. Management unwilling to make or extend its assessment
1. The auditor shall consider the implications for the auditor’s report.
2. In such a situation, a qualified opinion or a disclaimer of opinion in the auditor’s report
may be appropriate, because it may not be possible for the auditor to obtain sufficient
appropriate audit evidence regarding management’s use of the going concern basis of
accounting in the preparation of the financial statements.
SA 580
1. Meaning of Written Representation
Written representations may be defined as a written statement by management provided to
the auditor to confirm certain matters or to support other audit evidence.
Written representations in this context do not include financial statements, the assertions
therein, or supporting books and records.
Although written representations provide necessary audit evidence, they do not provide
sufficient appropriate audit evidence on their own about any of the matters with which they
deal.
Furthermore, the fact that management has provided written representations does not affect
the nature or extent of other audit evidence that the auditor obtains.
2. Objective of SA 580
Written Representations requires the auditor to obtain written representations from
management:
To respond appropriately
To respond appropriately to written representations provided by management or if
management does not provide the written representations requested by the auditor.
SA 450
1. Objective
The objective of the auditor is to evaluate: -
1. The effect of identified misstatements on the audit and
2. The effect of uncorrected misstatements, if any, on the financial statements.
2. The effect of uncorrected misstatements related to prior periods on the relevant classes
of transactions, account balances or disclosures, and the financial statements as a whole.
CHAPTER 8
Audit Report
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Chapter 8
SA 700 6
1. Objective of SA 700 6
2. Financial Reporting Framework 6
3. Forming Opinion on Financial Statements 6
4. Evaluation of Qualitative aspects of accounting 7
5. Specific Evaluation of applicable FRF 7
6. Other Evaluation 7
7. Elements of Audit Report 8
8. UDIN 17
9. Audit Report as required by Law or Regulation (Along with Module) 17
SA 705 18
SA 701 26
1. Meaning of KAM 26
2. Objective of SA 701 26
3. Applicability 26
4. Purpose of Communicating KAM 26
5. Determining Key Audit Matters 26
6. Communicating Key Audit Matters 27
7. KAM is not a substitute for disclosure in FS 27
8. Communicating with TCWG 27
9. Example 27
SA 706 29
1. Meaning of Emphasis of Matter Paragraph 29
2. Meaning of Other Matter Paragraph 29
3. Objective of SA 706 29
4. Emphasis of Matter Paragraphs in the Auditor’s Report 29
SA 710 31
1. Background 31
2. Meaning of Comparative Information 31
3. Type of Comparative Information 31
4. Difference in Approach 31
5. Objective of SA 710 31
6. Audit Procedures for comparative information 32
7. Audit Reporting regarding Corresponding Figures 32
SA 299 35
1. Requirements 35
2. Joint Responsibility 35
3. Communication Responsibility 36
4. Difference of Opinion 36
SA 700
1. Objective of SA 700
The objectives of the auditor as per SA 700 (Revised), “Forming an Opinion And Reporting on
Financial Statements” are:
1. To form an opinion on the financial statements based on an evaluation of the conclusions
drawn from the audit evidence obtained; and
2. To express clearly that opinion through a written report.
Compliance Framework:
The term “compliance framework” is used to refer to a financial reporting framework that
requires compliance with the requirements of the framework, but does not contain the
acknowledgements in (1) or (2) above.
6. Other Evaluation
When the financial statements are prepared in accordance with a fair presentation framework,
the evaluation shall also include an evaluation by the auditor as to whether the financial
statements achieve fair presentation which shall include consideration of:
Title
The auditor’s report shall have a title that clearly indicates that it is the report of an independent
auditor.
Addresse
The auditor’s report is normally addressed to those for whom the report is prepared, often
either to the shareholders or to those charged with governance of the entity whose financial
statements are being audited.
4. States whether the auditor believes that the audit evidence the auditor has obtained is
sufficient and appropriate to provide a basis for the auditor’s opinion.
Going Concern:
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including those that may be of significant public interest, for example because they have
a large number and wide range of stakeholders and considering the nature and size of the
business.
the financial reporting process, when those responsible for such oversight are different from
Management. In this case, the heading of this section shall also refer to “Those Charged with
Governance”
Part 2
The Auditor’s Responsibilities for the Audit of the Financial Statements section of the auditor’s
Part 3
The Auditor’s Responsibilities for the Audit of the Financial Statements section of the auditor’s
report also shall:
1. State that the auditor communicates with those charged with governance regarding,
among other matters, the planned scope and timing of the audit and significant audit
findings, including any significant deficiencies in internal control that the auditor
identifies during the audit;
2. For audits of financial statements of listed entities, state that the auditor provides
those charged with governance with a statement that the auditor has complied with
relevant ethical requirements regarding independence and communicate with them all
relationships and other matters that may reasonably be thought to bear on the auditor’s
independence, and where applicable, related safeguards; and
3. For audits of financial statements of listed entities and any other entities for which key
audit matters are communicated in accordance with SA 701, state that, from the matters
communicated with those charged with governance, the auditor determines those matters
that were of most significance in the audit of the financial statements of the current
period and are therefore the key audit matters. The auditor describes these matters in the
auditor’s report unless law or regulation precludes public disclosure.
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Location of the description of the auditor’s responsibilities for the audit of the
financial statements:
The description of the auditor’s responsibilities for the audit of the financial statements shall
be included:
1. Within the body of the auditor’s report
2. Within an appendix to the auditor’s report, in which case the auditor’s report shall include
a reference to the location of the appendix or
3. By a specific reference within the auditor’s report to the location of such a description on a
website of an appropriate authority, where law, regulation or national auditing standards
expressly permit the auditor to do so.
Auditor’s Address:
The auditor’s report shall name specific location, which is ordinarily the city where the audit
report is signed
8. UDIN
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It was noticed that financial documents/ certificates attested by third person misrepresenting
themselves as CA Members were misleading the Authorities and Stakeholders. ICAI also
received number of complaints of signatures of CAs being forged by non CAs. ICAI implemented
an innovative concept of UDINi.e. Unique Document Identification Number.
Chartered Accountants having full-time Certificate of Practice can register on UDIN Portal
and generate UDIN by registering the certificates attested/certified by them.
Accordingly, an auditor is required to mention the UDIN with respect to each audit report
being signed by him, along with his membership number while signing an audit report.
SA 705
1. Types of Opinion
Unmodified opinion:
The auditor shall express an unmodified opinion when the auditor concludes that the financial
statements are prepared, in all material respects, in accordance with the applicable financial
reporting framework
Modified opinion:
If the auditor :
1. Concludes, that based on the audit evidence obtained, the financial statements as a whole
are not free from material misstatement
2. Unable to obtain sufficient and appropriate audit evidence to conclude that the financial
statement as a whole are free from material misstatement.
3. Meaning of Pervasive
This means that the misstatements were not limited to a particular account or area of the
financial statements, but were present throughout the records and the misstatements were
significant enough to affect the overall accuracy and reliability of the financial statements.
Pervasive effects on the financial statements are those that, in the auditor’s judgment:
1. Are not confined to specific elements, accounts or items of the financial statements;
2. If so confined, represent or could represent a substantial proportion of the FS; or
3. In relation to disclosures, are fundamental to users’ understanding of the financial
statements
Qualified Opinion
The auditor shall express a qualified opinion when:
1. The auditor, having obtained sufficient appropriate audit evidence, concludes that
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misstatements, individually or in the aggregate, are material, but not pervasive, to the
financial statements; or
2. The auditor is unable to obtain sufficient appropriate audit evidence 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 sufficient
appropriate audit evidence, concludes that misstatements, individually or in the aggregate,
are both material and pervasive to the financial statements.
Disclaimer of Opinion
1. The auditor shall disclaim an opinion when the auditor is unable to obtain sufficient
appropriate audit evidence 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.
2. The auditor shall disclaim an opinion when, in extremely rare circumstances involving
multiple uncertainties, the auditor concludes that, notwithstanding having obtained
sufficient appropriate audit evidence regarding each of the individual uncertainties,
it is not possible to form an opinion on the financial statements due to the potential
interaction of the uncertainties and their possible cumulative effect on the financial
statements.
The decision regarding which type of modified opinion is appropriate depends upon:
1. The nature of the matter giving rise to the modification, that is, whether the financial
statements are materially misstated or, in the case of an inability to obtain sufficient
appropriate audit evidence, may be materially misstated; and
2. The auditor’s judgement about the pervasiveness of the effects or possible effects of the
matter on the financial statements.
When the auditor modifies the audit opinion, the auditor shall use the heading “Qualified
Opinion,” “Adverse Opinion,” or “Disclaimer of Opinion,” as appropriate, for the Opinion
section.
Qualified Opinion
When the auditor expresses a qualified opinion due to a material misstatement in the financial
statements, the auditor shall state that, in the auditor’s opinion, except for the effects of the
matter(s) described in the Basis for Qualified Opinion section,
1. When reporting in accordance with a fair presentation framework, the accompanying
financial statements present fairly, in all material respects (or give a true and fair view
of) […] in accordance with [the applicable financial reporting framework]; or
2. When reporting in accordance with a compliance framework, the accompanying
financial statements have been prepared, in all material respects, in accordance with
[the applicable financial reporting framework].
When the modification arises from an inability to obtain sufficient appropriate audit evidence,
the auditor shall use the corresponding phrase “except for the possible effects of the matter(s)
...” for the modified opinion.
Adverse Opinion
When the auditor expresses an adverse opinion, the auditor shall state that, in the auditor’s
opinion, because of the significance of the matter(s) described in the Basis for Adverse
Opinion section,
Disclaimer of Opinion
When the auditor disclaims an opinion due to an inability to obtain sufficient appropriate
audit evidence, the auditor shall:
1. State that the auditor does not express an opinion on the accompanying financial
statements;
2. State that, because of the significance of the matter(s) described in the Basis for Disclaimer
of Opinion section, the auditor has not been able to obtain sufficient appropriate audit
evidence to provide a basis for an audit opinion on the financial statements; and
3. Amend the statement required by SA 700 (Revised), which indicates that the financial
statements have been audited, to state that the auditor was engaged to audit the financial
statements.
b. Describe in the Basis for Opinion section the nature of the omitted information;
and
c. Unless prohibited by law or regulation, include the omitted disclosures, provided
it is practicable to do so and the auditor has obtained sufficient appropriate audit
evidence about the omitted information.
5. If the modification results from an inability to obtain sufficient appropriate audit
evidence, the auditor shall include in the Basis for Opinion section the reasons for that
inability.
6. 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.
a. Example 1: The audit evidence we have obtained, except for the effects of the
matter described in the Basis for Qualified Opinion section, is sufficient and
appropriate to provide a basis for our qualified opinion.
b. Example 2: The audit evidence we have obtained is not sufficient and appropriate
to provide a basis for our opinion.
7. 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).
a. A reference to the section of the auditor’s report where the auditor’s responsibilities
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SA 701
1. Meaning of KAM
Those matters that, in the auditor’s professional judgment, were of most significance in the
audit of the financial statements of the current period. Key audit matters are selected from
matters communicated with those charged with governance
2. Objective of SA 701
The objectives of the auditor are to:
1. Determine key audit matters and, having formed an opinion on the financial statements
2. Communicate those matters by describing them in the auditor’s report.
3. Applicability
This SA applies to audits of complete sets of general purpose financial statements of :
1. Listed entities and
2. Circumstances when the auditor otherwise decides to communicate key audit matters in
the auditor’s report and required by law or regulation to communicate key audit matters
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9. Example
The following illustrates the presentation in the auditor’s report if the auditor has determined
SA 706
3. Objective of SA 706
The objective of the auditor, having formed an opinion on the financial statements, is to
draw users’ attention, when in the auditor’s judgment it is necessary to do so, by way of clear
additional communication in the auditor’s report, to:
1. 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
to events or conditions that may cast significant doubt on an entity’s ability to continue as
a going concern.
SA 710
1. Background
This Standard on Auditing (SA) deals with the auditor’s responsibilities regarding comparative
information in an audit of financial statements.
When the financial statements of the prior period have been audited by a predecessor auditor
or were not audited, the requirements and guidance in SA 510 regarding opening balances
also apply.
2. For comparative financial statements: the auditor ’s opinion refers to each period for
which financial statements are presented.
5. Objective of SA 710
As per SA 710, the objectives of the auditor are:
1. 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
2. To report in accordance with the auditor’s reporting responsibilities.
When corresponding figures are presented, the auditor’s opinion shall not
refer to the corresponding figures except in the following circumstances:
706.
SA 299
1. Requirements
This Standard deals with the special considerations in carrying out audit by joint auditors. It
requires that–
1. The engagement partner and other key members of the engagement team from each of
the joint auditors should be involved in planning the audit.
2. The joint auditors should jointly establish an overall audit strategy which sets the scope,
timing and direction of the audit, and also guides the development of the audit plan.
3. Before the commencement of the audit, the joint auditors should discuss and develop a
joint audit plan. In developing the joint audit plan, the joint auditors should:
a. Identify division of audit areas and common audit areas;
b. Ascertain the reporting objectives of the engagement;
c. Consider and communicate among all joint auditors the factors that are significant
in directing the engagement team’s efforts;
d. Consider the results of preliminary engagement activities, or similar engagements
2. Joint Responsibility
In respect of audit work divided among the joint auditors, each joint auditor shall be
responsible only for the work allocated to such joint auditor including proper execution of
the audit procedures.
All the joint auditors shall be jointly and severally responsible for:
1. The audit work which is not divided among the joint auditors and is carried out by all joint
auditors;
2. Decisions taken by all the joint auditors under audit planning in respect of common audit
areas;
3. Matters which are brought to the notice of the joint auditors by any one of them and there
is an agreement among the joint auditors on such matters;
4. Examining that the financial statements of the entity comply with the requirements of the
relevant statutes;
5. Presentation and disclosure of the financial statements as required by the applicable
financial reporting framework;
6. Ensuring that the audit report complies with the requirements of the relevant statutes,
applicable Standards on Auditing and other relevant pronouncements issued by ICAI.
3. Communication Responsibility
In case a joint auditor comes across matters which are relevant to the areas of responsibility
of other joint auditors and which deserve their attention, or which require disclosure or
require discussion with, or application of judgment by other joint auditors, the said joint
auditor shall communicate the same to all the other joint auditors in writing prior to the
completion of the audit.
4. Difference of Opinion
It may be noted that the joint auditors are required to issue common audit report. However,
where the joint auditors are in disagreement with regard to the opinion or any matters to be
covered by the audit report, they shall express their opinion in a separate audit report. In
such circumstances, the audit report(s) issued by the joint auditor(s) shall make a reference
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Using the Work of another Auditor: SA 600, “Using the Work of another
Auditor
It makes clear that in certain situations, the statute governing the entity may confer a right
on the principal auditor to visit a component and examine the books of account and other
records of the said component, if he thinks it necessary to do so.
Where another auditor has been appointed for the component, the principal auditor would
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normally be entitled to rely upon the work of such auditor unless there are special circumstances
to make it essential for him to visit the component and/or to examine the books of account
and other records of the said component.
Further, it requires that the principal auditor should perform procedures to obtain sufficient
appropriate audit evidence, that the work of the other auditor is adequate for the principal
auditor’s purposes, in the context of the specific assignment.
The nature, timing and extent of procedures will depend on the circumstances of the
engagement and the principal auditor’s knowledge of the professional competence of the
other auditor. This knowledge may have been enhanced from the review of the previous audit
work of the other auditor.
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The table is given below lists down all matters required to be reported in the
auditor’s report under the purview of CARO, 2020:
(a) Whether the company The Auditor shall specify whether the company is maintaining
has maintained proper proper records of Property, Plant & Equipment, and Intangible
records Asset such as:
1. Quantitative Details
2. Description of Asset
3. Location
4. Cost
5. Year of purchase
6. Depreciation, etc
(b) Physical verification The Auditor shall specify whether the management has
physically verified the Property, plant, and equipment at
reasonable intervals. Further, any material discrepancies, if
found, have been dealt with properly in the books of account.
(c) Title in Immovable The requirement of having title deeds in the name of the
Property company as disclosed in financial statements should be verified
with the register of Property, Plant, and Equipment.
In the case of a lease where the company is the lessee, lease
agreements are duly executed in favor of the lessee.
The following information shall be provided with respect to
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deviations
amount overdue for more than 90 days, whether the company has taken reasonable steps
for recovery.
5. In case any loan or advance is due during the year, whether the such loan has been
renewed or extended or fresh loans are granted against existing loans. If yes, the auditor
shall specify:
a. Amount of dues renewed or extended or settled by fresh loans
b. % of aggregate to the total loans or advances in the nature of loans granted during
the year.
6. Whether the company has granted any loans or advances without specifying any terms
or period of repayment. In case of an affirmative answer, the auditor shall report:
a. Aggregate amount,
b. % of such loan to the total loans granted, the aggregate amount of loans granted to
Promoters, related parties as defined in clause (76) of section 2 of the Companies
Act, 2013;
1. The auditor shall check whether the company is regular in depositing undisputed statutory
dues such as GST, Provident Funds, ESI, Income Tax, Service Tax, and any other statutory
dues.
2. In case of non-compliance, the auditor shall report:
a. Amount of statutory dues outstanding as of the last day of the Financial year for
more than 6 months.
b. Whether such amount is not deposited on account of any dispute, if so, then the
auditor shall report:
- Amount involved;
- Forum where the dispute is pending
3. A mere representation to the concerned department shall not be considered as a dispute
(c) Utilisation of Loan Whether the Loan has been utilized for the same purpose for
which it was obtained. If no, the auditor shall report:
1. Amount of loan so diverted; and
2. Purpose of utilization
Further, funds raised on a short-term basis are utilized for long-
term purposes. If yes, nature and amount.
(d) Loans to meet the Whether the company has obtained any loan to meet the
obligation of Subsidiary, obligation of its subsidiary company, Associates or Joint Venture.
Associates, or JV If so, the auditor shall provide:
1. Nature of such transaction; and
2. Amount
(e) Loan on a pledge of The auditor shall provide details of loans obtained on a pledge
Securities held in name of securities held in its subsidiary, JV, or Associates and default
of Subsidiary, JV or in repayment of such loans.
Associates
1. This clause puts a check on non-cash transactions undertaken by a company that involves
the director or any person connected with him/her.
2. If such transactions have taken place in the company, then make sure that proper
approvals as required in section 192 of the Act are obtained.
C. Fraud Reporting:
CHAPTER 9
AUDIT of Different Types
of Entities
May 24
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Chapter 9
1. What is Government Audit 5
2. Objective of Government Audit 5
3. Appointment of C&AG 5
4. Tenure and Fees 6
5. Duties of C&AG 6
6. Powers of C&AG 6
7. Expenditure Audit 7
8. Audit against Rules & Orders 7
9. Audit of sanctions 8
10. Audit against provision of funds 8
11. Propriety audit 8
12. Performance audit 9
13. Audit of Receipts 9
14. Audit of Stores and Inventories 10
15. Audit of Commercial Accounts 10
16. Reporting Procedures 12
A. Audit of NGO’s 13
1. Questions 13
2. Sources and Applications of Funds 14
3. Provisions Relating to Audit 14
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4. Audit Programme 15
5. Verification of Income/Receipts 16
B. Audit of Firm 17
1. Questions 17
2. Matter Prior to Audit 17
3. Advantage of Audit 18
4. Audit of Accounts of Partnership firm 18
C. Audit of LLP 19
D. Audit of Charitable Institutions 21
E. Audit of Educational Institutions 23
F. Audit of Hospitals: 24
G. Audit of Hotels 26
H. Audit of Cinema 27
I. Audit of Club 28
J. Audit of Local body: 29
K. Audit of Cooperative Society: 31
L. Audit of Multi-State- Cooperative society 33
M. Audit of Hire Purchase and Leasing Companies 36
Questions:
1. Define Government Audit and explain its objectives. (Jul 21)
2. In case of Government entities, audit of accounts of stores and inventories has been
developed as part of expenditure audit. Discuss about the duties and responsibilities
entrusted to C&AG. (Dec 21)
3. Discuss the power of C & AG in Government audit ( May 2019)
4. Write short notes on: Audit of expenditure in Government audit. (May 2011)
5. The audit of receipts of government is not as old as audit of expenditure but with the
rapid growth of public enterprises audit of receipts tax or non-tax has come to stay.
Discuss audit of receipts with respect to Government Audit. (Nov 2020)
6. ‘What is the function of audit while examining various law’s, regulations and orders
with regard to Audit against Rules & Orders by C & AG ? (Nov 2020)
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7. Write basic standards set for Expenditure Audit of Government. (Nov 2018)
8. Audit against the propriety seeks to ensure that expenditure confirms to certain
principles. (Nov 2016)
9. What are the focus points in doing propriety audits by C & AG as regards government
expenditure ? (Nov 2011)
10. Explain in detail the duties of Comptroller and Auditor General of India
11. The first auditors of a Government company was appointed by the Board of Directors.
(May 2016)
12. All entities that are under common control by a state (i.e., national, regional or local
government) are considered related party. (Nov 2019)
13. Government audit has not only adopted the basic essentials of auditing as known and
practised in the profession to suit the requirements of governmental transactions
but has also added new concepts, techniques and procedures to the audit profession.
Explain stating clearly the definition of Government auditing as discussed in U.N.
Handbook on Govt Auditing and Developing Countries and also state Objectives of Govt
audit (May 2021)
14. Government audit is neither equipped nor intended to function as an investigating
agency, to pursue every irregularity or misdemeanour to its logical end. Explain (May
2021)
3. Appointment of C&AG
1. The C&AG is appointed by the President of India and cannot be removed from office
except for proven misbehavior or incapacity.
2. Similar to a judge of the Supreme Court, the C&AG can only be removed by a two-thirds
majority of each house of Parliament.
3. The Parliament can make laws to determine the salary and other conditions of service
for the C&AG, but these cannot be changed to his disadvantage after appointment.
5. Duties of C&AG
1. Compile and submit Accounts of Union and States
2. General Provisions Relating to Audit
a. To audit and report on all expenditure from the Consolidated Fund of India, each
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6. Powers of C&AG
The C&AG Act gives the following powers to the C&AG in connection with the performance of
his duties
1. To inspect any accounts office controlled by the Union or State Government, including
offices responsible for initial or subsidiary accounts.
2. To require accounts, books, papers, and other documents relevant to transactions
under audit to be sent to specified places.
3. To ask questions and make observations to the person in charge of the office and call
for necessary information to prepare any account or report which is his duty to prepare.
4. The C&AG can choose to dispense with any part of the detailed audit of accounts or
transactions and apply limited checks as he sees fit during the audit process.
7. Expenditure Audit
The audit of government expenditure is one of the major components of government audit.
The audit makes sure that the government only spends money that has been approved and
that there are limits to how much money can be spent. This helps to ensure that government
spending is done responsibly.
These standards are:
Audit of sanctions
Before spending money, the government needs permission from the competent authority.
The audit checks to make sure that the government has received permission before spending
the money. This type of audit is called the audit of sanctions.
Propriety audit
The government’s spending must be done in a responsible and ethical manner, taking into
consideration general principles of financial responsibility. The audit checks to make sure
that the government is spending money in a proper and ethical way. Such an audit is also
called as propriety audit.
Performance Audit
The government’s programs, schemes, and projects must be run in a cost-effective way and
must produce the expected results. The audit checks to make sure that the government is
achieving its goals and that the money is being used efficiently. This type of audit is called the
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performance audit.
2. The audit also checks that spending follows the financial regulations and orders issued
by a competent authority.
3. The audit of expenditure against regularity involves interpreting the Constitution,
statutes, rules, regulations, and orders.
4. This is a quasi-judicial type of work performed by audit authorities.
5. However, the final power of interpretation does not rest with the C&AG.
These rules, regulations and orders against which regularity audit is conducted mainly fall
under the following categories:
1. Rules regulating the powers to incur and sanction expenditure
2. Rules dealing with claims, withdrawing money, and general financial rules
3. Rules and regulation regulating conditions of service, pay and allowances, and
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9. Audit of sanctions
1. The auditor must make sure that every expense has been authorized by the appropriate
authority, either through a general or special sanction.
2. The audit of these sanctions has two goals: to ensure that the expense has been properly
authorised and that the authorizing authority has the legal power to do so.
3. This is determined by examining the Constitution, laws, rules, and orders related to the
expenditure, as well as any financial delegation rules made by a competent authority.
3. Public moneys should not be utilised for the benefit of a particular person or section
of the community unless:
a. the amount of expenditure involved is insignificant; or
b. claim for the amount could be enforced in a Court of law; or
c. the expenditure is in pursuance of a recognised policy or custom; and
d. the amount of allowances, such as traveling allowances, granted to meet specific
expenditure, are not a source of profit for the recipients
1. Audit focuses on assessing whether all revenues and debts owed to the government
are properly assessed, realized, and credited to the government account.
2. Adequate regulations and procedures must be framed and implemented to ensure
effective checks on assessment, collection, and allocation of cases.
3. Adequate checks are necessary to ensure prompt detection and investigation of
irregularities, fraudulent refunds, and other revenue losses.
4. The review of systems and procedures is necessary to secure correct and regular
accounting of demands, collection, refunds, and dues.
5. The audit is conducted based on a general review principle, but individual cases are
also important.
6. The extent and quantum of audit required for each category of audit are determined by
the C&AG and cannot be negotiated or questioned.
2. Identify deficiencies in the quantities of stores held and defects in the control system,
which are then brought to the attention of the government.
3. Ensure that purchases are sanctioned properly, made economically, and comply with
the rules for purchase set by the competent authority.
4. Ensure that prices paid for stores are reasonable and in accordance with the contract,
and that certificates of quality and quantity are provided. It also identifies cases of
uneconomical purchases and losses due to poor quality stores.
5. Check the accuracy and correctness of accounts of receipts, issues, and inventory
balances. It also ensures that inventory levels are in line with specified norms, and
excess or idle inventory is identified.
6. Check whether periodic verification of inventory is conducted to ensure its existence,
and prices charged are reviewed regularly to ensure reasonableness.
The audit of Government companies is conducted by their own auditors under the statute
appointed by C&AG. Role of C&AG is prescribed under sub section (5), (6) and (7) of section
143 of the Companies Act, 2013
1. Authority for Government Company Auditor Appointment:
a. Section 143(5) of the Act specifies the authority for appointing auditors for
Government companies.
b. Applies to companies owned or controlled by the Central Government, State
Governments, or a mix of both.
c. Comptroller and Auditor-General of India (C&AG) is designated to make these
appointments.
2. Appointment Procedures:
a. The C&AG appoints auditors as per Section 139 for first or Subsequent Auditor.
b. The appointed auditor receives directives on auditing procedures for the
Government company’s accounts.
3. Audit Report Submission:
a. The appointed auditor must submit an audit report copy to the Comptroller and
Auditor-General of India.
b. The audit report includes various details, notably the directions issued by the
C&AG.
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General of India shall within 60 days from the date of receipt of the audit report have a right
to:
1. Conduct a supplementary audit under section 143(6)(a)
2. Comment upon or supplement such audit report under section 143(6)(b): Any
comments given by the Comptroller and Auditor-General of India upon, or supplement
to, the audit report shall be sent by the company to every person entitled to copies of
audited financial statements.
3. Test Audit under section 143(6)(b): In case of any company covered under sub-section
(5) or sub-section (7) of section 139, if C&AG considers necessary, by an order, cause
test audit to be conducted of the accounts of such company and the provisions of
section 19A of the Comptroller and Auditor- General’s (Duties, Powers and Conditions
of Service) Act, 1971, shall apply to the report of such test audit.
In the case of a government company, audit is conducted by professional auditors appointed
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on the advice of the C&AG and the later is authorised under section 143 of the Companies Act,
2013 to conduct supplementary or test audit.
Test Audit:
1. The Comptroller and Auditor-General of India (C&AG) can order a test audit for
companies under Section 139(5) or Section 139(7) of the Companies Act.
2. Section 19A of the Comptroller and Auditor-General’s Act, 1971, applies to the report of
such a test audit.
3. Professional auditors, appointed based on C&AG advice, conduct audits for government
companies.
4. C&AG, under Section 143, can conduct supplementary or test audits, providing
directions on book-keeping, accounts, and internal control.
5. Statutory auditors must submit their audit report to C&AG, who can comment or
supplement it.
6. Section 134(3) of the Companies Act requires the board to explain or comment on audit
report reservations.
A. Audit of NGO’s
1. Questions
1. What important points should an auditor keep in mind while checking receipt of
income of a Non-Governmental Organization (N.G.O.) ? (Nov 2010)
2. NGOs registered under the Companies Act, 2013 can maintain their books on either
accrual or cash basis. (May 2011)
3. What are the points on which an auditor should concentrate while planning audit of an
N.G.O. ? (May 2013)
4. As an Auditor of NGO, how do you check/ verify at least four receipts of income during’
the year ? (Jan 21)
5. While planning the audit of an NGO, the auditor may focus on Knowledge of the NGO’s
work, its mission and vision, Updating knowledge of relevant statutes especially with
regard to recent amendments, circulars etc. Explain the other relevant points the
auditor needs to focus while planning the audit of NGO. (Nov 21)
6. You have been appointed as an auditor of an NGO, briefly state the points on which
you would concentrate while planning the audit of such an organisation?
7. An NGO operating in Delhi had collected large scale donations for Tsunami victims.
The donations so collected were sent to different NGOs operating in Tamil Nadu for
relief operations. This NGO operating in Delhi has appointed you to audit its accounts
for the year in which it collected and remitted donations for Tsunami victims. Draft
audit programme for audit of receipts of donations and remittance of the collected
amount to different NGOs. Mention six points each, peculiar to the situation, which
you will like to incorporate in your audit programme for audit of said receipts and
remittances of donations.
Registration
1. 1. If an NGO is established as a trust and involves immovable property valued at more
than one hundred rupees:
a. Compliance with Section 17(1) of the Registration Act, 1908 and Section 123 of the
Transfer of Property Act, 1882 is mandatory.
b. Registration of the trust is required.
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2. In some states, such as Maharashtra and Gujarat, specific Public Trusts Acts (e.g.,
Bombay Public Trusts Act 1950) mandate the registration of all charitable trusts
3. Additionally, registration under the Income Tax Act, 1961, and the Foreign Contribution
(Regulation) Act, 1976 may be required in many cases for NGOs
Accounting method:
1. NGOs registered under the Companies Act, 2013 must maintain their books of account
on an accrual basis as per section 128.
2. Non-compliance of this provision would occur if accounts are not maintained on an
accrual basis.
3. NGOs not registered under the Companies Act, 2013 can maintain accounts either on
an accrual or cash basis.
beneficiaries.
5. Grants for specific fixed assets require the NGO to acquire those assets.
6. NGOs may receive contributions in kind, such as buildings, vehicles, and materials for
projects
7. NGOs allocate their funds into various areas including:
a. Establishment Costs
b. Office and Administrative Expenses
c. Maintenance Expenses
d. Programme/Project Expenses
e. Charity
f. Donations and Contributions Given
4. Audit Programme
The audit program should cover all assets, liabilities, income, and expenditures in sequential
order to ensure no material item is omitted:
1. Verification of contribution/Grants
2. Checking of Ear-Marked Funds
3. Vouching for Disbursements/Expenditures
4. Verification of loans
5. Verification of fixed assets
6. Verification of Investments
7. Physical Verification of Cash & Bank Balance
8. Verification of Inventory
9. Verification of project and programme expense
10. Checking of Establishment expense
Verification of Contributions/Grants
1. Verify contributions/grants for the corpus fund with reference to donor letters.
2. Check transfers from projects/programs with donor letters and board resolutions of
the NGO.
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Verification of Investments:
1. Verify investments through the investment register and physically ensure that
investments are in the name of the NGO.
Verification of Inventory:
1. Verify inventory in hand and obtain a certificate from the management for the quantities
and valuation of the same
5. Verification of Income/Receipts
1. Contributions and Grants: Verify agreements, ensure proper accounting, and deposit
foreign contributions as per the law.
2. Receipts from Fundraising Programs: Verify internal controls and ensure daily counting
and depositing of collections.
3. Membership Fees: Check fees with the Membership Register, classify types of fees, and
reconcile received fees with expected fees.
4. Subscriptions: Check with subscription register and receipts, reconcile received
subscriptions with printed and dispatched materials, and verify receipts with the
subscription rate schedule.
5. Interest and Dividends: Verify received and receivable interest and dividends with
B. Audit of Firm
1. Questions
1. Mention important points which auditors will consider while conducting audit of
accounts of a partnership firm. (May 2013)
2. What are the advantages of the audit of the accounts of a partnership firm ? (May 2015)
3. Mention any six special points which you as an auditor would look into while auditing
the books of a partnership firm. (May 2016)
4. There are certain points which are required to consider specially in the audit of
accounts of a partnership. Discuss any three points briefly. (Nov 2019)
Appointment
1. Auditors are usually appointed by the partners of a firm and their remuneration is
fixed by the partners.
2. The appointment letter should clearly state the nature and scope of the audit and any
limitations.
3. If there is a change of auditor, the incoming auditor should communicate with the
previous auditor.
4. The auditor should ensure the application of accounting standards and disclose any
non-compliance in the audit report.
3. Advantage of Audit
1. Disputes: Audited accounts prevent disputes among partners and provide a reliable
means of settling accounts.
2. Dissolution: Audited accounts help in calculating amounts due to retiring or deceased
partners.
3. Reliable: Banks and prospective buyers rely on audited accounts for evidence of a
business’s profitability and financial position.
4. Admission: Audited accounts aid in admitting new partners.
5. An audit is an effective safeguard against any undue advantage being taken by a working
partner or partners especially in the case of those partners who are not actively
associated with the working of the firm.
An audit prevents working partners from taking undue advantage, especially those not actively
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C. Audit of LLP
1. Questions
1. If an LLP (Limited Liability Partnership Firm) is appointed ‘- an auditor of a company,
every partner of a firm shall be authorized to act as an auditor. (May 2015)
2. The accounts of every LLP shall be audited in accordance with rule 24 of LLP Rules
2009. (May 2019)
3. Every LLP is required to submit Statement of Account and Solvency in Form 8, which
shall be filed within a period of sixty days from the end of three months of the financial
year to which the Statement of Account and Solvency relates. (Nov 2020)
4. Torno Construction Engineering T J ,P approached CA K to understand various returns
to be maintained and filed by them. Guide/Discuss the various returns to be maintained
and filed by them. (Jul 21)
Registration:
1. Minimum of 2 Partners can form an LLP and atleast two partners would be Designated
Partners who would be required to take DPIN ( Designated Partner Identification
Number )
2. LLPs are required to have their accounts audited in accordance with Rule 24 of the LLP
Rules 2009.
3. LLPs with a turnover not exceeding 40 lakh rupees or a contribution not exceeding 25
lakh rupees in any financial year are not required to get their accounts audited.
An LLP shall be under obligation to maintain annual accounts reflecting true and fair view of
its state of affairs. LLP’s are required to maintain books of accounts which shall contain:
1. Particulars of all sums of money received and expended by the LLP and the matters in
respect of which the receipt and expenditure takes place,
2. A record of the assets and liabilities of the LLP,
3. Statements of costs of goods purchased, inventories, work-in-progress, finished goods
and costs of goods sold,
4. Any other particulars which the partners may decide.
Appointment of Auditor:
The auditor may be appointed by the designated partners of the LLP:
1. At any time for the first financial year but before the end of first financial year,
2. At least thirty days prior to the end of each financial year (other than the first financial
year),
3. To fill the casual vacancy in the office of auditor,
4. To fill the casual vacancy caused by removal of auditor.
The partners may appoint the auditors if the designated partners have failed to appoint
them.
a. Vouching the amounts received with the dividend and interest counterfoils.
b. Checking the calculations of interest received on securities bearing fixed rates of
interest.
c. Checking that the appropriate dividend has been received where any investment
has been sold ex-dividend or purchased cum-dividend.
d. Comparing the amounts of dividend received with schedule of investments
making special enquiries into any investments held for which no dividend has
been received.
5. Rent & Expenditure
a. Examining the rent roll and inspecting tenancy agreements, noting in each case:
The amount of Rent and due dates.
b. Vouching the rent on to the rent roll from the counterfoils of receipt books and
checking the totals of the cash book.
6. Income Tax Refunds: Where income-tax has been deducted at source from the
Investment income, it should be seen that a refund thereof has been obtained since
charitable institutions are exempt from payment of Income-tax. This involves:
a. Vouching the Income-tax refund with the correspondence with the Income- tax
Department; and
b. Checking the calculation of the repayment of claims.
7. Expenditure:
a. Vouching payment of grants, also verifying that the grants have been paid only
for a charitable purpose or purposes falling within the purview of the objects for
which the charitable institution has been set up and that no trustee, director or
member of the Managing Committee has benefited there from either directly or
indirectly.
b. Verifying the schedules of securities held, as well as inventories of properties both
movable and immovable by inspecting the securities and title deeds of property
and by physical verification of the movable properties on a test- basis.
c. Verifying the cash and bank payments.
d. Ascertaining that any funds contributed for a special purpose have been utilised
for the purpose.
4. Expenditure:
a. Confirm Provident Fund investments.
b. Vouch donations and ensure their intended use.
c. Verify capital expenditure with Committee sanction.
d. Audit establishment expenses and report any excessive spending.
e. Confirm staff salary increases were sanctioned.
5. Assets & Liabilities:
a. Report old arrears to the Committee.
b. Ensure student deposits forare classified as liabilities and not transferred to
income unless they are non-refundable.
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c. Check investments for prize endowment funds and any income in excess of the
prizes have been accumulated and invested along with corpus.
d. Verify inventory items against registers and previous records.
e. Verify all bills are authorised before approved before payment.
6. Compliances:
a. Confirm the refund of deducted taxes on investment income.
b. Verify annual statements, including specific fund statements.
F. Audit of Hospitals:
1. Questions
1. The general transactions of a hospital include patient treatment, collection of receipts,
donations, capital expenditures. You are required to mention special points of
consideration while auditing such transactions of a hospital?
2. What steps would you take into consideration in auditing the receipts from patients of
a Hospital ‘? (Nov 2011)
3. Mention any 8 special points which you as an auditor would look into while auditing
the books of accounts of Hospital (May 2011)
4. What are the eight audit points to be considered by the auditor during the audit of a
Hospital ? (Nov 2012)
5. Mention any eight important points which an auditor will consider while conducting
the audit of hospital. (May 2014)
6. Mis T & Co. Chartered Accountants, a partnership firm, is appointed as an auditor of
Treatment Hospital run by Smile Foundation, a charitable trust. Over and above the
receipts of treatment of patients, during the year trust has received donations from
various donors to treat COVID-19 patients and also incurred some capital expenditure
for further development of the hospital. On some of the investment income, income
tax has been deducted. What are the special points to be considered by Mis T & Co.
Points to be considered:
1. Register of Patients:
a. Vouch patient records with bills issued.
b. Cross-check bills for accuracy against attendance records.
c. Ensure all recoverable amounts have been billed.
2. Collection of Cash:
a. Match cash collections in the Cash Book with supporting evidence, like receipts
and counterfoils.
3. Income from Investments, Rent, etc:
a. Confirm that all expected income from rent and investments has been collected.
4. Legacies and Donations:
a. Verify that legacies and donations are used for their intended purpose.
5. Reconciliation of Subscriptions:
a. Reconcile collected subscriptions and donations with the respective registers.
6. Authorizations and Sanctions:
a. Ensure purchases, expenses, and capital expenditure had proper authorization.
b. Verify staff appointments and increments were duly authorized.
7. Grants and TDS:
a. Check for government grants and ensure proper accounting.
b. Verify the claim for tax deductions at source.
8. Budgets:
a. Compare actual expenditure and income with the budgeted amounts.
b. Report significant variations to the Trustees or Managing Committee.
9. Internal Check:
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a. Review the internal control system for receipt and issuance of various items.
b. Ensure proper recording of purchases and authorized issues.
10. Depreciation:
a. Confirm that depreciation has been correctly applied to all assets.
11. Registers:
a. Inspect bonds, share certificates, and property deeds.
b. Verify their details against property and Investment Registers.
12. Inventories:
a. Obtain year-end inventories, physically check a sample.
b. Compare total values with ledger balances.
13. Management Representation and Certificate:
a. Request proper representation and certification from management for various
audit aspects.
G. Audit of Hotels
1. Questions
1. You have been appointed as an auditor of ABC Hotel, a three star hotel, for Financial
Year 2021-22. As an auditor what are the special points that need to be considered in
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verifying the Inventories in the nature of food and beverages? (Nov 22)
2. Pilfering is one of the greatest problems in any hotel and the importance of internal
control cannot be undermined. Explain. (May 2022)
H. Audit of Cinema
1. Question
1. Cinescreen Multiplex Ltd. is operating cinemas in different locations in Mumbai and
has appointed you as an internal auditor. What are the areas that need to be verified in
relation to receipts from sale of Tickets? (Nov 22)
a. Verify that a statement of tickets sold and cash collected is prepared at the end of
each show.
3. Free Passes Record:
a. Confirm that records of ‘free passes’ are maintained and issued under proper
authority.
4. Entertainment Tax:
a. Reconcile the collected Entertainment Tax with the total number of tickets issued
for each class.
I. Audit of Club
1. Entrance Fee: Verify entrance fee receipts by cross-referencing with member
applications, counterfoils, and committee minutes.
2. Subscriptions: Confirm member subscriptions by comparing receipt counterfoils with
the Register of Members; reconcile total due with collections and outstanding amounts.
3. Arrears of Subscriptions: Ensure correct treatment of arrears from the previous year,
arrears for the current year, and advance payments.
4. Arithmetical Accuracy: Check and cross-verify totals in the Register of Members.
5. Irrecoverable Member Dues: Identify and inquire about overdue member dues; report
(Dec 21)
Municipal government in India covers five distinct types of urban local authorities-
1. the municipal corporations,
2. the municipal councils,
3. the notified area committees,
4. the town area committees and
5. the cantonment committees.
Delhi, Mumbai etc have power to appoint their own auditors for regular external audit.
So the auditor should ensure his appointment.
2. AUDITOR’S CONCERNS:-The auditor while auditing the local bodies should report on
the:
a. fairness of the contents and presentation of financial statements,
b. the strengths and weaknesses of system of financial control,
c. the adherence to legal and/or administrative requirements;
d. whether value is being fully received on money spent.
His objective should be to detect errors and fraud and misuse of resources.
3. RULES & REGULATIONS :- The auditor should ensure that the expenditure incurred
conforms to the relevant provisions of the law and is in accordance with the financial
rules and regulations framed by the competent authority.
4. AUTHORISATIONS :- He should ensure that all types of sanctions, either special or
general, accorded by the competent authority.
5. PROVISIONING :- He should ensure that there is a provision of funds and the
expenditure is incurred from the provision and the same has been authorized by the
competent authority.
6. PERFORMANCE :- The auditor should check that the different schemes, programmes
and projects, where large financial expenditure has been incurred, are running
economically and getting the expected results.
Qualification of Auditor
CA or any persons holding govt diploma in co-operative accounts/in co-operation &
accountancy & also person served as an auditor in co-operative department of govt.
Restriction on loans
Registered society not make loan to any person other than member. With special sanction of
Registrar, registered society may make a loan to another registered society
Registered society may, with sanction of Registrar, contribute an amt not exceeding 10% of
net profits remaining after compulsory transfer to reserve fund for any charitable purpose
Audit Questionnaires
1. “Auditor to answer 2 sets of questionnaires called as audit memos:-
2. First set of general nature & applicable to all types of societies.
3. Second set is specific for particular type Generally audit report as per convention
divided into two parts styled as part I & part-II:-
4. Part I throws light on comparative financial position, capital structure, solvency
position & profitability. Contain comments on working of society & suggestions for
future improvements.
5. Part II points out observations of routine nature, which are finished products of routine
vouch & post audit such as missing vouchers, loan bonds, inadequacies of documents
etc.”
3. In shares, securities, bonds or debentures of any other society with limited liability.
4. In any co-operative bank, other than Central/State co-operative bank, as approved by
Registrar
5. In any other moneys permitted by Central or State Government.”
Audit under Section 77 of the Multi State Co-operative Society Act. (May 2019)
2. Briefly explain the provisions for qualification and appointment of Auditors under the
Multi-State Co-operative Societies Act, 2002.
3. No inspection under Section 79 of Multi-State Co-operative Societies Act, 2002 shall be
made unless a notice has been given to the multi-state co-operative society. Explain
stating clearly when and how such inspection can be made. Also state the powers
available with the Central Registrar in this regard along with provisions relating to
communication of the inspection report under the said section.
4. Multi-State Co-operative Societies Act, 2002 states that a person who is a Chartered
Accountant within the meaning of the Chartered Accountants Act, 1949 can only be
appointed as auditor of Multi-State cooperative society. Explain stating also the persons
who are not eligible for appointment as auditors of a Multi-State co-operative society.
5. “As per Multi-state Co-operative Societies Act, 2002, the auditor shall make a report to
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the members of the Multi-State co-operative society on the accounts examined by him
and on every balance-sheet and profit and loss account and on every other document
required to be part of or annexed to the balance-sheet or profit and loss account.
Explain”
Books of accounts
“Every MSCS keep books of account with respect to:
1. all sum of money received & expended & matters in respect of which receipt &
expenditure take place;
2. all sale & purchase of goods;
3. the assets & liabilities;
to members or to have such copy or extracts read before the society at its next GM”
When:
On request from: federal co-operative to which society is affiliated or
a creditor or
not less than 1/3 of members or
not less than 1/5 of total no of members
1. Access to all books, accounts, papers, vouchers, securities, stock & other property of
society & in event of serious irregularities discovered take them into custody & have
power to verify cash balance & to call a meeting where such GM is, in his opinion
necessary.
2. Every officer or member shall furnish such info with regard to working as the central
registrar or the person making such inspection may require.”
Followup:
With in a period of 3 months communicate report of inquiry to the society
LEASES:
Audiit Procedures for Lease Transaction:
1. Object Clause: Check if the leasing company’s object clause allows leasing of goods,
such as capital goods or consumer durables, and if it permits financing activities.
2. Credit Analysis: Verify the existence of a procedure to assess the lessee’s creditworthiness,
considering factors like ability to meet commitments, credit history, and collateral.
3. Lease Agreement: Examine the lease agreement for details like parties involved,
equipment description, installation location, tenure, payment terms, return conditions,
and restrictions on assignment or subletting.
4. Lease Proposal Form: Review the lessee’s lease proposal form submitted to the lessor.
5. Invoice: Ensure safekeeping of the lease invoice due to the long-term nature of the
contract.
6. Acceptance Letter: Examine the acceptance letter from the lessee confirming the
satisfactory receipt of the equipment.
7. Board Resolution: Confirm that a board resolution authorizing a specific director to
execute the lease agreement has been passed.
8. Insurance Policies: Verify that copies of insurance policies have been obtained by the
lessor for record-keeping.
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CA Himanshu
Independence of mind:
The state of mind that permits the expression of conclusion/opinion without being affected by
influences that compromise professional judgement, thereby allowing an individual to:
a. Act with integrity
b. Exercise objectivity and
c. Professional skepticism
Independence in appearance:
The avoidance of facts and circumstance that are so significant that a reasonable and informed
third party would be likely to conclude that a firm’s or an audit or assurance team member’s
integrity, objectivity and professional skepticism has been compromised. (This relates to
others perception of auditor’s independence).
2. Threat to Independence
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Self-Review Threats:
This occure:
1. during the review of any judgement or conclusion reached in a previous audit or non-
Advocacy Threats:
This occur when the auditor promotes, or seems to promote, a client’s opinion to a point
where people may believe that objectivity is getting compromised. E.g., when an auditor deals
with shares or securities of the audited company, or becomes the client’s advocate in litigation
and third-party disputes.
Familiarity threats:
These threats are are self-evident, and occur when auditors become too sympathetic to the
client’s interests. This can occur in many ways:
1. close relative of an audit team member is working in a senior position in the client
company,
2. former partner of the audit firm being a director or senior employee of the client
3. long association between specific auditors and their specific client counterparts, and
4. acceptance of significant gifts or hospitality from the client company, its directors or
employees.
Intimidation threats:
This occurs when auditors are deterred from acting objectively with an adequate degree of
professional skepticism. Two examples of intimidation threats are:
1. when an auditor is told he will be replaced based on a disagreement over application of
an accounting principle and
2. pressure to reduce the scope of the audit in order to reduce fees.
3. Safeguard to Independence
The Chartered Accountant has a responsibility to remain independent, safeguards should be
identified and applied to eliminate the threats. The following are the guiding principles in this
regard :
1. For the public to have confidence in the quality of audit, it is essential that auditors should
always be and appears to be independent of the entities that they are auditing.
2. In the case of audit, the key fundamental principles are integrity, objectivity and
professional skepticism, which necessarily require the auditor to be independent. (Extra
point)
3. Before taking on any work, an auditor must conscientiously consider whether it involves
threats to his independence.
4. Sometimes, circumstances arise that suggest the need for additional audit procedures
beyond what is required by the Standards on Auditing
5. During an audit, the auditor needs to be careful and maintain professional skepticism to
avoid making mistakes. This helps in reducing the chances of missing important things
like:
a. Unusual changes (Overlooking unusual circustances)
b. Relying on incomplete information (Over generalising)
c. Making wrong assumptions when planning the audit work (Using inappropriate
assumption in planning and concluding audit)
5. Objective of SA 210
The objective of the auditor is to accept or continue an audit engagement only when the basis
upon which it is to be performed has been agreed, through:
a. Establishing whether the preconditions for an audit are present; and
b. Confirming that there is a common understanding between the auditor and
management and, where appropriate, those charged with governance of the
terms of the engagment.
4. Human resources
5. Engagement performance
6. Monitoring
2. Ethical Requirements
The firm must establish policies ensuring compliance with ethical requirements from the
Code of Ethics issued by ICAI. Firm leaders are responsible for maintaining quality within the
firm.
The Code establishes the following as the fundamental principles of professional ethics
relevant to the auditor when conducting an audit of financial statements:
Integrity:
1. Integrity Principle: Accountants must be honest and straightforward in their professional
dealings.
2. Fair Practices: They should engage in fair and ethical conduct in all financial matters.
3. Avoid Misleading Information: Accountants shouldn’t be part of any reports or
communication that contains false or misleading statements.
4. Full Disclosure: They must include all necessary information and avoid hiding or
obscuring details that could mislead others.
Objectivity:
The principle of objectivity requires an auditor not to compromise professional judgment
because of bias, conflict of interest or undue influence of others.
It requires that a professional accountant shall not undertake a professional activity if a
circumstance or relationship unduly influences the accountant’s professional judgment
regarding that activity
Confidentiality:
Confidentiality principle requires an auditor to respect the confidentiality of information
acquired as a result of professional or business relationships.
Keeping information confidential helps because it allows clients to share freely with
accountants, knowing their information won’t be shared with others. Professional behaviour:
However, such confidential information may be disclosed, for example, when it is required
by law.
Professional behaviour:
It requires an auditor to comply with relevant laws and regulations and avoid any conduct that
he knows or should know might discredit the profession.
Engagement Performance
Monitoring
1. The firm must create policies and take steps to ensure its quality control system is relevant,
sufficient, works well, and is followed in practice.
2. Checking compliance ensures that the firm meets professional standards and legal rules.
3. It assesses if the quality control system is designed and implemented correctly.
4. The evaluation checks if the firm’s policies and procedures are used correctly.
5. The aim is to make sure that the reports issued by the firm or engagement partners are
suitable for the situation.
The engagement partner shall take responsibility for the Overall Quality on each audit
engagement to which that partner is assigned.
1. The engagement partner should emphasise the importance of:
a. Performing work that complies with professional standards and regulatory and
legal requirements;
b. Complying with the firm’s quality control policies and procedures as applicable;
c. Issuing auditor’s reports that are appropriate in the circumstances; and
d. The engagement team’s ability to raise concerns without fear of reprisals.
2. The fact that quality is essential in performing audit engagements.
22. Monitoring
The engagement partner should document following matters pertaining to an audit
engagement:
1. Issues identified with respect to compliance with relevant ethical requirements and how