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P7 Audit and Assurance Summary

Ethical and Professional Issues:  Tendering (Portray your)


 Introduction to the firm:
o Qualifications, Specialist Skills, Experience
o Countries / Locations Presence
Ethical Issues  Explain Audit Approach and how it suits the client
- ( I of C ) Integrity of Client (Restricting Us, Hiding from Us, Breaking Law)  Requirement of client
- ( C of I ) Conflict of Interest (Two Competitor clients on Board, Software Recommendations)  Adherence to Code of Ethics
- Confidentiality (Broke law report to Authority? ML? )  Deadlines and timings
- (Risk to Auditor’s Independence) SSAFIM
 Fee matters and Key Staff
 Self-interest (Gifts, Financial Interest, Business opportunity?)
 Any non-audit services we can offer
 Self-review (Provision of non-audit services to audit client)
 Advocacy (negotiation on behalf of client, guaranteeing for client)
 Advertising (Don’t Use)
 Familiarity (Long service , relationship with client)
 No Unsubstantiated Claims
 Intimidation (Fee pressure , Intimidation to sue)
 Criticism on other accountants work or make their work dubious
 Management Pressure
 Unethical/Illegal selling verses “Get What you expect”
 Clarity and No Use of unprofessional language
Professional Issues  Misuse ACCA name unless <50 % or more ACCA then place after
o ISA 250A (ML) Money Laundering (Excessive Cash, Magic Cash? Cash Based Business) the name “Chartered Certified Accountants”
 Money Laundering Steps : 1.Placement,2.Integration,3.Layering o Impact on Audit Work (Extend Audit Procedures due to Lack of controls, or More
 Ant-Money Laundering: MLRO. Firm Wide controls, training and KYC Stress on going concern work? Need an Expert?)
 Liability : Tipping off Client or Failure to Report |Concealing the Crime|
o Liability Of Our Firm (In case Something gone wrong Firm be Liable)
Safeguards:
 Wrong Opinion?
 Inappropriate advice?  Separate Audit Teams?  Hot Reviews?  Expert Review?
 Resign? From the audit  Decline? The  Resign and Sign business
 Disclaimer?
work audit work deal?
 Inform the Client?  Legal Opinion?  Cold Reviews and Training

o (PM) Practice Management


Engagement Appointment Considerations:
 ISQC 1 & ISA 220: (QC) Quality Management (Lack of oversight? Lack of
- Enough Resources? And Staff?
Structure)
- Audit Risk? Too risky? Liabilities? Reputational risks?
 Oversight Structure (Directed, Supervised & Reviewed)
- Is Fee ethical and practical? More than 15%? Client Able to Pay?
 Skills Experience of team & Training
- Experience and Qualifications for the industry and Client?
 Correct allocation of resources
- Time and Deadlines? Pressures? Intimidations?
 Cold Reviews and Hot reviews - Conflicts of Interest with potential client
 Planned and Documented - Professional clearance? Last Auditor’s gone why? Any f/s dispute? #Integrity
 Fees - Preconditions for audit in place
 Low balling <Allowed But Quality shouldn’t suffer> o Client using correct accounting framework as per law
 Contingent Fees <Not allowed due to Self-interest and o Documented control process over f/s
Intimidation> o Access to all relevant information required for the audit
 Practical Commercial Issue (Resources? Commercially viable?)  Any ethical and Professional issues.
P7 Audit and Assurance Summary

Risk: Audit Procedures When Audit Testing / Audit Evidence When Reviewing

TEST THE FACTS –Events –Amounts


Business Risk: Operational Risk, Financial Risk, Compliance Risk TEST THE A/C RULES
- Damage to Company’s ability to achieve goals VERB – AEIOU THINGS - DADA3
- Reputation, Costs, Cash flow Problems etc.  Analyze  Document
<Comparative and Trend Analysis> <Agreements, Deeds ,Valuation >

 Enquiry  Assets
<Written Representation, Board Minutes> <Physical, Intangibles>

 Inspection  Director’s Enquiry <W.R,


<Inspection of Assets and Control Processes> Board Minutes>

 Observation  Accounting books


<Observation of Books and Procedures> <Cashbooks, Asset Register,
Banks statements>
Audit Risk: IR x CR x DR | ROMM (Risk of Material Misstatement): IR x CR |
- IR: Inherent Risk  Recalculation
<Recasting, Reworking the assignment>  3rd Party confirmations
o Nature of business: Cash Based , Listed | IAS 33 and IFRS 8 disclosure risk
Audit of Groups (Special considerations):
o Integrity of Management: Management Override of controls or Deliberate Policies
o Pressures on Management : Directors paid Bonus on Profit, Earning Management Risk - Existing Subsidiaries:
o Management Experience and Knowledge | Diversification into new sector o Different Year Ends (Consolidation errors)
o Complex Accounts and Estimates | Financial instruments and derivatives o Different Accounting Policies and laws & regulations Foreign
o Unusual transactions | wire transfer to foreign institution | Foreign Exchange o Different Currencies ( FOREX risk)
- CR: Control Risk o Different Auditors (Component Auditor) Subsidiary
o Intragroup Trading (Not Cancelled on Consolidation)
o Changes in operating environment.
o Related Party Transactions (Undisclosed RPT)
o New Personnel
o Goodwill impairment test of existing subsidiaries
o Revamping of information Systems - Acquisitions:
o Lack of control effectiveness or monitoring o Classification (Level of Control: Joint Venture, Associate, Subsidiary)
- DR: Detection Risk |Auditors Lack of Experience? Short Samples? Lack of Expert?) o Date of Control (Risk in Pre-Post Acquisition Profit and their Impacts)
o Goodwill Calculation (Risk in Assessment of Goodwill, FV of N.A
What is the Risk of Material Misstatement to consider? o If Before Y/E Impairment Review
- What is the issue: What item in f/s might be potentially wrong? o Consolidation Schedule
- Why is that issue: Risk of Over/Under stated (Link to Scenario) o Different Auditors (Component Auditor)
- In case of Audit Risk (Include Detection risk as well) - Quality Control - Agree Their Plan - Review their work
o More Audit Work | <Group Materiality, Review conditions for Audit , Fee>
Audit work in progress: Audit Matters to consider - Disposals:
o Classification (Disposal, Level of Control)
- What Accounting rules Apply? What IAS Says
o Date of disposal (Stopped being consolidated S->I )
- What Client did right or wrong? Breach of IAS
o Disposal Proceeds (Gains/(loss) on disposal)
- What does it over/understates
o Discontinued Operation and HFS? <IFRS 5>
- Materiality IF
o Disposal resulting to Associate or Investment
- Audit Report Consequence IF
P7 Audit and Assurance Summary

Audit Report:

Structure of an Audit Report: Matters in an Audit Report (Criticism): Audit Report Outcomes:
TAOBMEKOORAD Availability, Relevance, Comparability, Under stability
ISA Material Pervasive Other Outcome
- Title/Headings 560 Yes No When there is material Material
- Structure uncertainty
uncertainty over the
<Correct place of Audit Report components> regarding
- Opinion correctness
entity’s going concern
going
- Basis Paragraph concern
 Lack of Explanation of 700 No No Something or Nothing Standard
what’s IFRS breached
Report
 Lack of Amounts
 Lack of Impact Analysis NEW Yes Significant Significant Matters to To be
 Why is materiality mention? 701 Matter the Audit and Auditors presented
- Material uncertainty going concern? (IF ANY) Listed response to those in all cases
- EOM: correctly used? (IF ANY) Clients Matters and Therefore except for
- Key Audit Matters: conclusions. disclaimer
 Does it explain why the 705 Yes No Lack of Evidence Except For
matter is significant? Yes Yes Lack of Evidence Disclaimer
 Reference to related
of Opinion
disclosure included?
 Is how the matter
Yes No Material Misstatement Except For
addressed in the audit Yes Yes Material Misstatement Adverse
explained? 706 Yes No Refer to ISA details Other
 Any conclusions drawn by below Matter
auditor missing? Yes No Correctly disclosed but Emphasis
- OM: correctly used? (IF ANY) is Fundamental to users of Matter
- Other Info: Explained Other Info responsibility understanding F/S
for auditor? Significant Matter
- Engagement Partner name disclosed?
720 Yes No Mistake in other Other
- Clarity/Use of Professional Words
information in F/S Information
P7 Audit and Assurance Summary

Standard Key Points


Name
ISA 200 Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance with ISAs
- Stay Ethical: Auditor shall look independent in mind and in appearance as well.
- Maintain professional skepticism throughout the audit.
An attitude that includes a questioning mind, being alert to conditions which may indicate possible misstatement due to error or fraud, and a critical assessment of audit evidence
- Exercise Professional Judgement in planning and performing the audit
- Obtain Sufficient Appropriate Audit Evidence.
ISA 210 Agreeing the Terms of Audit Engagements
- Auditor shall accept audit engagement in light of:
1 Competency, Ethical requirements, Integrity of Client, Project Management Issues
- Know your client procedures to understand business model and funds for Money Laundering
- Pre Engagement conditions:
1 Proper removal of predecessor auditors and keen reason behind it
2 Management Accepts responsibility to prepare F/S
3 Use of proper financial reporting framework under statutory and regulatory laws
4 Documented and implemented internal controls ensuring f/s are free from MM
5 Provide all information access to auditor which management knows and auditor inquires or request to inquire from other 3 rd Party.
ISA Quality Control for an Audit of Financial Statements
220/ISQC 1 - Audit Firm is required to maintain Professional competency, Attitude and Oversight of its employees to maintain quality of audit services delivered and avoid negligence claims
- Engagement Partner should be Authoritative, Independent, and Competent and Experienced enough together with sufficient time to discharge duties of a quality audit and own it.
1 Assignment of Audit Team and Delegation of task
2 Direction , Supervision and Review of Audit
3 Consultation and Quality control reviewer appointment
- Quality control procedures must be <CARE> : - Complied, - Adequate, - Relevant,- Effective
- Engagement review be done by independent authoritative experienced and qualified generally partner level person to ensure review is done to quality standards.
 Post Audit Quality Control Measure : Engagement quality controller will concern the following
· Discuss Audit work, significant judgements and derived opinion
· Discuss possible qualification of Opinion
· Matters to be dicussed with management
- Audit Documentation should be complete
ISA 230 Audit Documentation
- Auditor shall document in such a way that an experience auditor can understand and review the audit work
1 Nature, timing and extent of audit procedures 2 Significant matters and Judgements made
3 Results of procedures 4 Hot &Cold reviews or Engagement Quality Control Reviews
ISA 240 The Auditor’s Responsibilities Relating to Fraud in an Audit of Financial Statements
- To identify and assess the risks of material misstatement of the financial statements due to fraud;
- To obtain sufficient appropriate audit evidence regarding the assessed risks of material misstatement due to fraud, Why Frauds are not detected:
through designing and implementing appropriate responses
- To respond appropriately to fraud or suspected fraud identified during the audit - Generally concealed, - Management is involved
1 Presumption that Revenue contains fraud
- Professional Skepticism required in Accounting estimates, Going Concern matters, Related Party relationships and Transactions, Laws and regulations
ISA 250 Consideration of Laws and Regulations in an Audit of Financial Statements
- To perform specified audit procedures to help identify instances of non-compliance with other laws and regulations that may have a material effect on the financial statements;
- To obtain sufficient appropriate audit evidence regarding compliance with the provisions of those laws and regulations generally recognized to have a direct effect on the
determination of material amounts and disclosures in the financial statements;
- To respond appropriately to non-compliance or suspected non-compliance with laws and regulations identified during the audit.
P7 Audit and Assurance Summary

ISA 260 ISA 260 Communication with those charged with governance
- To communicate clearly with those charged with governance the responsibilities of the auditor in relation to the financial statement audit, and planned scope and timing of the audit;
- To obtain from those charged with governance information relevant to the audit;
- 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;
- To promote effective two-way communication between the auditor and those charged with governance to communicate matters of Auditor’s independence or Difficulties faced by
Auditor
ISA 265 Communicating Deficiency in internal controls
- An internal control of significant importance is weak
- A description of deficiency in internal control and its possible implications
- Some suggestive measures to make control efficient
ISA 300 Planning an Audit of Financial Statements

- Audit Strategy
Characteristics of engagement Reporting objectives , timing of communications Significant factors identified to audit engagement Nature timing and extent of resources

- Audit plan: Continuous effort to implement the audit strategy via course of activities. An audit plan is not rigid, it is effected by the dynamic circumstances identified during the
course
Planning initial Audit engagements:
o Consult predecessor auditor for any info about engagement and management itself : Review working papers
o Discuss major Financial Standards applicable to Entity with Management
o Audit Procedures in relation to ISA 510 Initial Audit engagements for opening balances
o Review of the audit strategy by another senior partner within the firm
o High Fee and increased materiality screening and big samples more audit work
- High professional skepticism as the risk will be high on detection of MM
ISA 315 Identifying and Assessing the Risks of Material Misstatement through Understanding the Entity and Its Environment
- Auditor is required to devise and audit plan and strategy in such a way that all material misstatements in F/S and risk are identified and responded in an effective manner.
- Auditor should gain understanding of :
SIGNIFICANT RISKS
1 Industry and Environment
2 Regulatory and Industry Laws - Risk of fraud
3 Financial Performance and Entity’s Business Model - Degree of subjectivity
4 Internal controls and Managements attitudes - Unusual transactions (M.L)
- Auditor shall inquire from management , Analyze regulations affecting f/s, and use prior audit knowledge and experience - Related Party Transactions
- Auditor shall assess identified risks and there effects at F/S level, assertion level and basis for other audit procedures - Complexity of Transactions
- Auditor shall respond effectively by detailed procedures, audit work and use of experts.
ISA 320 Materiality in Planning and Performing an Audit
- Planning Materiality & Performance Materiality concept Profit before Tax: 5%, Total Assets: 1-2%, Profit after Tax: 5-10%, Revenue: 0.5-1%
- Material by Amount, Nature, Impact
- Materiality in Planning and Performing an Audit requires that.PAT materiality should be revised if necessary as the audit progresses and circumstances develop
ISA 330 The Auditor’s Responses to Assessed Risks
Overall responses include emphasising to the audit team the need for professional scepticism, assigning additional/alternative staff to the audit, using experts, providing more
supervision on the audit and incorporating more unpredictability into the audit.
- Testof Controls? , - Substantive Procedures? , - Combined?
- Consider whether external confirmation procedures are to be performed as substantiveaudit procedures.
Document Risk assesments and responses via audit procedures and eveidences sought against them
P7 Audit and Assurance Summary

ISA 402 Audit Considerations Relating to an Entity Using a Service Organization


- Auditor is required to obtain an understanding of nature of service provided and outsourced function evaluating its impact on controls and obtain SAAE for the outsourced function
effecting F/S.
- Auditor is required to obtain SAAE regarding controls and procedures at service organization sufficient to derive risks of material misstatements
- Auditor is required to obtain : A type 1 report focuses on the description and design of controls, whereas a type 2 report also covers the operating effectiveness of the controls
 Do procedures and analytical at Service organization (Client Permission Required)
 Use another auditor to perform procedures at service organization
ISA 450 Evaluation of misstatements identified during the audit
- Communicate the misstatements in individual or in aggregate
- The impact of misstatements on auditors opinion if they remain incorrect
- Document all the evaluation and obtain managements representation regarding immateriality of the misstatements
ISA 500 Audit Evidence
Frame work to perform audit procedures to obtain Audit Evidence:
Audit Procedures ( A E I O U ): Transactions (ACCA CO) Account Balances (RECV)
1 Authorization — all transactions were properly
1 Analytical and Analyse authorized 1 Rights and Obligations — the entity holds or
controls the rights to its assets and owes obligations to
2 Enquiry and Explainations 2 Cutoff — the transactions have been recorded in the its liabilities
3 Inspection and Investigation correct accounting period
4 Observation 2 Existence — assets, liabilities and equity balances
3 Classification — the transactions have been recorded exist
5 Recalculation and Reperformance
in the proper accounts
3 Completeness — all assets, liabilities and equity
on (D A D A 3) 4 Accuracy — the transactions were recorded at the balances that should have been recorded have been
- Directors appropriate amounts recorded.
- Assets
5 Completeness — all transactions that should have 4 Valuation and Allocation — assets, liabilities and
- Documents
been recorded have been recorded equity balances are included in the financial statements
- Accounting Books at appropriate amounts and any resulting valuation or
- 3rd Party 6 Occurrence — the transactions actually took place allocation adjustments are appropriately recorded.
Presentation and disclosure: (CAR CO)
- Classification and Understandability — financial statements are appropriately presented and described, and information in disclosure is clearly expressed.
- Accuracy and Valuation — financial and other information is disclosed fairly and at appropriate amounts.
- Rights and Obligations — the transactions pertained to the entity
- Completeness and Occurrence— all disclosures that should have been included in the financial statement
If:
(a) Audit evidence obtained from one source is inconsistent with that obtained from another; or
(b) The auditor has doubts over the reliability of information to be used as audit evidence, the auditor shall determine what modifications or additions to audit procedures are
necessary to resolve the matter, and shall consider the effect, if any, on other aspects of the audit.
The auditor shall determine what modifications or additions to audit procedures are necessary to resolve the matter, and shall consider the effect, if any, on other aspects of the audit.
ISA 505 External Confirmations
- External confirmation shall be used as SAAE where required
- Keep control over the process to ensure reliability and realness
- If management refuse and no other way to obtain SAAE then auditor can discuss TCWG for implication over audit report and managements integrity
Conditions when External confirmations can be taken:
ISA 330 identifies the following situations where external confirmations are appropriate.
Bank balances and other information from bankers Accounts receivable balances Inventories held by third parties
Property deeds held by lawyers Investments held for safekeeping by third parties Accounts payable balances
P7 Audit and Assurance Summary

ISA Initial Audit Engagements – Opening Balances


510 - Auditor shall obtain SAAE over opening balances of balance sheet accounts
- Auditors shall check that balances are transferred correctly and any restatement is reasoned (i.e. in accordance with Financial reporting framework) and disclosed
- Auditor shall determine that accounting policies and judgements are consistent with current year F/S
- If previously audited then auditor shall review working papers of predecessor auditor and look for any material matters and concern.
- Auditor shall obtain SAAE by extending procedures over opening balances and checking with alternative analytical and calculative (work back) methods.
If prior period F/S are unaudited the auditor shall extend more audit procedures and also mention in Other Matter paragraph but this does not mitigate auditors liability and responsibility
If prior period F/S are audited the auditor shall in Other Matter paragraph about audited prior financials by other auditor but this does not mitigate auditors liability and responsibility
If the misstatement is found in prior financial statement and management auditor must as TCWG to adjust the F/S as required by relevant IFRS or IAS. In case management refuses to re-state
opening and comparative balances then the auditor reserves right to qualify report as per pervasiveness if the prior misstatement affect current year financial statements.
ISA Analytical Procedures Why Perform Analytical Procedures
520 - Auditors should not rely on analytical procedures alone in respect of material balances but should combine them with tests of detail. – Helps to identify risk of material misstatement
- Design and perform analytical procedures near the end of the audit that assist the auditor when forming an overall conclusion as to – Helps to develop business understanding
whether the financial statements are consistent with the auditor's understanding of the entity. – Helps in developing the audit strategy and audit
- YoY comparison, - Comparison with Auditor’s Estimates, - Relating financial and non-financial info, - Variance Calculations plan
ISA Audit Sampling
530 - Sampling Risks, - Non Sampling Risks, - Statistical Sampling vs Guess Sampling
ISA Auditing Accounting Estimates, Including Fair Value Accounting Estimates, and Related Disclosures
540 - Review the outcome of accounting estimates included in the prior period financial statements and their subsequent re- estimation for the purpose of the current period
- Obtain understanding of underlying financial reporting framework and its requirement about estimations and judgements
- Identify means by which management identify transactions that require estimations
- How management assess estimates and degree of judgement required in the process
- Obtain written representation from management about validity of estimates
- Extend audit procedures verifying market reports valuation letters and past estimation criteria to verify managements way (also utilized auditors experience)
- Obtain SAAE that estimation methods are in line with Financial reporting framework and necessary discloses are made as per Standard
- Document all its finding and uncertainties and estimated deviations

IAPN 1000:
Why is audit of financial instruments challenging?
- Financial reporting requirements complex
- Transactions themselves difficult to understand
- Lack of evidence and need to rely on management judgement
- Auditor may need to rely on expert
- May be hard to maintain attitude of skepticism
- Internal controls may be deficient in this area
ISA Related Party Transactions
550 - Auditor is not expected to find all related party transactions but is required to obtain SAAE over RPTs affecting Financial statements and those need to be reported under IAS-24 Related
Party transactions
- Auditor may face risk that RPTs are unknown to auditor when management conceals or related party is itself not evident to auditor
- Auditor shall Inquire that all RPTs have been disclosed and also perform procedures such as checking cross company ownerships and shareholding of directors in other companies
- Transactions with directors are Related Party transactions and are always MATERIAL by nature.
- A written representation from management stating that management has disclosed to the auditor the identity of the entity’s related parties and all the related party relationships and
transactions of which they are aware, that management has appropriately accounted for and disclosed such relationships and transactions in accordance with the requirements of IAS 24.
Problems in identifying related parties and transactions:
(i) Complex/subjective definition of related party (some of the definitions in IAS 24 Related Party)
(ii) Reluctance of management to disclose and Hard to identify from accounting system
(iii) Deliberate concealment for fraud/window dressing and Materiality relatively complex to apply
P7 Audit and Assurance Summary

ISA Subsequent Events


560
Events between reporting date till Auditor’s Report
- The auditor shall perform audit procedures designed to obtain sufficient appropriate audit evidence that all 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 have been identified. The following are the procedures:
 Inquire Management  New Commitments  Developments and Retirements
 Review Board Minutes  Review Interim records  Consider management procedures for identifying subsequent events
- Written representations will be sought that all events occurring subsequent to the date of the financial statements which require adjustment or disclosure have been
adjusted or disclosed.
 EARP adjusted or disclosed properly: No modification Highlight in EOM if material and pervasive
 EARP adjusted or disclosed improperly : Ask management to amend for correction or consider implications on Audit Report

Events between Auditor’s report and publish of F/S or Events after publish of F/S
- No obligation to perform any audit procedures regarding the financial statements after the date of the auditor's report. However if auditor discovers EARP and if had
been discovered at date of auditors report and would have caused amendment to report then:
· Auditor shall discuss with management and if required then suggest to amend F/S
 Management does amend: Amend F/S and review and extend audit procedures and issue a new auditor’s report and OM should be included.
 Management does not amend : Ask management to stop issue to 3rd parties or if issued then take legal advice to prevent reliance on F/S
ISA Going Concern
570 - An entity is said to be going concern when its able to continue normal course of business in force-able future (Force-able future is 12 months from reporting date)
- Auditor is required to asses managements going concern assumption and obtain SAAE about it
Indicators:
 See if management has done any preliminary assessment of going concern and if not ask to conduct one
- Adverse Financial ratios
 Evaluate evidences and assumptions and material uncertainties - Net Liabilities or Negative cash flows
 Inquire management about plans to mitigate risks over going concern - Substantial operating losses
 Cash flow analysis for in the context of going concern - Loss of key management without replacement
 Obtain managements written representation regarding the correctness of their assumptions - Uninsured or underinsured catastrophes when
- Conclude based on Audit evidence obtained for any material uncertainty exists that challenges going concern. they occur
- Indications of withdrawal of financial support
Audit Opinion:
1 Material uncertainty Exist and Properly disclosed : Section headed 'Material Uncertainty Related to Going Concern' and unqualified Opinion
2 Material uncertainty Exist and not disclosed : Qualify or adverse based on pervasiveness
3 Inappropriate assumptions used : Qualify or adverse based on pervasiveness
4 Multiple Material Uncertainties exist : Auditor Unable to Provide Opinion on truth and fairness of F/S (DISCLAIMER OF OPINION is advised)
What Should be Written in 'Material Uncertainty Related to Going Concern:
The paragraph should highlight that a material uncertainty exists, and should describe the uncertainty, including any relevant financial information,
such as the amount of net liabilities at the year end. The paragraph should clearly state the existence of a material uncertainty that may cast
significant doubt over the company’s ability to continue as a going concern. The paragraph should also state that the audit opinion is not qualified in
this respect, and refer to the note to the financial statements where the material uncertainty is discussed.

ISA Written Representations


580 - Auditor is allowed to obtain written representations for Management responsibilities and to support other evidence
- In case of managements refuse the auditor shall consider managements integrity and ability to obtain SAAE
- Auditor shall check reliance on representation in light with audit evidence obtained and managements integrity and auditors knowledge
- Required for
ISA 240 ISA 250 ISA 450 ISA 501 ISA 540 ISA 550 ISA 560 ISA 570 ISA 710
P7 Audit and Assurance Summary

ISA Special Considerations - Audits of Group Financial Statements (Including the Work of Component Auditors)
600 - Group Audit partner is responsible for the audit of the group
- Group auditor is required to react as auditor of group and also coordinate with component auditor and corroborate findings and assessments.
1 Responsible for assessing the competency, objectivity level of the component auditor and the extent to which reliance can be placed over their work.
2 Group auditor is solely responsible for the group audit and shall not place reference over component auditor, however while referencing incase group auditor
has to mention then also state that it won’t give up group auditors liability
3 Component Report shall be modified at component level while impact shall only be made when it’s over the group materiality
4 In order to obtain SAAE the group auditor needs to look at – Group level , - Component level

Group Audit Acceptance: Difficulties in Transnational Audit:


- The Auditor is not expected to engage unless it’s is rest assure to obtain SAAE
must obtain an understanding of the group before acceptance  Regulation and oversight of auditors differs
 Group info, Component info, Predecessor auditor info
from country to country
 Group structure and business activities of major components
 Group wide controls and consolidation processes  Differences in auditing standards from
 And general audit acceptance considerations country to country
 Variability in audit quality in different
Planning and Risk Assessment: countries
- A component will be significant if it’s
 asset/liabilities or Profit/Losses exceed 15% of the total group’s corresponding figures or Significant by nature
 If a component is financially significant to the group financial statements then the group engagement team or a component auditor will perform a full audit based on the
component materiality level. Where the component is significant, the group auditor must be involved in the component auditor work
·Meeting with the component management or the component auditors to obtain an understanding of the component and its environment.
·Reviewing the component auditor's overall audit strategy and audit plan.
·Performing risk assessment procedures to identify and assess risks of material misstatement at the component level. These may be
performed with the component auditor or by the group auditor.
 Components that are not 'significant components' will be subject to analytical procedures at a group level – a full audit is not required.
Other Aspects:
2 Coterminous year end : there should be no more difference than 3 month between parent and subsidiary reporting end date else two separate F/S would be
required to be prepared
3 Changes in Group Structure: Auditor will need to take account for the group structure on consolidation process
4 Support letter: Sometime a subsidiary may look going concern by unable to pay parent debt in that case letter of comfort .An assessment of parent’s financial
ability to support subsidiary shall be made
5 In case of subsidiary in developing country: subsidiary will be required to restate F/S to IFRS: IFRS 1 First time adoption of IFRS MORE AUDIT WORK!!

Consolidation Problems:
IFRS 8: Operating Segment Identification , IAS 24: Related Party Disclosures IFRS3 : Intra group trading/ Un-realized Profits IAS 1: Presentation and Disclosure

Work of Component Auditor:


- Reliance on component auditor shall be placed by judging
1 Ethical (adherence of IESBA code of ethics and Objective)
2 Competent (Skill base, Resources)
3 Regulated (Oversight and Access to relevant trainings and governance)
- Involvement of Group auditor in component’s work
 Review work and overall audit strategy with component auditor and Audit methodology of component auditor
 Check list for methodology of work of component auditor and review the documentation
P7 Audit and Assurance Summary

ISA Using the Work of Internal Auditor


610 - What to check in internal Auditor before placing reliance on their work
Competent Proper Processes Independent
- Organizational status - Documented Controls and Procedures - Objective
- Training - Established policies and SOPs - Employment decisions
- Proper Staffed - Proper setup such as Audit Committee - Constraints
- Financial Reporting Knowledge - Oversight by the board
- Members of Pro. Bodies
- Degree of uncertainty involved in their work (i.e. judgements and assumptions) involved
- Do not place reliance on work which have been carried by internal audit dept. itself or significant judgment involved

- ISA 610 envisages three ways of using the work of internal auditors:
(1) To obtain information to be used when assessing the risk of material misstatement
(2) To use internal auditors' work instead of performing procedures
(3) To use internal auditors themselves to perform audit procedures (direct assistance) |only when external auditor properly reviews and oversees the work of Internal Auditor|
ISA Using the Work of an Auditor’s Expert
620 - Auditor shall make use of Auditor’s Experts work provided Auditor is assured that SAAE has been obtained from experts work
- Auditor shall Review before choosing Expert
1 Qualification 2 Experience 3 Independence
- Auditors shall provide all the necessary guidance
1 Purpose, intended use and context of expert’s work
2 assumptions and methods intended
- Auditor shall seek review of experts work and confirm that expert has followed discussed guidelines and has devoted sufficient time and effort. This will enable auditor to place reliance
over experts work. Checking Auditors Work:
1 The source data used
2 The assumptions and methods used
3 When the expert carried out the work
4 The reasons for any changes in assumptions and methods
5 The results of the expert's work in the light of the auditors' overall knowledge of the business and the results of other audit procedures
Auditor shall not include reference to expert’s work and wherever necessary include it with statement that the reference doesn’t disclaim auditor’s liability over the opinion formed
ISA DEFINITION KAM:
701 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
NEW communicated with those charged with governance. KAMs must always relate to matters already included within the financial statements.
SEP - Improves the quality of information given to stakeholders by highlighting the difficulties encountered by the auditor
2016 - Provides an insight on how the audit is performed and what goes through the mind of the auditor, whereas up to now it only focused on the users of the Report
DETERMINATION OF KAM
- Areas of higher risks of material misstatement or which were deemed to be ‘significant risks’ in accordance with ISA 315
- Significant auditor judgments in relation to areas of the financial statements that involved significant management judgment.
- The effect on the audit of significant events or transactions that have taken place during the period.
REPORTING KAM
- Contents:
1 These are the 'matters of most significance'
2 No separate opinion is provided on them because they are covered by the audit opinion
3 Why the matter was determined to be one of most significance and therefore a key audit matter, and
4 How the matter was addressed in the audit
A description of the auditor’s approach, a brief overview of procedures performed with an indication of their outcome and any other Key observations.
- Exception : Law or regulation precludes public disclosure about the matter such as Mentioning money laundering may tipoff
- In case of conflict with matters to be discussed in Basis for opinion para or Material uncertainty relating to going concern the former paragraph will be given preference and KAM will refer
P7 Audit and Assurance Summary

ISA Emphasis of Matter paragraphs and Other Matter paragraphs in the independent auditor's report
706 - EOM: When a matter of Fundamental Understanding
1 When a financial reporting framework prescribed by law or regulation would be unacceptable but for the fact that it is prescribed by law or regulation
2 To alert users that the financial statements are prepared in accordance with a special purpose framework
3 When facts become known to the auditor after the date of the auditor's report and the auditor provides a new or amended auditor's report (i.e. subsequent events)
- OM: When matter is instructed to be highlighted In auditors report other than those paragraphs
1 Where prior period financial statements were audited by a predecessor auditor (ISA 710)
2 Where prior period financial statements were not audited (ISA 710)
3 When reporting on prior period financial statements in connection with the current period's audit, if the auditor's opinion on such prior period financial statements differs from
the opinion the auditor previously expressed (ISA 710)
ISA Comparative Information – Corresponding Figures and Comparative Financial Statements
710 - Auditor shall obtain SAAE that accounting policies used for the comparatives are consistent with those applied in prior period and any changes is reasoned and disclosed properly.
- Auditor shall see that comparative amounts match with current period and are free from material misstatements in context of current year F/S
- ISA 710 requires that the auditor obtains written representations for all periods referred to in the audit opinion.
Reporting: Prior year Unaudited or audited by another auditor:
· Incase audited by other auditor in past : also mention the - Type of report and if modified therefore reasons, - date of that report
 State prior F/S were unaudited or audited by other auditor
 State Auditor is not relived of requirement to carry out procedures to obtain SAAE over opening balances (ISA 510)
 If auditor finds a misstatement then ask management to revise else modify appropriately.
- Case: If there was a matter in Past :
 Prior matter Resolved as of now and modified before: No modification. IF Material to current period then EOM
 Prior matter Unresolved as of now and was Modified before: Modify for current as well as for corresponding figures
 Prior matter Unresolved as of now and Unmodified before: Modify due to misstatement in current figures and identify that previous one was unmodified incorrectly
ISA The Auditor’s Responsibilities Relating to Other Information
720 - Auditor is not responsible for other information disclosed in Financial report or incase Auditor might be required to audit other information under local statutory laws.
- Auditor is required to read out other information in F/S i.e. Chairman’s note and see if it doesn’t clash with knowledge present in Audited F/S.
- Incase other information is materially different, then the auditor shall seek :
1 Rework specific accounts
2 Ask management to prove their other information
- If there is a rework and misstatement is found auditor shall ask management to correct misstatement in the F/S considering management integrity as well.
- If management refuses above then modify as per ISA 705
- If there is a restatement required in other info then auditor shall ask management to revise other info
- In case management refuses auditor shall disclose inconsistency in other matter paragraph of its auditor’s report and also consider management integrity.

Advantage and Disadvantage of Audit as opposed to


limited assurance review (Voluntary)
Audit vs Limited Assurance Reviews:
- Accountability to external shareholder
– Regulatory requirements (Mandatory by law vs Voluntary) – Renegotiation of loan facility
– Determination of scope (Scope as per ISA, Scope as per ISRE) – Reliability of information for internal decisions
– Nature of procedures (AEIOU vs AE) – Potential mandatory audit if company grows
– Reasonable vs moderate levels of assurance (Positive wording vs Negative wording) – Overseas trading relationships
– Review of internal controls
– Opinion vs Conclusion
Disadvantages:
- Auditor vs Practitioner – Risk of misstatement due to changes in accounting staff
– Cost of full audit
– Potentially no need for high level of assurance
– More invasive nature of audit
P7 Audit and Assurance Summary

Non Audit Assignments: (NEGATIVE ASSURANCE) > Based on our XYZ, nothing has come to our attention...
ISAE 3400 ISAE 3402 ISAE 2410 & 2400 ISRS 4400
Audit of Prospective Financial Information Due Diligence Review of Historical and Interim F/S Agreed Upon Procedures <UPRCM>
Benefits: <IVRECNA> – Consistent accounting policies – User Intended
Matters be consider for PFI terms of engagement: <MUPARFD> – Identification of assets and liabilities – Consider work of internal audit – Procedures Intended
 The auditor and the client should agree on the terms of the – Valuation of assets and liabilities – Inquiries from management about significant – Rationale behind procedures
engagement. – Review of operational and synergy change in business risks – Conditions of Engagement are clear
– Management Competence & Responsibilities for preparing PFI issues – Obtain written representations form – Management responsibility for
– Use Intended: Is it to be disclosed to 3rd parties? Disclaimer? – Examination of financial position and management regarding preparation of interim procedures.
– Period of Forecast performance f/s
– Assumptions Nature – Added credibility and expertise – Look for compliance of IAS 34. Reporting: <IERPFO>
– Report To whom, Form & Contents – Added value for negotiation of 1. Identification of Info on which
– Fees purchase price The Code: specific procedures are applied
– Deadlines – Other advice can be given, e.g. on - The practitioner performs primarily inquiry 2. Statement that procedures
 The auditor should not accept, or should withdraw from, an obtaining finance and analytical procedures to obtain sufficient performed was in line with recipient’s
engagement when the assumptions are clearly unrealistic appropriate evidence expectation.
or when the auditor believes that the prospective financial Consider: - The practitioner shall comply with relevant 3. Identification of Rationale
information will be inappropriate for its intended use. – Post acquisition benefits and synergies ethical requirements, including those pertaining 4. Listing of Procedures
– Any Assets of 3rd party currently used to independence. 5. Auditors Factual Findings
Reporting: <TIPNAC> by target. - The practitioner shall plan and perform the 6. Statement that Auditor doesn’t
- Title/Addressee – Any liabilities engagement with professional skepticism express any opinion over it.
- Identification of PFI information to be reported on – Valuation of assets especially recognizing that circumstances may exist that
- Reference to the purpose intangibles causes the financial statements to be materially Forensic Auditing
– Report: – Key Personnel and management misstated. For investigating financial frauds and
– Negative assurance over assumption – Reputational Risks - The practitioner shall exercise professional cases of disputes
– opinion that PFI is based on assumptions judgment in conducting a review engagement – Expert witness
– Appropriate Caveats of Assumption Terms of engagement: <ODDTMF> - Perform procedures necessary to validate the – Duty of due care
 When the auditor believes that the presentation - Nature of the opinion true and fair presentation of interim financial
and disclosure of the prospective financial - deadline of the review statements in accordance with IAS 34. Matters:
information is not adequate, the auditor should - Liability disclaimer - Perform analytical procedures and enquiries <CRE&P>
express a qualified or adverse opinion in the report - Terms of reference regarding changes in entity positions such as – Context of investigation
on the prospective financial information, or - Managements responsibility significant transactions, agreements or loan – Report will be consumed by whom
withdraw from the engagement as appropriate. of decision making and covenants signed that affect the matter. – Evidences and procedures just like
- Date/Address/Sign/ ownership - Practitioner must ensure consistency of audit.
- Fee accounting policies and any deviations are
General Procedures: reasonable to auditors understanding Social/Environmental Audit
– Re-perform calculations Due diligence vs Historical F/S Audit - Practitioner should inquire whether
– consistency of the accounting policies <SAPFC> management has identified all events up to the Difficulty in measurement
– accuracy of forecasts prepared in prior by comparison with actual date of the review report that may require <DQSC>
– Perform analytical procedures adjustment to or disclosure in the interim – Difficult to define
– Test the facts & assumptions financial information – Difficult to quantify
– Verify Opening Cash Positions – Systems not set up to capture data
– Look for missing impacts such as Finance costs and Taxation – Hard to make comparisons
– Competency of the person who prepared forecast
P7 Audit and Assurance Summary

Accounting Standard
Accounting Audit
IFRS -13 FAIR VALUE MEASUREMENT
- Input 1 : Quoted prices for identical assets in an Active market - Correct measurement criteria used?
- Input 2 : Quoted prices for identical assets in an Inactive market or Similar assets - Did management follow the Input level requirement?
- Input 3 : Unobservable valuation methods: - Valuation expert involved? Did Auditor assess the adequacy of expert?
1 Income based > PV of all future benefits - Valuation reports? Assumptions involved are they reasonable?
2 Cost based > Replacement cost - Management Written representations on correctness of FV amounts
3 Market approach > Market valuation by expert - Level of judgement involved and deviation from expected in actual results
IAS -2 INVENTORY
- Inventory should be valued at lower of cost or NRV - Is inventory value at lower of cost or NRV
- Difference should be charged to PnL - Did auditor check inventory valuation by attending stock count and reconciling stock from
- Slow moving stock need to be tested for NRV F/S to actual stock taking figures and stock value
- Cost Measurement Techniques: FIFO and W.AV method - Fair valuation of inventory and standard costing of inventory checked?
1 Standard Cost (DM,DL,DOH) - Have all calculations been re-casted?
2 Retail method ( Sale value less gross margin) - Is the method of costing inventory still gives reliable measure of cost amount?
IAS – 16 NON CURRENT ASSETS
- Dismantling Cost: Capitalized in the cost of the asset at present value discounted at risk - Check that costs to bring the asset into usable condition are capitalized and expenses are
adjusted weighted average WACC and depreciated with asset’s useful life and un-winded charged to income statement.
each year end - Did auditor verify documents and invoices to verify consideration of asset and expenses
- Environmental Cost: Expensed out each year in the consumption pattern of the asset. incurred other than that.
- Asset Held at Cost: Depreciate the asset over the useful economic life. - Did auditor inspected asset and verified that it does not subject to impairment
- Asset Held at Revaluation: Revaluation at the end of each year for all assets in a similar class - Depreciation of asset? Charged to PnL?
and depreciate the asset over the useful economic life and any gain or loss of revaluation is - Revaluation: FV measurement checked?
taken through equity and excess depreciation is adjusted in equity. Deferred Tax implication - Have deferred tax and excess depreciation aroused addressed?
- Disclosures are a significant requirement in revaluation for assumptions and methods used. - Verification of useful life by document and board notes
- Complex Asset concept, Overhauling concept, DE-recognition of asset. - Recasting of all calculations of depreciation
IAS – 36 IMPAIRMENT
- Internal and External Indications of impairment - Did auditor look for impairment indications?
- Assets to review without indication : Goodwill, Intangible Assets with indefinite life and - Have management conducted impairment review?
intangible asset under development - Did Auditor verify CA from asset register?
- Impairment when CA > RA = RA is the higher of - Did Auditor verify RA which is higher of FV-CTS & Value in use?
1 Value in Use: Present value of all future benefits from continuing use based on - Is Value in use exclusive of financing and taxation activity?
current form excluding financing and taxation adjustments. Discount rate should - Is FV according to IFRS-13?
be used is Pre-tax Risk adj. WACC - Did auditor recast the impairment amount?
2 FV – CTS : FV can be binding sale agreement or an active market quote, CTS is - Did auditor review all the disclosures required by IAS 36
attributable to disposal - Have the reversal of Impairment been checked for adherence to IAS-36 guidelines
- Impairment Reversal: Reverse to the extent recognizes in PnL or OCI then charge excess to
other account i.e. PnL or OCI.
P7 Audit and Assurance Summary

IFRS -5 ASSET HELD FOR SALE and DISCONTINUED OPERATIONS


ASSET HELD FOR SALE: ASSET HELD FOR SALE:
- Asset held for sale 6 Criteria : - Did auditor check the asset held for sale is according to criteria of
1 Asset is immediately available for sale in present condition IFRS 5
2 An active program to locate a buyer exists - Did auditor test the criteria?
3 Asset is quoted at a reasonable price - Has the asset been updated with prior IFRS/IAS and impairment
4 It is probable that the asset will be sold at the year end tested before classifying into IFRS 5?
5 Management is committed to a plan to sale the asset & doesn't intend to revoke its selling plan - Test NRV and CV correctly transferred?
- Asset is open to sale is an indication of impairment and should be tested with it - Any further marks of devaluation of asset AND test that no further
- Asset then shall be reclassified from NCA to CA as AHFS : valued at lower of cost or NRV depreciation is charged in lieu of this asset?
- Depreciation for the asset held for sale must be stopped. - Have all necessary disclosures been made?
- Correct Classification done?
DISCONTINUED OPERATIONS:
1 Disposal of identifiable line of business, Subsidiary bought for re-sale , Single plan to dispose operation in DISCONTINUED OPERATIONS:
specific geography - Has the company disposed significant line or segment of business?
2 Income from Discontinued Operations as single line in SOCI and re-state comparative F/S for SOCI and also - Have they disclosed single line income from discontinued operations
state net cash flow from discontinued operations on cash flow statement. - Have they restated comparative financial information as per ISA 710
3 Classify Assets as AHFS and liabilities as LHFS separately in SOFP. - Have they classified asset as held for sale and liabilities as held for
- Disclosures required: sale separately?
1 Description of the nature of assets (or disposal group) held for sale and facts and circumstances surrounding - Have relevant disclosures regarding the nature of assets and reasons
the sale disclosed in notes to F/S.
2 If applicable, the Reportable segment (IFRS 8) in which the non-current asset or disposable group is - Is it a reportable segment disposed? Have they considered IFRS 8
presented. - Is it a sale and lease back arrangement in the future?
IAS -38 INTANGIBLE ASSETS
- Purchased Asset: Cost can be measured reliably + Probable flow of economic benefits associated with - Has auditor checked the purchase documents for cost of the asset
the asset. - Has life of the asset determined? If not then why?
- Intangible Asset under Development : - Commercially viable, - Technically feasible and Intention and - Has auditor verified the commercial viability, technical feasibility and intention and
Ability to complete the asset + Cost can be measured reliably + Probable flow of economic benefits ability of management to complete the development?
- Research, Prototyping , Optimal method Search : Expense out - Has auditor looked for the breakup of intangible asset costs and research costs are
- Held at cost model or IF market exist then revaluation model can also be adopted expensed out rather than being capitalized?
- In case of revaluation model asset need to revalued at the year end - Has auditor re-casted and verified amortization of intangible asset?
- Amortize the intangible asset having a finite useful life over the pattern in which future economic - Has intangible asset been subject to review?
benefits are expected to be consumed - Have revaluation been verified? FVs?
- Test intangible asset with no finite life or can be renewed unlimitedly for impairment at each year - Has intangible asset with indefinite useful life reviewed for impairment at year end in
end accordance with IAS 36?
1 Review annually if events and circumstances still support indefinite useful life - Have assets with indefinite useful life review for useful life determination?
2 If no longer indefinite change to finite useful life and start amortization. - Have asset that have been marked with useful life now are being amortized?
P7 Audit and Assurance Summary

IFRS -9 Financial Instruments


- Financial Asset classification: Fair Value
1 FVTPNL (Short Term trade) : Gain and losses in FV to PnL - FV measurements tested?
2 FVTOCI (To Collect Contractual cash flows) Gain and losses in FV to OCI
3 Amortized Cost <Premium Spread over lease term, Interest Accrued, Effective interest method> Amortized Cost
- Financial Liability classification : - - Amortization Premium cost spread?
1 FVTPNL | only if the liability is taken to buy an asset that will be valued at FV or held for trading - Finance cost charged?
 Gain or loss resulting from credit risk to OCI and Other Gain or Loss to PnL - Has the method used is effective interest rate method
2 Amortized Cost <Premium Spread over lease term, Interest Accrued, Effective interest method>
- Compound Financial instrument : PV of liability and Residual as equity Derivatives:
- Hedging derivatives: Criteria to be classified as hedge else Speculation: - Is it Speculation or hedge? Speculation is dealt as Financial A/L
 At the inception formal documentation and risk assessment is done - Hedge:
 Hedge is expected to be highly effective (80%-125%) throughout the period expected to hedge 1 Cash flow hedge: gain or loss recognized in PnL?
 Effectiveness of hedge can be measured reliably 2 Fair Value hedge: Gain or loss recognized to OCI?
 Cash flow hedge : highly probable for the forecast transaction to occur
2 Cash flow hedge : gain or loss of re-measure in OCI Presentation and Disclosure:
3 Fair value hedge : gain or loss of re-measure in PnL - Relevant disclosures made regarding risk in financial instrument contract
- Disclosure requirements for risk exposure including quantitative and qualitative explanations for instruments disclosed in the notes to financial statements for IFRS 7
IAS -40 INVESTMENT PROPERTY
- Excess properties or rented out (not for use, inventory sale or asset sale) - Confirm property meets investment property criteria?
- Cost model : depreciate over remaining life - Verify rental properties with rental agreements?
- FV Model : FV changes through P/L - Check accounting policies and measurements such as cost model be deprecated and FV model
1 Every year fair valuation of investment property be tested for change at the Y/E?
- Disclosures: Properties held at investment and reason - Proper disclosures made with sufficient disclosures?
IFRS -15 REVENUE FROM CONTRACTS
- Recognition Steps - Does the contract exist? Check documents and agreements?
1 The Contract - Check documents for performance obligation and breakups of deliverables
 legal agreement - Check for sale price and payment terms
 Payment terms - Management’s break up of sale price over performance obligation allocation
 Rights/Obligations identified - Check delivery of performance obligation and no managerial influence exist over it
2 Performance - Check under/over statement of revenue and receivables or cash
 obligation Objectives
 Deliverables
 Time period
3 Transaction price (Price net of all costs)
4 Transaction price to each performance obligation
 Criteria for allocation
 Allocation of price
5 Revenue recognition when each performance obligation is satisfied
 Control transferred either over the period or after specific performance
 No Further managerial involvement
IAS -24 RELATED PARTY TRANSACTIONS
IAS 24 requires the following to be disclosed when related party transaction exists. - Check all related party transactions are disclosed
– Names of the transacting related parties - Inquire about directors and relative holdings in other companies
– A description of the relationship - Check for the adequacy and sufficiency of disclosure in accordance with IAS 24
– A description of the transaction and the amounts included - Has the transaction been accounted in F/S
– The amounts due to or from the related party at the end of the year
– Any other element of the transaction necessary for an understanding of the related party.
P7 Audit and Assurance Summary

IAS -12 INCOME TAX


Which Rate of Tax should be used: - Enquire and find tax laws for tax rates applicable
IAS 12 requires that deferred tax is calculated at a rate of tax that is 'substantively enacted' - Check arithmetical accuracy of calculations
and expected to apply to the period when the deferred tax is to be settled. Substantively - Consider assumption and accounting policies are consistent
enacted generally means that it has been made into law, not merely suggested or announced. - Look for Opening and Closing balances of Deferred tax liability and assets
Deferred Liability - Obtain a copy of deferred tax workings
- IAS 12 Income Taxes requires deferred tax to be recognized in respect of taxable temporary - Verify that all assets and liabilities subject which have caused taxable temporary
differences which arise between the carrying amount and tax base of assets and liabilities difference have been included
 IAS 16 : Revaluation, Depreciation and Dismantling Cost - If deferred tax asset.
 IFRS 9 : FVTPNL, FVTOCI, Amortized Cost and CFI 1 Obtain future forecast to justify future taxable profits
 IAS 17 : Tax authorities always consider as Operating lease 2 Verify reasonableness of assumptions and forecast.
Deferred tax asset 3 Check for adequacy of disclosure
- an unused tax loss carry-forward or unused tax credit exist
- Should only be recognized when there are sufficient taxable profits.
- Disclosure required
IAS -20 GOVERNMENT GRANTS
Recognition: - Check Grant document and grant type
- Entity will comply with any conditions attached - Check for grant conditions and terms that must be complied with
- Entity will actually receive the grant - Check for grant revoke clauses and reimbursement clauses to determine need for any
Capital Grants: provision in case of non-compliance
1 Netting off method: Net-off against the Cost of the asset - Verify bank statements for receipt of grant
2 Deferred Income method: Defer and release over the pattern of benefits received. - Inspect asset purchased and basis of its accounting method
Revenue Grants: - Look for condition of grant and its compliance and management’s intention, record and
3 Netting Off method: reduce the expense capability to fulfill it.
4 Other Income method: record as other income - Provisions for non-compliance incase
- In case of Conditional grant if entity cannot satisfy conditions then it shall not record the - Look for accounting for grants:
grant and if condition is long-term then book a provision incase terms contain to reimburse 1 Capital grants should be recorded as deferred income and released to F/S over the
the amount to government. pattern of consumption of economic benefit
Disclosures: 2 Revenue grant should be recorded as net of expense or other income
- Accounting policy adopted - Adequate disclosures have been provided
- Nature and extent of government grants recognized
- Unfulfilled conditions and other contingencies
IAS -23 BORROWING COSTS
Recognition: - Verify costs by bank statements and bank agreements
- Qualifying asset: An asset that necessarily takes a substantial period of time to get ready for its intended use or sale. - Obtain asset construction schedule to verify construction stages and
- Interest Cost is to be capitalized into asset for constructing asset by loan only from the start of the asset construction term
to extent where asset comes into usable condition. (any expected stoppage to the construction will stop capitalization - Check for capitalization should be directly attributable to asset
- Later asset needs to be depreciated - Re-calculate interest costs
- Verify asset is depreciated after coming into usable condition
IAS -33 Earnings Per Share [For listed companies only]
Basic EPS : Net Profit/loss attributable to share holder directly/Weighted Average no. of ordinary shares - Has the entity calculate correct EPS & DEPS?
Diluted EPS : Diluted earnings / Diluted weighted average number of shares - Has the entity disclosed EPS & DEPS in notes to F/S?
Presentation and disclosure: - Has restated EPS & DEPS for comparatives in notes to F/S?
Disclose in notes to annual financial statements – not on face of statement of comprehensive Income - Has the entity Disclosed EPS and DEPS for discontinued operations?
Discontinued operation: Under IFRS 5 (see below), then it must disclose the basic and diluted EPS for the discontinued operation. - Necessary disclosures in Notes to F/S made?
P7 Audit and Assurance Summary

IAS -17 LEASES


Operating lease - Obtain copy of lease agreement and inspect for conditions of lease to
- Recognition: R/R lessor or other than finance lease. identify lease type.
- Accounting: Rentals recorded on straight line basis over the lease term charged to PnL - In case of finance lease verify that risk and rewards are belonging to lessee
Finance lease 1 Responsibility of repair and maintenance?
- Recognition: 2 Transfer of legal title at end of term?
 PV of Minimum lease payment covers significant asset’s CV amount (>75%) 3 Present value of minimum lease payments nearly assets cost?
 Lease benefits to lessee 4 Lease term nearly asset’s useful life?
 Lease term covers substantial part of asset’s useful life 5 Bargain purchase options exist?
 Bargain Purchase option - Verify accounting for operating lease that is rental expense are charged to
 Asset maintained by the lessee the PnL over straight line basis
- Accounting: Recognize Asset and Finance cost in combination with Current and non-current Finance lease - Verify accounting for Finance lease that asset is recognized and finance
obligation and bank payment. Finance cost needs to be accrued lease obligation is introduced with current and non-current lease portions
1 Depreciate the asset at lower of asset’s useful life or lease term - Look for the finance cost accruals
2 IAS 17 guides that only the buildings element of the lease can be capitalized, as a land lease is - Review that asset is depreciated over the lower of lease term or asset’s
always an operating lease. useful life
- Sale and Finance lease back: - Verify lease payments through bank statements
1 Asset will be re-recognized at FV of lease amount and any gain or loss will be deferred and realized - In case of sale and finance lease back identify the transaction and nature
over the lease term while finance lease will be initiated. Finance cost to be accrued at the end just of lease and gain is deferred with recognition of FLO and finance cost
like finance lease. - In case of sale and operating lease back identify the transaction and nature
- Sale and Operating lease back: of lease and gain is immediately recorded to PnL
Gain is immediately recorded to PnL - Review disclosure notes to verify appropriate disclosures are made for
- Disclosures: Finance leases finance and operating leases as per IAS 17
1 Net carrying amount at year end for each class of asset
2 Reconciliation between total of minimum lease payments at year-end and their present value
3 Total of minimum lease payments at year end and their present value (< 1 year, 1-5 years, > 5 years)
- Disclosures: Operating leases
1 Total of future minimum lease payments under non-cancellable operating leases (< 1 year, 1-5
years, > 5 years)
IAS 37 – PROVISIONS AND CONTINGENT LIABILITIES
Liability < Present legal or constructive obligation + as a result of past event + Amount is Certain + Outflow is Certain> - Obtain details of provisions and contingent liabilities disclosed
Provision <Present legal or constructive obligation + as a result of past event + Amount Can be estimated reliably + Outflow Probable> or recorded
- Reimbursements from third parties for some or all expenditure required to settle a provision are recognized only when it is - Events after reporting date will be considered
virtually certain that the reimbursement will be received. The reimbursement is treated as a separate asset, which cannot - Determine for each liability/provision
exceed the amount of the provision. 1 Present Obligation (Constructive/legal)
Provisions are reviewed at each reporting date and adjusted to reflect the current best estimate 2 Past Event
- If it is no longer probable that an outflow of economic benefits will be required to settle the obligation, the provision is 3 Outflow is (Certain/Probable/Possible)
released - Check correspondence with solicitor
Contingent Liability <amount cannot be estimated reliably or either Outflow Possible> <Disclosed in the notes to F/S> - Look for nature of business and any missed provisions?
Contingent Asset <Insurance recovery or claim over supplier> <only when probable to be received> <Disclosed in the notes to F/S> Auditors point estimate of provision
Onerous Contracts (Loss making contracts) - Contingent Asset probable to be received?
 Lease termination : LOWER OFF (Cost of completion OR Penalty for Lapse) - Onerous contract booked at lower of penalty for lapse or lease
Restructuring : Employee redundancy cost provision continuation?
 Detailed formal Plan: Location, employees involved etc. - Has restructuring provision recorded after the formal plan has
 Publically announced before the year end been devised and publically announcement to effected parties.
2 Relocating and retraining cost should be expensed out - Consider whether disclosures of provisions contingent
RELEVANT DISCLOSURE ARE MADE liabilities and contingent assets are correct and sufficient
P7 Audit and Assurance Summary

IAS – 19 EMPLOYEE BENEFITS


- Short term benefits - Check scheme assets
1 Leave entitlement - Check scheme liabilities
2 Short term Bonus - Check reasonableness of actuarial assumptions
- Long term benefits - Check for accounting of asset liabilities and resulting P/L
1 Defined benefit plan 1 Termination record date should be lower of :
2 Defined contribution plan  Actual termination
- Termination Payments  IAS 37 restructuring date
1 Termination record date should be lower of : - Look for necessary disclosures
 Actual termination
 IAS 37 restructuring date
- Disclosure is required of a description of the plan and the amount recognized as a expense in the period.
IFRS -2 SHARE BASED PAYMENTS
- Equity Settled: Non-Employee - Obtain grant document and inspect its conditions and type of grant
 Initial recognition: FV of equity instrument at grant date over the vesting period. - Identify the transaction type
 Subsequent measurement: No Re-measure 1 Equity settled cash settled or cash alternative
- Cash settled: 2 Look for accounting is in accordance with IFRS 2
 Initial recognition: Measure at fair value of liability at grant date
 Subsequent Measurement: Re-measure at reporting date changes to PnL Share based payments:
- Cash Alternative (Option): - Check estimation dates
 Residual will be derived from fair value of CFI granted less FV of liability - In case of non-market condition Obtain year end expectation of employee
 Initial recognition: Fair value of liability at grant date residual being the equity. retention %
 Subsequent measurement : Re-measure liability at Y/E and changes to PnL - In case of market condition Obtain expectation of employee retention % at grant
Share based payment  Employee date of employee
- Grant type: Unconditional  Expense immediately into PnL - Inspect fair valuation of shares:
1 Conditional 1 Assumptions and models used
 Non Vesting  Expense immediately into PnL 2 Expert report and expert competency and objectivity
 Vesting : - Obtain written representation regarding reasonableness of assumptions and fair
· Non Market  Expectation at Year End date (proportionate record) valuation used.
· Market  Expectation at Grant date (proportionate record)
- Measurement method: No. of Shares x No. of Employees x Expectation % of employees in scheme
expected to be retained until year end x FV of Share x Vesting Period/Total Period.
IAS -21 EFFECTS OF CHANGE IN FOREIGN EXCHANGE
Single company: - Check that foreign currency transactions are recorded at the historical rate on initial
- Initial Measurement : at Spot rate/Historical rate recognition (and in the statement of profit or loss)
- Subsequent Measurement : - Check that monetary items included in the statement of financial position at the yearend
1 Monetary Asset/Liability <A/P, A/R> : Retranslate at the Y/E rate <Gain loss PnL> are translated at the closing rate of exchange
2 Non-Monetary <Inventory, Machinery>: No Retranslation <Gain loss to PnL> - Check that non-monetary items are translated at the historical rate of exchange
Group: - Consolidation done with translation?
- Retranslate B/S items at closing rate - Correct translation according to head of account (B/S account or I/S account)
- Retranslate I/S items at Average rate - All retranslation gain/loss credited/charged to OCI?
- All retranslation gain and losses from retranslation will be taken to equity. - Have all necessary disclosures made?
Disclosures
P7 Audit and Assurance Summary

IFRS -3 BUSINESS COMBINATIONS


Subsidiary: Over which entity exercises significant control - Is it a subsidiary, associate or investment?
- Significant Control definition Ownership of more than 50% voting rights or - Goodwill correctly measured?
 power to add/remove directors or rights to variable returns from its involvement 1 FV of N/A Correctly determined? check Due diligence practitioner work
 ability to use its power over the investee to affect the amount of the investor's returns 2 Consideration is correctly accounted? Agree to sale agreement
Goodwill: Initial Recognition |CONSIDERATION + FV OF NCI AT ACQ. – FV OF N/A at ACQ |  Contingent or deferred consideration shall be recorded at PV
- FV of N/A  Valuation of Net Assets generally due diligence derived  Contingent consideration if not going fulfil then not consider
- CONSIDERATION  Cash, Share Exchange, Loan Notes , Deferred (PV), Contingent(PV)(Conditional)  PV based provision are to be un-winded at year end
- FV OF NCI  If NCI exist (No. of shares of NCI x FV of shares at the transaction date) - NCI exist? Correct accounting taken in Goodwill and SOCI & SOFP
Subsequent measurement: Impairment Testing at year End - Subsequent Impairment testing for Goodwill at Y/E held?
NCI: - B/S : FV OF NCI + SHARE OF NCI in Post-Acquisition Reserve of subsidiary - Correctly Consolidated?
- I/S Profit and Other comprehensive income attributable to NCI 1 B/S consolidation? Goodwill, NCI, Retained Earnings? <Time
Consolidation: Apportioned?>
Eliminate Intra Group Trading and Unrealized Profits. 2 I/S consolidation? <Time Apportioned? , Acquisition % Apportioned>
1 B/S completely consolidated with Goodwill and NCI on face (if exist) (Time Apportion) - Disclosures area provided and are sufficient
2 I/S consolidate over acquisition % and Profit/OCI to NCI is shown on face of PnL/OCI income.
IAS -28 INVESTMENT IN ASSOCIATE & JOINT VENTURES
Associate/Joint Venture: an entity over which parent exercises significant influence - Does organization exert significant influence?
Which means : Ownership of more than 20% shares and less than 50% or - Is it an Associate? Or a Joint Venture?
 Representation on the board of directors (or equivalent) of the investee - Correct equity method of accounting used?
 Participation in the policy making process  Initially recorded at cost and subsequently measured at fair value?
 Material transactions between investor and investee - Presentation and disclosures are correct?
 Interchange of management personnel  B/S presentation
 Provision of essential technical information  I/S presentation <Time Apportioned? , Acquisition % Apportioned>
Measurement: Equity Method - Disclosures for IFRS 12 completed?
- Initial recognition: recorded at cost
- Subsequently measurement: at fair value with any gain or loss going through PnL.
Presentation and Disclosure:
- B/S: Investment in Associate (Fair value of associate at Y/E)
- I/S: Share of Profit in Associate (Profit by Associate x Acquisition % x Time Apportioned)
- IFRS 12 Disclosure of Interests in Other Entities
IFRS -1 First time Adoption of IFRSs
Select IFRS accounting policies using either: IFRSs that are currently effective; or one or more IFRSs that are not yet effective, if those new IFRS permit early adoption.
- Recognize/De-recognize assets and liabilities where necessary so as to comply with IFRSs
- Reclassify items recognized under previous accounting framework as one type of asset, liability or component of equity, but are a different type of asset, liability or component of equity under IFRS
- Re-measure all assets and liabilities recognized under IFRSs.
IFRS -7 Financial Instruments: Disclosures
SIGNIFICANCE OF FINANCIAL INSTRUMENTS IN TERMS OF THE FINANCIAL POSITION AND PERFORMANCE (The accounting and presentation in F/S) - Check that disclosures for financial
NATURE AND EXTENT OF RISKS ARISING FROM FINANCIAL INSTRUMENTS AND HOW THE RISKS ARE MANAGED (The disclosure notes) instruments are in accordance with IFRS 7
Qualitative risks 1 Quantitative risk disclosed
Quantitative risks Liquidity Risks Credit Risks Market Risk 2 Qualitative risk disclosed
P7 Audit and Assurance Summary

IFRS -8 Operating Segments


Operating Segment definition: All conditions must satisfy - Check for methods
- That engages in business activities from which it may earn revenues and incur expenses used by management in
- Whose operating results are regularly reviewed by the entity’s chief operating decision maker (CODM) to make decisions about resources to be allocated to the determining operating
segment and assess its performance segment information
- For which discrete financial information is available. - Check that all
reportable segments
Reportable Operating Segments: Any one condition satisfies then that qualify the criteria
- Has revenue including internal and external sales more than 10% of combined sales of segments are disclosed and
- Has assets including internal and external sales more than 10% of combined assets of segments reported in accordance
- Has P&L including internal and external sales more than 10% of combined PnL of segments with IFRS 8
- If segments are
When Operating Segmental information can be combined: Segments are similar in each of the following respects: combined make sure
- The nature of the products and services or the nature of the production processes or the customer base for their products and services or the nature of the that the combination
regulatory environment or the distribution process of their products or provide their services criteria is met
IAS -1 Presentation of Financial Statements
- Overall considerations - Look for the Presentation of F/S is fair
1 Fair Presentation and Compliance with IFRS and Going Concern and - Accrual basis of accounting is followed?
2 Accrual basis of accounting and Presentation Consistency and - Entity is a going concern? If not then alternative basis breakup values f/s provided?
3 Materiality and aggregation and Offsetting is not allowed and - Offsetting is not done and every component required to disclose separately is disclosed separately?
4 Comparative Financial Information Provided - Have comparative F/S been provided?
- Financial Statements Creation: SOCI SOFP SOCF SOCIE NOTES TO F/S - Have all the required F/S created i.e. SOCI SOFP SOCF SOCIE NOTES TO F/S
IAS -32 Financial Instruments: Presentation
Classification of Instruments: Have the instrument correctly classified?
- Financial Asset : Cash or Contractual right to receive cash 1 Is the financial asset recognized qualifies
- Financial Liability : Contractual obligation to pay cash the criteria of IAS 32
- Compound Financial Instrument : Hybrid instrument having both equity and liability component 2 Is the financial liability recognized
- Treasury Shares : Issued and on buy back no gain or loss is recognize all proceeds to equity qualifies the criteria of IAS 32
- Derivative: A financial instrument or other contract with all three of the following characteristics. 3 Is the compound financial instrument
1 Its value changes in response to the change in a specified interest rate, financial instrument price, commodity price, foreign recognized qualifies the criteria of IAS 32
exchange rate, index of prices or rates, credit rating, or other variable (sometimes called the 'underlying asset').
2 It requires no initial net investment or an initial net investment that is smaller than would be required for other types of - Have treasury shares correctly accounted?
contracts that would be expected to have a similar response to changes in market factors.
3 It is settled at a future date. - Have the derivative recognized to criteria of IAS 32?
- Offsetting:
1. Legal enforceable right - Offsetting has been done when legal enforceable
2. Same timing right existed? And timing of settlement was same?
IFRS -10 Consolidated Financial Statements
Consolidation procedures: - Have the consolidation done in
- Combine assets, liabilities, income, expenses, cash flows of the parent and subsidiary accordance with IFRS 3 and IFRS 10
- Eliminate parent’s investment in each subsidiary with its portion of the subsidiary’s equity - Have the intra company balances
- Fully eliminate intra group transactions and balances. been fully cancelled
- Parent and subsidiaries must have uniform accounting policies and reporting dates. If not, alignment adjustments must be quantified and posted to - Have all related party disclosures
ensure consistency. given
- Reporting dates cannot vary by more than 3 months. - Are the accounting policies and
- Consolidation of an investee begins from the date the investor obtains control of the investee and ceases when the investor loses control of the investee Y/E of parents and subsidiary same