SQC 1

The firm should establish a system of quality control designed to provide it with reasonable assurance that the firm and its personnel comply with professional standards, regulatory and legal requirements, and that reports issued by the firm or engagement partner(s) are appropriate in the circumstances.

The auditor should prepare audit documentation such that it:

• Is sufficient and appropriate
• Provides a record of the basis for the Auditors’ Report and,
• Demonstrates that the audit was performed in accordance with SA’s and applicable legal and regulatory requirements

Elements of a System of Quality Control

The firm’s system of quality control should include policies and procedures addressing each of the following elements:

1. Leadership responsibilities for quality within the firm
2. Ethical requirements
3. Acceptance and continuance of client relationships and specific engagements
4. Human resources
5. Engagement performance
6. Monitoring

Policies and procedures on documentation of the engagement quality control review should require that:

• The procedures on quality control review have been performed;
• The quality control review is completed before the report is issued and,
• The reviewer is not aware of any unresolved matters which lead to inappropriate conclusions.

NA

200

• – Overall objectives of Independent Auditor (IA) which are obliged to comply with
• – States an IA’s general responsibilities which should be adhered to in all audits
• – Determines the nature and scope of an audit necessary to achieve those responsibilities

• To obtain reasonable assurance whether the financial statements are free from material misstatement and is prepared using applicable financial reporting framework
• To report on the financial statements and communicate auditor’s findings as required by SA

If reasonable assurance cannot be obtained and a qualified opinion in the auditor’s report is insufficient then the auditor should disclaim an opinion or withdraw from the engagement if withdrawal is legally permitted.

• Complying with Ethical Requirements e.g. integrity and confidentiality
• xercising Professional scepticism to avoid material misstatement of financials e.g. predict conditions that may indicate possible fraud
• Exercising Professional Judgment e.g. drawing conclusion based on evidence obtained
• Obtaining Audit Evidence & reduce Risk to acceptable levels

• IA to comply with all SAs relevant to the audit. An SA is relevant which it is in effect and circumstances addressed by the SA exist.
• IA should have complete understanding of the SA including its application and explanatory material. IA can appropriately apply the requirements of SA as and when required
• Only the IA complies with all the requirement of a SA, that fact should be represented on the IA’s report

210

The Standard deals with the auditor’s responsibilities in agreeing to the terms of the audit engagement with management. SA 210 establishes the preconditions for an audit, terms of an audit engagement and changes thereof, segregates the responsibility of the management and auditors etc.

Auditor’s Objective is to accept or continue an audit engagement only when the basis upon which it is to be performed has been agreed, through

• Ensuring if the Preconditions for an audit are present
• Confirming if there is a common understanding between auditor and Management.

Listed below are the requirements for an Audit Engagement terms:

• Terms of the audit engagement to be agreed with the management
• Agreed terms to be recorded in an Audit Engagement Letter or any other written form which includes:
  1. Objective and Scope of the audit
  2. Auditor’s responsibilities
  3. Management’s responsibilities
  4. Identification of the applicable financial reporting framework
  5. Reference to the expected form and content of reports which the auditor might issue and exceptions if any to it.
• If there is any specific law or regulation which prescribes the term of a particular audit engagement, the auditor can simply refer to such law in the written agreement and take Management’s acknowledgment for its responsibilities, instead of elaborating the terms of that law again
• If law or regulation prescribes management responsibilities similar to those required by SA 210, then the auditor can use the wording of the law or regulation in the written agreement. For other responsibility not prescribed by law or regulation, then the responsibilities as stated in SA 210 can be used.
• The audit process is subject to ‘Peer Review’ under the Chartered Accountants Act, 1949 to be conducted by an Independent reviewer. The reviewer may inspect, examine or take abstract of our working papers during the course of the peer review.

NA

220

The SA deals with the specific responsibilities of the auditor regarding quality control procedures for an audit of financial statements. It also addresses, where applicable, the responsibilities of the engagement quality control reviewer. This SA is to be read in conjunction with relevant ethical requirements and premised on the basis that the firm is subject to SQC 1.

The objective of the auditor is to implement quality control procedures at the engagement level that provide the auditor with reasonable assurance that:

1. The audit complies with professional standards and regulatory and legal requirements; and
2. The auditor’s report issued is appropriate in the circumstances

The auditor shall document:

1. Issues identified with respect to compliance with relevant ethical requirements and how they were resolved.
2. Conclusions on compliance with independence requirements that apply to the audit engagement, and any relevant discussions with the firm that support these conclusions.
3. Conclusions reached regarding the acceptance and continuance of client relationships and audit engagements.
4. The nature and scope of, and conclusions resulting from, consultations undertaken during the course of the audit engagement.

The engagement partner shall be satisfied that the engagement team, and any auditor’s experts who are not part of the engagement team, collectively have the appropriate competence and capabilities to:

1. Perform the audit engagement in accordance with professional standards and regulatory and legal requirements; and
2. Enable an auditor’s report that is appropriate in the circumstances to be issued.

230

The SA deals with the auditor’s responsibility to prepare audit documentation for an audit of financial statements. It is to be adapted as necessary in the circumstances when applied to audits of other historical financial information.

The specific documentation requirements of other SAs do not limit the application of this SA. Laws or regulations may also establish additional documentation requirements.

The objective of the auditor is to prepare documentation that provides:

1. A sufficient and appropriate record of the basis for the auditor’s report; and
2. Evidence that the audit was planned and performed in accordance with SAs and applicable legal and regulatory requirements.

• The auditor shall prepare audit documentation on a timely basis.
• The auditor shall prepare audit documentation that is sufficient to enable an experienced auditor, having no previous connection with the audit, to understand:
  1. The nature, timing, and extent of the audit procedures performed to comply with the SAs and applicable legal and regulatory requirements
  2. The results of the audit procedures performed, and the audit evidence obtained; and
  3. Significant matters arising during the audit, the conclusions reached thereon, and significant professional judgments made in reaching those conclusions.
• In documenting the nature, timing and extent of audit procedures performed, the auditor shall record:
  1. The identifying characteristics of the specific items or matters tested;
  2. Who performed the audit work and the date such work was completed; and
  3. Who reviewed the audit work performed and the date and extent of such review.
• The auditor shall document discussions of significant matters with management, those charged with governance, and others, including the nature of the significant matters discussed and when and with whom the discussions took place.
• If the auditor identified information that is inconsistent with the auditor’s final conclusion regarding a significant matter, the auditor shall document how the auditor addressed the inconsistency.
• If, in exceptional circumstances, the auditor judges it necessary to depart from a relevant requirement in a SA, the auditor shall document how the alternative audit procedures performed achieve the aim of that requirement, and the reasons for the departure
• If, in exceptional circumstances, the auditor performs new or additional audit procedures or draws new conclusions after the date of the auditor’s report, the auditor shall document:
  1. The circumstances encountered;
  2. The new or additional audit procedures performed, audit evidence obtained, and conclusions reached, and their effect on the auditor’s report; and
  3. When and by whom the resulting changes to audit documentation were made and reviewed.
• The auditor shall assemble the audit documentation in an audit file and complete the administrative process of assembling the final audit file on a timely basis after the date of the auditor’s report. The SA recommends that an appropriate time limit within which to complete the assembly of the final audit file is ordinarily not more than 60 days after the date of the auditor’s report.
• After the assembly of the final audit file has been completed, the auditor shall not delete or discard audit documentation of any nature before the end of its retention period being seven years.

NA

240

The SA deals with the auditor’s responsibilities relating to fraud in an audit of financial statements. Specifically, it expands on how SA 315, “Identifying and Assessing the Risks of Material Misstatement

Through Understanding the Entity and Its Environment,” and SA 330, “The Auditor’s Responses to Assessed Risks,” are to be applied in relation to risks of material misstatement due to fraud.

The objectives of the auditor are:

1. To identify and assess the risks of material misstatement in the financial statements due to fraud;
2. To obtain sufficient appropriate audit evidence about the assessed risks of material misstatement due to fraud, through designing and implementing appropriate responses; and
3. To respond appropriately to identified or suspected fraud(s).

The auditor’s documentation of the understanding of the entity and its environment and the assessment of the risks of material misstatement required by SA 315 shall include:

• The significant decisions reached during the discussion among the engagement team regarding the susceptibility of the entity’s financial statements to material misstatement due to fraud; and,
• The identified and assessed risks of material misstatement due to fraud at the financial statement level and at the assertion level.

  The auditor’s documentation of the responses to the assessed risks of material misstatement required by SA 330 shall include:

  1. The overall responses to the assessed risks of material misstatement due to fraud at the financial statement level and the nature, timing and extent of audit procedures, and the linkage of those procedures with the assessed risks of material misstatement due to fraud at the assertion level; and
  2. The results of the audit procedures, including those designed to address the risk of management override of controls.
• Auditor to inquire with the management, internal audit team and those charged with governance whether any instance of actual or alleged fraud has occurred in the past and obtain their respective views on the risk of fraud.

A specific reporting requirement may exist in case of non-public sector entities pursuant to a requirement under the statute or regulation under which they operate. The auditors may be required by the legislature or the regulator to specifically report on the instances of actual/suspected fraud in the client entity.

The auditor’s professional duty to maintain the confidentiality of client information may preclude reporting fraud to a party outside the client entity.

However, the auditor’s legal responsibilities vary by law & statute and, in certain circumstances, the duty of confidentiality may be overridden by statute, the law or courts of law. In some entities, for example, in case of audit of banks, the auditor has a statutory duty to report the occurrence of fraud to the supervisory authorities, in terms of the RBI guidelines

Also, in some entities the auditor may have a duty to report misstatements to authorities in those cases where Management and those charged with governance fail to take corrective action.

250

This Standard on Auditing (SA) deals with the auditor’s responsibility to consider laws and regulations while performing an audit of financial statements and not compliance with specific laws or regulations.

The objectives of an auditor are:—

• To obtain sufficient audit evidence regarding compliance with provisions of laws and regulations,
• To perform audit procedures to help identify areas to non-compliance,
• To respond appropriately to non-compliance or suspected non-compliance,
• To maintain an attitude of professional scepticism.

The auditor shall document identified or suspected non-compliances with laws and regulations and the results of discussion with management and, where applicable, those charged with governance and other parties outside the entity.

The auditor’s duty of client confidentiality may be overridden by statute and law as under the present legal framework, the auditor’s duty is to report the suspected/confirmed occurrence of non-compliance with laws to the regulatory authorities. Further, if there is any misstatement, discuss the same with those charged with governance and if sufficient information is not obtained then the auditor can seek legal advice.

260

This SA deals with the auditor’s responsibility to communicate with those charged with governance in an audit of financial statements.

Although this SA applies irrespective of an entity’s governance structure or size, particular considerations apply where all of those charged with governance are involved in managing an entity, and for listed entities.

This SA does not establish requirements regarding the auditor’s communication with an entity’s management or owners unless they are also charged with a governance role.

The auditor shall communicate with those charged with governance and if there exist any Audit Committee or supervisory board, the auditor shall communicate the matter to them.

Copies of records or documents relating to identified or suspected non-compliance.

Minutes of discussions with management and those charged with governance or parties outside the entity.

The auditor shall communicate with those charged with governance the responsibilities of the auditor in relation to the financial statement audit, including that:

1. The auditor is responsible for forming and expressing an opinion on the financial statements that have been prepared by management with the oversight of those charged with governance; and
2. The audit of the financial statements does not relieve management or those charged with governance of their responsibilities.
3. The independence of the auditor including steps taken to mitigate threats to independence, if any.

Reporting Non-compliance in the Auditor’s Report on Financial Statements

• The auditor shall express a qualified or adverse opinion on the financial statements in case of material non-compliance.
• If he is precluded from obtaining sufficient appropriate audit evidence, the auditor shall express a qualified opinion or disclaim an opinion.
• If he is unable to determine as to how exactly non-compliance has occurred, he shall evaluate the effect on auditor’s opinion in accordance with proposed SA 705.

Reporting Non-compliance to Regulatory and Enforcement Authorities

The auditor has to determine whether he has the responsibility to report the identified or suspected non-compliance to parties outside the entity.

265

The SA deals with the auditor’s responsibility to communicate appropriately to those charged with governance and management deficiencies in internal control that the auditor has identified in an audit of financial statements.

This SA does not impose additional responsibilities on the auditor regarding obtaining an understanding of internal control and designing and performing tests of controls over and above the requirements of SA 315 and SA 330.

SA 260 establishes further requirements and provides guidance regarding the auditor’s responsibility to communicate with those charged with governance in relation to the audit.

The 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 attention.

• In determining when to issue the written communication, the auditor may consider whether receipt of such communication would be an important factor in enabling those charged with governance to discharge their oversight responsibilities
• In case of listed entities, those charged with governance may need to receive the auditor’s written communication before the date of approval of the financial statements in order to discharge specific responsibilities in relation to internal control for regulatory or other purposes. For other entities, the auditor may issue the written communication at a later date.
• Nevertheless, in the latter case, as the auditor’s written communication of significant deficiencies forms part of the final audit file, the written communication is subject to the overriding requirement for the auditor to complete the assembly of the final audit file on a timely basis. SA 230 states that an appropriate time limit within which to complete the assembly of the final audit file is ordinarily not more than 60 days after the date of the auditor’s report.
• Regardless of the timing of the written communication of significant deficiencies, the auditor may communicate these orally in the first instance to management and, when appropriate, to those charged with governance to assist them in taking timely remedial action to minimize the risks of material misstatement. Doing so, however, does not relieve the auditor of the responsibility to communicate the significant deficiencies in writing, as this SA requires.

The auditor shall determine whether, on the basis of the audit work performed, the auditor has identified one or more deficiencies in internal control.

If the auditor has identified one or more deficiencies in internal control, the auditor shall determine, on the basis of the audit work performed, whether, individually or in combination, they constitute significant deficiencies.

The auditor shall communicate in writing significant deficiencies in internal control identified during the audit to those charged with governance on a timely basis.

299

The practice of appointing more than one auditor to conduct the audit of large entities has been in vogue for a long time, sometimes voluntarily by the shareholders or sometimes due to the requirements of laws or regulations (e.g. in case of Public sector Banks, Insurance Companies etc.). Such auditors, known as joint auditors, conduct the audit jointly and report on the financial statements of the entity.

1. To lay down broad principles for the joint auditors in conducting the joint audit.
2. To provide a uniform approach to the process of joint audit.
3. To identify the distinct areas of work and coverage thereof by each joint auditor.
4. To identify individual responsibility and joint responsibility of the joint auditors in relation to audit.

The joint auditors shall discuss and document the nature, timing, and the extent of the audit procedures for common and specific allotted areas of audit to be performed by each of the joint auditors and the same shall be communicated to those charged with governance.

The joint auditors shall obtain common engagement letter and common management representation letter.

After identification and allocation of work among the joint auditors, the work allocation document shall be signed by all the joint auditors and the same shall be communicated to those charged with governance of the entity.

The joint auditors are ordinarily 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.

A joint auditor is not bound by the views of the majority of the joint auditors regarding the opinion or matters to be covered in the audit report and shall express opinion formed by the said joint auditor in separate audit report in case of disagreement. In such circumstances, the audit report(s) issued by the joint auditor(s) shall make a reference to the separate audit report(s) issued by the other joint auditor(s).

Further, separate audit report shall also make reference to the audit report issued by other joint auditors. Such reference shall be made under the heading “Other Matter Paragraph” as per Revised SA 706, “Emphasis of Matter Paragraphs and Other Matter Paragraphs in the Independent Auditor’s Report”.

300

SA 300 deals with the auditor’s responsibility towards planning for an audit of financial statements and its context is focused more on a recurring audit. This standard also prescribes the additional considerations required for an initial audit engagement.

The objective is to plan the audit in accordance with the size and complexity of the entity to perform the audit in an effective manner.

Partner and key members of the engagement team are required to be involved in the audit planning through discussion which will enhance the audit effectiveness and efficiency.

1. Overall audit strategy which exhibits the key decision of the audit planning
2. Audit Plan which includes standard audit program and audit completion checklist
3. Any significant changes made during the audit engagement to the above and the reasons for the same

NA

315

This Standard on Auditing (SA) deals with the auditor’s responsibility to identify and assess the risks of material misstatement in the financial statements, through understanding the entity and its environment, including the entity’s internal control.

The objective of the auditor is to identify and assess the risk of material misstatement in an entity’s financial statement and implement appropriate responses (Refer SA 330) & procedures which will reduce such risk to an acceptably low level.

1. Discussion among engagement team covering all significant decisions taken
2. Key elements of the understanding of the entity and its environment including sources of such information
3. Internal control components
4. Identified and assessed the risk of material misstatement at the financial statements level and at the assertion level
5. Risk identified and related controls

In Auditor’s opinion, if any of the identified risks is a significant risk, the auditor has to obtain an understanding of the entity’s control, including control activities relevant to that risk to assess whether it would have an impact on the true and fair view of the financial statements..

Following are to be considered to identify a risk as significant:

1. Risk of fraud
2. Relates to recent significant economic, accounting or other developments like regulatory environment changes etc.
3. Complexity of transactions
4. Significant transactions with related parties
5. The degree of subjectivity in the measurement of financial information related to the risk
6. Significant transactions outside the normal course of business or unusual transactions

320

This Standard on Auditing (SA) deals with the auditor’s responsibility to apply the concept of materiality in planning and performing an audit of financial statements. SA 320, explains how materiality is applied in evaluating the effect of identified misstatements on the audit and of uncorrected misstatements, if any, on the financial statements.

The objective of the auditor is to apply the concept of materiality appropriately in planning and performing the audit.

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.

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.

330

The SA deals with the auditor’s responsibility to design and implement responses to the risks of material misstatement identified and assessed by the auditor in accordance with SA 315, “Identifying and Assessing Risks of Material Misstatement Through Understanding the Entity and Its Environment” in a financial statement audit.

To obtain sufficient appropriate audit evidence about the assessed risk and design & implement appropriate responses to those risks.

1. Overall response to address the assessed risk of material misstatement and the nature, timing, and extent of further audit procedures
2. Linkage of those procedures with the assessed risk at the assertion level
3. The result of the audit procedure including conclusions for unclear ones

If the audit evidence about the operating effectiveness control obtained in previous audits is used by the auditor, such fact should be documented. Auditor’s documentation should demonstrate that the financial statements agree to the accounting records.

Evaluate whether the overall presentation of the financial statements, including related disclosures, is in accordance with the applicable financial reporting framework.

402

The SA deals with the user auditor’s responsibility to obtain sufficient appropriate audit evidence when a user entity uses the services of one or more service organisations. Specifically, it expands on how the user auditor applies SA 315 and SA 330 in obtaining an understanding of the user entity, including internal control relevant to the audit, sufficient to identify and assess the risks of material misstatement and in designing and performing further audit procedures responsive to those risks.

The objectives of the user auditor, when the user entity uses the services of a service organisation, are:

1. To obtain an understanding of the nature and significance of the services provided by the service organisation and their effect on the user entity’s internal controls relevant to the audit, sufficient to identify and assess the risks of material misstatement; and,
2. To design and perform audit procedures responsive to those risks.

The following procedures may be considered by the user auditor:

1. Inspecting records and documents held by the user entity; the reliability of this source of evidence is determined by the nature and extent of the accounting records and supporting documentation retained by the user entity. In some cases, the user entity may not maintain independent detailed records or documentation of specific transactions undertaken on its behalf.
2. Inspecting records and documents held by the service organisation;: the user auditor’s access to the records of the service organisation may be established as part of the contractual arrangements between the user entity and the service organisation. The user auditor may also use another auditor, on its behalf, to gain access to the user entity’s records maintained by the service organisation.
3. Obtaining confirmations of balances and transactions from the service organisation: where the user entity maintains independent records of balances and transactions, confirmation from the service organisation corroborating the user entity’s records may constitute reliable audit evidence concerning the existence of the transactions and assets concerned.
4. Performing analytical procedures on the records maintained by the user entity or on the reports received from the service organisation.

When a user auditor is unable to obtain sufficient appropriate audit evidence regarding the services provided by the service organisation relevant to the audit of the user entity’s financial statements, a limitation on the scope of the audit exists.

Whether the user auditor expresses a qualified opinion or disclaims an opinion depends on the user auditor’s conclusion as to whether the possible effects on the financial statements are material or pervasive.

The user auditor shall modify the opinion in the user auditor’s report in accordance with SA 705 if the user auditor is unable to obtain sufficient appropriate audit evidence regarding the services provided by the service organisation relevant to the audit of the user entity’s financial statements.

If the user auditor plans to use a Type 1 or a Type 2 report that excludes the services provided by a subservice organisation and those services are relevant to the audit of the user entity’s financial statements, the user auditor shall apply the requirements of this SA with respect to the services provided by the subservice organisation.

450

The SA deals with the auditor’s responsibility to evaluate the effect of identified misstatements and uncorrected misstatements.

1. Evaluate the effect of identified misstatements on the audit.
2. Effect of uncorrected misstatements, if any of the financial statements.

1. Materiality limit – determining the trivial amount
2. All misstatements accumulated during the audit and if those are corrected
3. Whether uncorrected misstatements are material, individually or in aggregate and its conclusion

If the uncorrected misstatements are material, individually or in aggregate, evaluate its impact on the true and fair view of the financial statements

500

The SA explains what constitutes audit evidence in an audit of financial statements, and deals with the auditor’s responsibility to design and perform audit procedures to obtain sufficient appropriate audit evidence to be able to draw reasonable conclusions on which to base the auditor’s opinion.

The auditor shall design and perform audit procedures that are appropriate in the circumstances for the purpose of obtaining sufficient appropriate audit evidence.

SA 230 includes a specific documentation requirement if the auditor identified information that is inconsistent with the auditor’s final conclusion regarding a significant matter.

NA

501

The SA deals with specific considerations by the auditor in obtaining sufficient appropriate audit evidence in accordance with SA 330, SA 500 and other relevant SAs, with respect to certain aspects of inventory, litigation and claims involving the entity, and segment information in an audit of financial statements.

The objective of the auditor is to obtain sufficient appropriate audit evidence regarding the:

1. Existence and condition of inventory;
2. Completeness of litigation and claims involving the entity; and,
3. Presentation and disclosure of segment information in accordance with the applicable financial reporting framework.

Documentary requirements with regard to the following selected items in line with the SA need to be documented appropriately or retained in the audit file. Some specific matters include:

1. Inventory – obtaining instructions and procedures framed by the Management and obtaining and retaining confirmations of inventories in the custody of third parties
2. Litigation and Claims – Confirmation from Legal counsel and written representation regarding the completeness of the litigations and claims.
3. Segment Information - obtaining instructions and procedures framed by the Management for identifying segments.

In case Auditor is not able to obtain sufficient appropriate audit evidence with regard to Inventory, Litigations & Claims and Segment Information by performing audit procedures, SA 705 requires the auditor to modify the opinion in the auditor’s report as a result of the scope limitation.

In accordance with Revised SA 700, the auditor is required to date the auditor’s report no earlier than the date on which the auditor has obtained sufficient appropriate audit evidence on which to base the auditor’s opinion on the financial statements. Audit evidence about the status of litigation and claims up to the date of the auditor’s report may be obtained by inquiry of management, including in-house legal counsel, responsible for dealing with the relevant matters. In some instances, the auditor may need to obtain updated information from the entity’s external legal counsel.

505

The SA deals with the auditor’s use of external confirmation procedures to obtain audit evidence in accordance with the requirements of SA 330 and SA 500. It does not address inquiries regarding litigation and claims.

The objective of the auditor, when using external confirmation procedures, is to design and perform such procedures to obtain relevant and reliable audit evidence.

When using external confirmation procedures, the auditor shall maintain control over external confirmation requests, including:

1. Determining the information to be confirmed or requested.
2. Selecting the appropriate confirming party
3. Designing the confirmation requests, including determining that requests are properly addressed and contain return information for responses to be sent directly to the auditor
4. Sending the requests, including follow-up requests when applicable, to the confirming party.

• Audit evidence is more reliable when it is obtained from independent sources outside the entity.
• Audit evidence obtained directly by the auditor is more reliable than audit evidence obtained indirectly or by inference.
• Audit evidence is more reliable when it exists in documentary form, whether paper, electronic or other medium.

NA

510

The SA deals with the auditor’s responsibilities relating to opening balances when conducting an initial audit engagement. In addition to financial statement amounts, opening balances include matters requiring disclosure that existed at the beginning of the period, such as contingencies and commitments.

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 thereto are properly accounted for and adequately presented and disclosed in accordance with the applicable financial reporting framework.

The auditor shall read the most recent financial statements, if any, and the predecessor auditor’s report thereon, if any, for information relevant to opening balances, including disclosures.

The auditor shall obtain sufficient appropriate audit evidence about whether the opening balances contain misstatements that materially affect the current period’s financial statements

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 (Revised).

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 (Revised).

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 (Revised).

520

The SA deals with the auditor’s use of analytical procedures as substantive procedures (“substantive analytical procedures”), and as procedures near the end of the audit that assist the auditor when forming an overall conclusion on the financial statements.

Objectives 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.
   • The auditor shall 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.

NA

NA

530

The SA applies when the auditor has decided to use audit sampling in performing audit procedures. It deals with the auditor’s use of statistical and non-statistical sampling when designing and selecting the audit sample, performing tests of controls and tests of details, and evaluating the results from the sample.

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.

Methods of Sampling:

1. Random Selection
2. Systematic Selection
3. Monetary Unit Sampling
4. Haphazard Selection
5. Block Selection

When designing an audit sample, the auditor shall consider the purpose of the audit procedure and the characteristics of the population from which the sample will be drawn.

The auditor shall determine a sample size sufficient to reduce sampling risk to an acceptably low level.

The auditor shall select items for the sample in such a way that each sampling unit in the population has a chance of selection.

NA

540

The SA deals with the auditor’s responsibilities regarding accounting estimates, including fair value accounting estimates, and related disclosures in an audit of financial statements. Specifically, it expands on how SA 315 and SA 330 and other relevant SAs are to be applied in relation to accounting estimates. It also includes requirements and guidance on misstatements of individual accounting estimates, and indicators of possible management bias.

The objective of the auditor is to obtain sufficient appropriate audit evidence whether in the context of the applicable financial reporting framework:

1. accounting estimates, including fair value accounting estimates, in the financial statements, whether recognised or disclosed, are reasonable; and
2. related disclosures in the financial statements are adequate.

1. The basis for the auditor’s conclusions about the reasonableness of accounting estimates and their disclosure that give rise to significant risks; and
2. Indicators of possible management bias, if any.

Financial Reporting framework:

• Accounting estimates, including fair value accounting estimates, in the financial statements, whether recognised or disclosed,
• Related disclosures in the financial statements

550

The SA deals with the auditor’s responsibilities regarding related party relationships and transactions when performing an audit of financial statements.

1. Irrespective of whether the applicable financial reporting framework establishes related party requirements, to obtain an understanding of related party relationships and transactions sufficient to be able:
   1. To recognise fraud risk factors, if any, arising from related party relationships and transactions that are relevant to the identification and assessment of the risks of material misstatement due to fraud; and
   2. To conclude whether the financial statements, insofar as they are affected by those relationships and transactions:
      1. Achieve a true and fair presentation (for fair presentation frameworks); or
      2. Are not misleading (for compliance frameworks); and
2. In addition, where the applicable financial reporting framework establishes related party requirements, to obtain sufficient appropriate audit evidence about whether related party relationships and transactions have been appropriately identified, accounted for and disclosed in the financial statements in accordance with the framework.

In meeting the documentation requirements of SA 230 and other SAs, the auditor shall include in the audit documentation the names of the identified related parties and the nature of the related party relationships.

The auditor may also decide to obtain written representations regarding specific assertions that management may have made, such as a representation that specific related party transactions do not involve undisclosed side agreements.

Responsibilities of an Auditor include taking into consideration the following factors :

1. Financial Reporting Frameworks That Establish Minimal Related Party Requirements
2. Fair Presentation Frameworks, where related party relationships and transactions may cause the financial statements to fail to achieve true and fair presentation.
3. Compliance Frameworks whether related party relationships and transactions cause the financial statements to be misleading as discussed in SA 700 depends upon the particular circumstances of the engagement.
4. Related parties that exercise control and significant influence
5. Related Parties with Dominant Influence
6. Special-Purpose Entities as Related Parties
7. Fraud Risk Factors Associated with a Related Party with Dominant Influence
8. Identified Significant Related Party Transactions outside the Entity’s Normal Course of Business
9. Assertions That Related Party Transactions Were Conducted on Terms Equivalent to Those Prevailing in an Arm’s Length Transaction

560

The SA deals with the auditor’s responsibilities relating to subsequent events in an audit of financial statements.

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:

1. Those that provide evidence of conditions that existed at the date of the financial statements; and
2. Those that provide evidence of conditions that arose after the date of the financial statements.

The objectives of the auditor are to:

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 of, or disclosure in, the financial statements are appropriately reflected in those financial statements; and
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.

NA

NA

The SA deals with the auditor’s responsibilities in the audit of financial statements relating to going concern and the implications for the auditor’s report.

The objectives of the auditor are:

1. To obtain sufficient appropriate audit evidence regarding, and conclude on, the appropriateness of management’s use of the going concern basis of accounting in the preparation of the financial statements;
2. To conclude, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the entity’s ability to continue as a going concern; and
3. To report in accordance with this SA.

Evaluating Management’s plans for future actions may include inquiries of management as to its plans for future action, including, for example, its plans to liquidate assets, borrow money or restructure debt, reduce or delay expenditures, or increase capital.

The auditor shall evaluate whether sufficient appropriate audit evidence has been obtained regarding, and shall conclude on, the appropriateness of management’s use of the going concern basis of accounting in the preparation of the financial statements.

If the financial statements have been prepared using the going concern basis of accounting but, in the auditor’s judgment, management’s use of the going concern basis of accounting in the preparation of the financial statements is inappropriate, the auditor shall express an adverse opinion.

If adequate disclosure about the material uncertainty is made in the financial statements, the auditor shall express an unmodified opinion and the auditor’s report shall include a separate section under the heading “Material Uncertainty Related to Going Concern” to:

1. Draw attention to the note in the financial statements that discloses the matters and,
2. State that these events or conditions indicate that a material uncertainty exists that may cast significant doubt on the entity’s ability to continue as a going concern and that the auditor’s opinion is not modified in respect of the matter.

If adequate disclosure about the material uncertainty is not made in the financial statements, the auditor shall:

1. Express a qualified opinion or adverse opinion, as appropriate, in accordance with SA 705 (Revised) 4; and
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.

If management is unwilling to make or extend its assessment when requested to do so by the auditor, the auditor shall consider the implications for the auditor’s report.

580

The SA deals with the auditor’s responsibility to obtain written representations from management and, where appropriate, those charged with governance.

Objectives are:

1. To obtain written representations from management and, where appropriate, those charged with governance that they believe that they have fulfilled their responsibility for the preparation of the financial statements and for the completeness of the information provided to the auditor;
2. To support other audit evidence relevant to the financial statements or specific assertions in the financial statements by means of written representations, if determined necessary by the auditor or required by other SAs; and,
3. To respond appropriately to written representations provided by management and, where appropriate, those charged with governance, or if management or, where appropriate, those charged with governance do not provide the written representations requested by the auditor.

SA 230 requires the auditor to document significant matters arising during the audit, the conclusions reached thereon, and significant professional judgments made in reaching those conclusions. The auditor may have identified significant issues relating to the competence, integrity, ethical values or diligence of management, or about its commitment to or enforcement of these, but concluded that the written representations are nevertheless reliable. In such a case, this significant matter is documented in accordance with SA 230.

The auditor should judge whether the effects of uncorrected misstatements are immaterial, both individually and in the aggregate, to the financial statements as a whole. A list of the uncorrected misstatements may be included as part of the representation letter (SA 450).

NA

600

The purpose of the SA is to establish standards to be applied in situations where an auditor (referred to herein as the ‘principal auditor’), reporting on the financial information of an entity, uses the work of another auditor (referred to herein as the ‘other auditor’) with respect to the financial information of one or more components included in the financial information of the entity. It also discusses the principal auditor’s responsibility in relation to his use of the work of the other auditor.

When planning to use the work of another auditor, the principal auditor should consider the professional competence of the other auditor in the context of specific assignment if the other auditor is not a member of the Institute of Chartered Accountants of India.

The auditor should consider whether the auditor’s own participation is sufficient to be able to act as the principal auditor.

When the principal auditor uses the work of another auditor, the principal auditor should determine how the work of the other auditor will affect the audit.

The principal auditor should document in his working papers the components whose financial information was audited by other auditors; their significance to the financial information of the entity as a whole; the names of the other auditors; and any conclusions reached that individual components are not material.

The principal auditor should also document the procedures performed and the conclusions reached.

Where the other auditor’s report is other than unmodified, the principal auditor should also document how he has dealt with the qualifications or adverse remarks contained in the other auditor’s report in framing his own report.

When the principal auditor concludes, based on his procedures, that the work of the other auditor cannot be used and the principal auditor has not been able to perform sufficient additional procedures regarding the financial information of the component audited by the other auditor, the principal auditor should express a qualified opinion or disclaimer of opinion because there is a limitation on the scope of audit.

In all circumstances, if the other auditor issues, or intends to issue, a modified auditor’s report, the principal auditor should consider whether the subject of the modification is of such nature and significance, in relation to the financial information of the entity on which the principal auditor is reporting that it requires a modification of the principal auditor’s report.

610

The SA deals with the external auditor’s responsibilities regarding the work of internal auditors when the external auditor has determined, in accordance with SA 315, that the internal audit function is likely to be relevant to the audit.

This SA does not deal with instances when individual internal auditors provide direct assistance to the external auditor in carrying out audit procedures or where, in terms of the applicable legal and regulatory framework, it is not permissible for the internal auditor to provide access to his working papers to the third parties.

The objectives of the external auditor, where the entity has an internal audit function that the external auditor has determined is likely to be relevant to the audit, are to determine:

1. Whether, and to what extent, to use specific work of the internal auditors; and
2. If so, whether such work is adequate for the purposes of the audit.

When the external auditor uses specific work of the internal auditors, the external auditor shall document conclusions regarding the evaluation of the adequacy of the work of the internal auditors, and the audit procedures performed by the external auditor on that work.

CARO 2020 requires the Auditor to comment on :

1. Whether the reports of Internal Auditors for the period under audit were considered by the Statutory Auditors and
2. Whether internal audit system is commensurate to the size and nature of business of the entity.

620

The SA deals with the auditor’s responsibilities regarding the use of an individual or organization’s work in a field of expertise other than accounting or auditing, when that work is used to assist the auditor in obtaining sufficient appropriate audit evidence. (Referred to as “An Auditor’s Expert”).

The objectives of the auditor are:

1. To determine whether to use the work of an auditor’s expert; and
2. If using the work of an auditor’s expert, to determine whether that work is adequate for the auditor’s purposes.

Agreement on the respective roles and responsibilities of the auditor and the auditor’s expert may also include agreement about access to, and retention of, each other’s working papers. When the auditor’s expert is a member of the engagement team, that expert’s working papers form part of the audit documentation. Subject to any agreement to the contrary, auditor’s external experts’ working papers are their own and do not form part of the audit documentation.

The agreement between the auditor and an auditor’s external expert is often in the form of an engagement letter.

When there is no written agreement between the auditor and the auditor’s expert, evidence of the agreement may be included in:

1. Planning memoranda, or related working papers such as the audit program.
2. The policies and procedures of the auditor’s firm. In the case of an auditor’s internal expert, the established policies and procedures to which that expert is subject may include particular policies and procedures in relation to that expert’s work. The extent of documentation in the auditor’s working papers depends on the nature of such policies and procedures. For example, no documentation may be required in the auditor’s working papers if the auditor’s firm has detailed protocols covering the circumstances in which the work of such an expert is used.

The auditor shall not refer to the work of an auditor’s expert in an auditor’s report containing an unmodified opinion unless required by law or regulation to do so. If such reference is required by law or regulation, the auditor shall indicate in the auditor’s report that the reference does not reduce the auditor’s responsibility for the audit opinion.

If the auditor makes reference to the work of an auditor’s expert in the auditor’s report because such reference is relevant to an understanding of a modification to the auditor’s opinion, the auditor shall indicate in the auditor’s report that such reference does not reduce the auditor’s responsibility for that opinion.

SA 700 (Revised), Forming an Opinion and Reporting on Financial Statements

Revisions to establish new required reporting elements, and to illustrate these new elements through an example in the auditor’s report.

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

New standard to establish requirements and guidance for the auditor’s determination and communication of Key Audit Matters (KAMs) in auditor’s reports for audits of financial statements of listed entities.

Determining Key Audit Matters:

The auditor shall determine, from the matters communicated with those charged with governance, those matters that required significant auditor attention in performing the audit. In making this determination, the auditor shall take into account the following:

1. Areas of higher assessed risk of material misstatement, or significant risks identified in accordance with SA 315.
2. Significant auditor judgments relating to areas in the financial statements that involved significant management judgment, including accounting estimates that have been identified as having high estimation uncertainty.
3. The effect on the audit of significant events or transactions that occurred during the period.

The auditor shall determine which of the matters determined in accordance with the above paragraph were of most significance in the audit of the financial statements of the current period and therefore are the key audit matters.

Note: Presently the KAMs are required to be given only for audit reports on General Purpose Financial Statements of listed entities or in situations where auditor otherwise decides to communicate KAM. ICAI has also released an implementation guide to SA 701.

SA 705 (Revised), Modifications to the Opinion in the Independent Auditor’s Report

Clarification of how the new reporting elements are affected when expressing a modified opinion.

SA 706 (Revised), Emphasis of Matter Paragraphs and Other Matter Paragraphs in the Independent Auditor’s Report

Clarification of the relationship between the emphasis of matter and other matter paragraphs and KAM section of the auditor’s report.

SA 570 (Revised) Going Concern

The Emphasis of Matter Paragraph has been replaced by “Materiality Uncertainty over Going Concern”. The contents of the two are the same. (This has been discussed earlier)