CA Clues Nikhil Gupta

SQC – 1 “Quality Control for Firms that Perform Audits & Reviews of Historical Financial Information,
and Other Assurance & Related Services Engagements”

All firms to have system of quality control that provides reasonable assurance that: (a) Firm & personnel comply with professional standards,
regulatory & legal requirements, and (b) Reports issued by firm or partners are appropriate in the circumstances.

Leadership Ethical Independence Client Human Engagement Monitoring

Responsibilities for Q. C. requirements Acceptance/Continuance Resources Performance
(a) Promote internal culture Establish policies & Policies & procedures should Establish policies/ Establish Establish policies/ Establish
w.r.t.: procedures to enable: procedures to policies/ procedures to Policies &
 essential of quality in reasonable assure that  Communication of
reasonable assure that
reasonable assure procedures to
Firm & personnel independence requirements to procedures to w.r.t.: reasonable
engagements.
comply with relevant
personnel & others. clients are accepted/ reasonable  Compliance with assure that QC
 Compliance with
professional ethical requirements of  Identification of circumstances continued only assure that: professional policies/
threatening independence. standards. procedures are:
standards, regulatory/  Integrity. where:
 Take appropriate action for  Firm has  Compliance with  Relevant.
legal requirements.  Objectivity. elimination of threats /  Client integrity has
 Issue of reports  Professional sufficient laws/ regulations.  Adequate.
withdrawal from engagement. been considered.
appropriate in competence & due  Resolution of breaches of personnel with  Engagement  Operating
circumstances. care.
 Firm is competent partner issues effectively.
independence. capabilities,
(b) Require CEO/  Confidentiality. Maintenance of independence of to perform reports  Complied
managing partner to  Professional personnel engagement w.r.t. competence & appropriate in the with in
assume ultimate behaviour.  Engagement partners to provide capability, time & commitment circumstances. practice.
responsibility for QC. firm with relevant information Important aspects of It also includes
resources. to ethical
(c) Recognise & reward about client. engagement on going
high quality work.  Prompt notification of threats to  firm can comply principles; & performance: consideration &
independence. with ethical  Responsibility  Supervision. evaluation of QC
 Accumulation & communication requirements. of engagement  Review. system, periodic
of relevant information to If any issue raised,  Consultation. inspection of
appropriate personnel. partner clearly completed
document how it  Differences of
Other Points: defined & opinion. Assignments.
 Firm should obtain Annual resolved. communicated  Engagement Q. C.
written confirmation as to Establish Policies review.
compliance with independence w.r.t. withdrawal from to him/ her.
 Engagement
requirements.
documentation.
 Create policies to reduce engagement and
Familiarity threat: e.g. rotation communication
of engagement partner atleast requirements, if
every seven years in case of
circumstances warrant.
audit of listed entities.
CA Clues Nikhil Gupta

SA – 210 (Revised) – “Agreeing the Terms of Engagement”

Beginning of Audit During the Course of Audit

Initial audit Engagement Recurring Audit Mngt. request for changes in terms

Limitations Imposed by No Limitations Imposed

Determine requirements w.r.t.: Determine its effect on Level of
mngt.
Assurance & reasonable
(a) Revision of terms of Engagement; &
Ascertain existence of Justification
(b) Remind the entity of existing terms
Preconditions
Do not accept unless
required by law
Required Not Required Auditor Satisfied Not Satisfied
Exist Not Exist

Accept Discuss matter Send New No Further Record New Terms Do not
Audit with mngt. Engagement Duty in Engagement Accept the
Letter Letter changes

Do not accept audit in case of:

Mngt. not permit the auditor to continue
(a) Unacceptable F.R. Framework; or
(b) Mngt. does not agree with responsibilities Withdraw & Report to appropriate authority
 CA Clues Nikhil Gupta

SA – 230 (Revised) – Audit Documentation

General concepts Specific Documentation

Meaning: Record of:

 Audit procedures performed
 Relevant audit evidence obtained, &
Documentation of Documentation of Documentation of
 Conclusions reached
Discussion Departure from a relevant matters arising after the Date
Purpose: includes the following: requirement of Auditor’s Report
 Assist in Planning and performance of Audit.
 Direction, supervision & Review of work.  Significant Matters  Reasons for the  Circumstance encountered.
 To fix accountability. Discussed with Mngt. departure.  New or additional
 Record for future reference. And TCWG.  Alternative procedures procedures performed,
 Quality control review and inspections  When and with whom performed. audit evidence obtained,
 Conduct of external inspections. the discussion took conclusions reached, and
place. their effect on the auditor’s
Nature: documentation must provide for:
 How the auditor address report.
 Sufficient and appropriate record of the basis
for auditor’s report. the inconsistency (if any  When and by whom the

 Evidence that the audit was planned and detected during changes to audit
performed in accordance with SAs & other discussion) documentation were made
regulatory requirements. and reviewed.
 CA Clues Nikhil Gupta

SA 240 (Revised) – The Auditor’s Responsibilities Relating to Fraud in an Audit of Financial Statements

Meaning and Nature of Fraud Management Duties Auditor’s Responsibilities Risk assessment Procedures & responses to Assessed Risks

Meaning: Intentional Act To Prevent and To obtain reasonable (a) Enquiries Mngt & Others: w.r.t.:
involving use of deception to Detect Fraud assurance that F.S. as a  Assessment of risk of material misstatement.
obtain an unjust or illegal whole are free from
Mngt. must have an  Procedure to identify Fraud.
advantage. material Misstatements.
commitment to  Communication to TCWG and Employees.
create an culture of (b) Enquiring TCWG: w.r.t.
Auditor is concerned with Fraud Maintain an attitude of
that causes Material honesty and Ethical  Undertaking of their supervisions process.
Professional Skepticism
Misstatement. behavior.  Their knowledge of fraud.
(c) Evaluation of identified unusual and unexpected
Misstatement may result from: Circumstances indicate existence of material
relationships.
 Fraudulent Financial Misstatement
(d) Evaluate whether information obtained indicates fraud
Reporting.
Consider whether such a misstatement is an indication risk factor.
 Misappropriation of Assets
of Fraud. If Fraud identified-
Due to Inherent limitations there
is always an unavoidable risk of Determine responses to address assessed Risk of material
Communicate to Auditor unable to complete
material misstatement in F.S. Misstatement due to fraud at:
Mngt. &TCWG the engagement.
due to Fraud.  F.S. level and
(and to Regulatory
 at assertion Level.
Risk of Material Misstatements and Enforcement Consider the Possibility of
. withdrawing.
due to Management Fraud is authorities, if
higher than due to Employee required by Law)
If withdraw: Discuss with
Fraud.s
Mngt & TCWG.
 CA Clues Nikhil Gupta

SA 250 (REVISED) “CONSIDERATION OF LAWS AND REGULATION IN AN AUDIT OF F.S.”

Auditor’s Responsibilities

Basic Specific Auditor Reporting responsibilities Indicators considered by

Responsibilities Responsibilities w.r.t. Auditor
Procedure in
case any Non- To TCWG Regularity &
Obtain general Law & Other Laws & Auditor Report
Compliance is Enforcement Authorities
understanding of Regulation Regulations that do
 Legal & having a direct not affect amount and identified /
Material Unable to If required by Law
Regulatory effect on disclosures in F.S. but Suspected Conclude
Effect on
Framework determination of compliance with due to  Investigations by regulatory bodies.
applicable F.S. Limitation
material amount which may be  Payment of fines or penalties.
 Obtain
 Compliance and disclosures fundamental to imposed  Payments for unspecified services to
understanding of by
by Entity in F.S. operating aspects. Q/A consultants, related parties etc.
the Act.
with that  Excessive Sales commissions or
Framework.  Circumstances agent’s fees.
To obtain To perform Limited Mngt. Circumstances
Procedures: in which it is  Purchasing at prices significantly
Sufficient &
 Inquiring of Mngt; & occurred. above or below market price.
Appropriate Q/D Consider
 Inspecting  Evaluate  Unusual payments in cash.
the Effect
audit Evidence Correspondance with
possible effects  Unusual payments towards legal and
relevant Licensing /
on F.S.
retainership fees.
Regulatory authority
To ensure  Payments without proper exchange
 Discuss with
compliance To identify instances  Matters involving non- control documentation.
Mngt. & TCWG
of non compliance. compliance.  Existence of an information system
 Obtain legal which fails, to provide an adequate
 If TCWG is involved,
advice wherever communicate to Higher audit trail or sufficient evidence.
Obtain Written Representation that all instances of non- required Level, if any  Unauthorised transactions or
compliance or suspected non-compliance have been disclosed to  Otherwise, obtain Legal improperly recorded transactions.
auditor. Advice  Adverse media comment.
 CA Clues Nikhil Gupta

SA 260 (Revised) – “Communication with TCWG”

Meaning of Auditor’s Responsibilities Communication Process Factors affecting Mode of Communication
Management &
TCWG

Determine the Matters to be communicated  in writing when oral  Size, operating structure, control
TCWG: Persons
appropriate person to communication is not environment, & legal structure of entity.
with responsibility
whom communicate is (a) Auditor’s responsibility adequate.  In the case of an audit of special
for overseeing the
made. in relate to F.S. Audit  on timely basis purpose F.S., whether the auditor also
strategic directions (b) Planned scope & timing
audits the entity’s general purpose F. S.
& obligations of audit
 Need to  Requirements of respective law
related to (c) Significant findings from Evaluate adequacy of
communicate with specifying written communication with
Accountability. audit w.r.t. communication for the
Governing body, if TCWG in a prescribed form.
 Accounting Policies
purpose of the audit.
communicates with  Accounting Estimates  Expectations of TCWG, including
Management : If not adequate, evaluate
subgroup.  Material weakness in arrangements made for periodic
Person with its effect, on the
 If all of TCWG are I.C. meetings or communications with the
executive auditor’s assessment of
involved in  Matters discuss with
auditor.
responsibility for Mngt. the risks of material
managing the entity,
misstatement.  The amount of ongoing contact and
conduct of entity’s  Other significant
the matters need not
Matters. dialogue the auditor has with TCWG.
operation
be communicated
(d) Statement with respect  Significant changes in the membership
again. to compliance of ethical of a governing body.
requirements regarding
independence.

Important Question: Write short note on: Factors Governing mode of communication of auditor with TCWG. (4/5 Marks)
 CA Clues Nikhil Gupta

SA-265 “Communicating Deficiencies in Internal Control to TCWG & Management

Meaning of deficiency in Auditor’s Responsibilities

internal control

(a) Inability of I.C to prevent Identification of deficiencies in Internal Control Communication of deficiencies in Internal Control

detect & correct

misstatement ;
or Determine whether individually or in Mode of Content of
combination they constitute significant communication communication
(b) Absence of control
deficiencies
necessary to Prevent,
detect & correct In writing (a) Description of deficiencies
misstatements (b) Explanation of their
potential effect
To TCWG To Mngt. (c) Sufficient information to
explain
 that purpose is to

Significant Significant express an opinion

deficiencies deficiencies  I. C. is evaluated to
and other design further audit
deficiencies procedures
 CA Clues Nikhil Gupta

SA 299 “Responsibility of Joint Auditors”

Division of work Co-ordination Responsibilities of Joint Auditors Reporting

By Mutual discussion
If one auditor Separate Joint & several  Generally – a Single
comes to know a Report
On basis of identifiable matter relevant for  If disagree -
units or specified areas other, he should For work  for work not divided
Separate Report
communicate it allocated  for joint decision
 No one is bound by
immediately in w.r.t. N, T, E of audit
If not possible – with writing to other Majority.
procedure.
respect to followings: joint auditor
 for matters brought
 Assets/Liabilities; or before submission
of report. to knowledge of all
 Income/Expense; or
 Period by any one of them
and on which they all
agree.
Work should not be
divided for Imp. areas  Disclosure
requirements in F.S.

Proper documentation  Compliance of audit

of work divided report with statutory
requirement
 CA Clues Nikhil Gupta

SA 300 (Revised) – Planning in an audit of Financial Statements

Preliminary Engagement Activities Planning Documentation

 Audit Strategy.
(a) Procedures required by SA - Establishment of Audit Strategy. Development of Audit Plan.
 Audit Plan.
220 w.r.t. continuous of Client
 Changes in Audit
relationship.  Identify the Characteristics  N,T,E of Risk
Strategy and Audit
(b) Evaluate compliance with of Engagement. Assessment Procedures
(SA-315) Plan and the Reasons
Ethical Requirements (SA-220)  Ascertain Reporting  N,T,E of furthers Audit for the change
(c) Understanding of terms of Objectives. Procedures (SA-330)
Engagement (SA-210)  Other Planned Audit
 Significant factors to direct.
Procedure.
 Consideration of result of
Preliminary Engagement
Activities.
 NTE of Procedures to be
performed.
 CA Clues
SA – 315 (Revised) – Identifying and Assessing the Risk of Material Misstatements
through understanding the Entity and Its Environment.
Risk Assessment Procedures
 Procedures to obtain an
understanding of entity &
its environment
 To Identify and asses the
risk of material
misstatement.
It Includes
a. Inquiry of mngt.& others
b. Analytical Procedures
c. Observation & Inspection
Understanding of Entity & its Environment
Auditor shall obtain understanding of:
a) Relevant Industry, Regulatory and
other External Factors
b) Nature of Entity including.
 Its Operations
 Ownership & Governance structure
 Types of investments
 The way Entity is structured & how
it is financed
c) Selection and Application
Accounting Policies & reasons for
changes thereto.
d) Entity objectives & Strategies & those
business risks that may result in
increase risk of material misstatements.
e) Measurement & review of Financial
Performance.
f) Internal control relevant to audit.
Nikhil Gupta
Identification and Assessment of Risk Documentation
of Material Misstatement.
a) Discussion
a) Financial statement Level b) Key elements of
b) Assertion level for classes of understanding
Transaction, Account Balances & c) Identified & Assessed
disclosures. risks of Material
Misstatement
For the purpose auditor shall:
(a) Identify risks
(b) Assess & Evaluate the identified
risks.
of (c) Relate identified risk to what go
wrong at assertion level.
(d) Likelihood of misstatement.
Risk require special consideration
(a) Risk of fraud
(b) Risk related to recent significant Economic,
Accounting & other Developments.
(c) Complexity of Transactions.
(d) Transactions with Related Parties
(e) Significant Unusual Transaction
CA Clues Nikhil Gupta

SA 320 (Revised) “Materiality in Planning and Performing an Audit”

Concept of Materiality Performance Materiality Auditor’s Duties

 Subject of auditor Judgement; and  the amount set by auditor (a) Upon establishing the overall
 subject to discussion present in F. R. at audit strategy, the auditor shall
Framework determine the materiality for the
 less than materiality for
F. S. as a whole.
F.S as a whole
If F. R. Framework does not include a (b) Determine the materiality level
 to reduce to an
discussion, following can be referred: for specific transactions for which
appropriately low level
(a) Misstatements including omissions misstatements of lower amount be
 the probability that the
expected to influence the economic expected to influence the
aggregate of the
decision of users. economic decisions of users.
uncorrected and
(b) Size or nature of misstatement & (c) Determine the performance
undetected misstatement
the surrounding circumstances. materiality for purpose of
 exceeds materiality for
(c) Common financial information assessing the risk of material
the F. S. as a whole
needs of the users as a group. misstatements.
(d) Revise materiality and
Judgement of materiality provides a performance materiality wherever
basis for: required as audit progresses.
(a) Determination of NTE of R. A. P.
(b) Identifying and assessing risk of
material misstatements.
(c) NTE of further audit procedures.
 CA Clues Nikhil Gupta

SA – 330 “Responses to assessed Risks”

Tests of Controls Substantive Procedures Sufficiency & Appropriate of Audit

Evidence
Procedures designed to Procedures designed to detect material
evaluate the operating misstatements at assertion level. It Obtained Not obtained
effectiveness of controls comprises of:
(e.g. Inquiry) a) Test of details ( of classes of
Draw Obtain further
transactions, Account Balances and
conclusions audit evidence
Disclosures); and
Obtain audit evidences & report
b) Substantive Analytical Procedures
w.r.t. accordingly
Not able to
 Application of controls
Substantive Procedures. collect
 Consistency of
application
Closing Process Significant Risks Qualified
 By whom & by what
opinion or
means they applied  Reconciling the Procedures that Disclaimer of
F.S. with are specifically Opinion
Evaluate the audit underlying responsive to
evidences Accounting that risk needs
Records to be applied
Material weaknesses
 Examine Material
identified
Journal Entries &
other adjustments
Communicate to Mngt. &
made during the
TCWG – on timely basis
course of
preparing the F.S.
 CA Clues Nikhil Gupta

SA 402 (Revised) – Audit Considerations relating to an Entity Using a Service Organisation

Auditor’s Objective Obtaining understanding of services provided by Auditor’s considerations

service Organisation
 To obtain an  The user auditor shall evaluate the design and
understanding of nature implementation of relevant controls of user entity that relate
The user auditor shall obtain an understanding of
and significance of to the services provided by service organization.
how user entity uses the services of a service
service provided by the  The user auditor shall determine whether a sufficient
organization in the user entity operation,
service organization understanding of nature and significance of services
including:
and their effect on the provided by service organization and their effect on the user
(a) Nature of service provided by the service
user’s entity internal entity internal control relevant to the audit has been obtained.
organization and the significance of those
control relevant to the  If user auditor is unable to obtain a sufficient understanding
services to the user entity.
audit, sufficient to from the user entity, the user auditor shall obtain that
(b) The nature and materiality of the
identify and assess the understanding from one or more of following procedures:
transactions processed or financial reporting
risk of material (a) Obtaining a Type 1 or Type 2 Report, if available.
processes affected by service organizations.
misstatement. (b) Contacting the service organization, through the user
(c) The degree of interaction between activities
entity, to obtain the sufficient information.
 To design and perform of service organizations and those of the user
(c) Visiting the service organization.
audit procedures entity.
(d) Using another auditor to perform procedures that will
responsive to those (d) The nature of relationship between user
provide the necessary information about the relevant
risks. entity and the service organization.
controls at the service organsition.

User Auditor: An auditor who audits and Reports on the financial statements of a user entity.
User Entity: An Entity that uses a service organization and whose financial statements are being audited.
Type 1 Report: Report on the description and design of internal controls at a service organization.
Type 2 Report: Report on the description, design and operating effectiveness of controls at a service organsation.
 CA Clues Nikhil Gupta

SA 450 “Evaluation of Misstatements Identified during the Audit

Meaning of Misstatements Identification/Accumulation of Misstatements

Difference between: Communicate to management Determine whether any revision

(a) the amounts, classification, presentation or & request them to correct. required in Audit Strategy/Plan.
disclosure of a reported financial statement
item, and
(b) the amount, classification, presentation or Management corrects Management refuses
disclosure that is required for the item to be in
accordance of financial reporting framework.
Perform Additional Understand the reason for
Procedures to not making the corrections
Uncorrected misstatement: Misstatements
determine whether
accumulated by auditor but not corrected. Determine the materiality
misstatements
remain.
If material, communicate uncorrected
misstatement and their effect on his opinion to
TCWG with a request that uncorrected
misstatements be corrected.

Not corrected

Obtain a written representation from

management/TCWG w.r.t their believing that effect
of uncorrected misstatements are immaterial.
 CA Clues Nikhil Gupta

SA – 510 (Revised) “INITIAL AUDIT ENGAGEMENTS – Opening Balances”

Meaning of Initial Audit Engagement: An Engagement in which F. S. for prior period are not audited or were audited by predecessor auditor.
Meaning of Opening balance – A/c balance that exist at beginning of period & also includes disclosures exists at beginning of period.

Audit Procedures Audit Conclusion & Reporting

Opening Balance Modification in

Opening Balance Consistency of
Consistency of Modification in
Accounting Predecessor Auditor’s
Accounting Predecessor
 Read most recent F.S. and Report
Auditor’s Unable to Contain material Policies
auditor report thereon. Policies
Report obtain misstatements not
 Obtain S.A. audit evidence Modification remains
Sufficient & properly Inconsistency
w.r.t. existence of any
Obtain exists relevant & material for
material misstatement by Evaluate the Appropriate accounted /
sufficient & or Current Period F.S.
 Determining correct b/f effect of Audit disclosed in
of prior period closing appropriate Evidence current year F. S. Changes not
modification
balance. Audit properly Modify Current Year
 Determining application Evidence accounted or Audit Report
of appropriate Qualified /
disclosed accordingly
accounting policies. Disclaimer
w.r.t. In assessing risk
 If any misstatement
detected perform additional consistent of material Qualified / Adverse Report
procedures to determine application misstatement in
their effect on current or Current period
Period financial statements. Properly F.S.
 If misstatement exists in accounting &
Current Period F.S.
disclosure
communicate to Mngt &
for changes.
TCWG.
 CA Clues Nikhil Gupta

SA – 530 (Revised) “AUDIT SAMPLING”

Meaning of Audit Sampling Sampling risk Auditor’s Duties Sample Selection Methods
Duties

Application of audit Risk that auditor’s conclusion based on a Sample design, size and selection of  Random Selection
procedures to < 100 % of sample may be different from the conclusion items  Systematic Selection
items within a population if the entire population were subjected to  Monetary Unit
Perform audit procedures
same audit procedure. Sampling
 Haphazard Selection
Evaluation of results of audit
 Block Selection
Test of controls Tests of details sampling

Controls are more Material misstatements

Affects audit effectiveness and is more likely to
effective than they does not exist when in fact
lead to an inappropriate audit opinion.
actually are it does.

Controls are less Material misstatement

Affects audit efficiency as it would lead to
effective than they exists when in fact it does
additional work to establish that initial
actually are not
conclusions were incorrect.
 CA Clues Nikhil Gupta

SA – 550 (Revised) “Related Parties”

Meaning of Related Auditor’s Procedures Documentation
Party (RP)

General Duties Specific procedures in case Auditor’s Procedures in case of • Name of

A RP as defined in
applicable FRF (AS 18). FRF establishes accounting & identification of unidentified / undisclosed identified RP.
Obtain an
OR Disclosure for RP RP or RP transaction • Nature of RP
Where applicable FRF understanding of RP
Relationship & Transactions. relationship
establishes minimal or no Relation and
a. Promptly communicate relevant info to
RP requirements: Transactions: Perform audit procedures to other members of engagement team.
a. A person/entity having a. To recognize Identify, Assess & Respond to b. Where FRF establishes RP requirements:
control / significant Fraud Risk factors Risk of Material Misstatement. • Request mgt to identify all transactions
influence, over
b. To conclude with newly identified RP for further
reporting entity;
whether F.S. in so evaluation.
b. Entity over which Evaluate Whether the Identified
reporting entity has far as they are • Inquire reason for failure of entity’s
RP relationships and
control / significant affected by those controls to identify/disclose RP
Transactions have been
influence, and relations and relationships & transactions.
appropriately accounted for and
c. Entity under common transactions c. Perform appropriate substantive audit
disclosed as per FRF.
control with reporting procedures relating to newly identified RP
achieve
entity, through:
• true and fair Obtain WR from Mngt./TCWG or significant RP transactions.
• Common controlling
presentation w.r.t. d. Re - consider risk that other RP or
ownership
significant RP transactions may exist that
• Owners who are and • Disclosure to auditor the
mgt has not previously identified/
close family • not misleading. identity of RP of which they
disclosed.
members are aware; and
• Common key Mngt. e. If non-disclosure by mgt appears
• Appropriate accounting &
intentional, evaluate implications for audit.
disclosure as per FRF.
 CA Clues Nikhil Gupta

Risk assessment Procedures and Responses to assessed Risk w.r..t Related party

RAP & Related Activities (as per SA 315 & SA 240) Responses to Assessed Risks

Understanding the Entity’s
relationship and Transactions
Maintaining Alertness for RP Identifying Fraud risk Design and Perform further audit
RP
Information when Reviewing factors procedures to obtain SAAE about
Records/Documents assessed Risk of material Misstatements

a. SA 315 & SA 240(R) require Domination of mgmt by a single

Engagement Team discussion. a. Auditor to remain alert when
person or small group of persons  Identification of unidentified /
b. Auditor to inquire management inspecting records /
without compensating controls is undisclosed RP or RP transaction.
regarding: documents:
a fraud risk factor.  Identified significant RP
• Identity of entity’s RP, changes  Wrt arrangements /
from prior period. information indicating Indicators of dominant Transactions outside Entity’s Normal
• Nature of relationships between existence of RP influence: course of Business.
entity and RP. relationships or  Assertions that RP Transactions were
• RP has vetoed significant
• Type & purpose of transactions transactions. conducted on terms equivalent to
with RP during the period. business decisions taken by
 Not previously identified those prevailing in an arm Length
c. Perform appropriate RAPs to obtain or disclosed to auditor. mgmt or TCWG.
understanding whether Transaction.
b. If auditor identifies • Significant transactions are
managements has established Arm Length Transaction:
significant transactions referred to RP for final
controls to:  Transaction conducted on such terms
outside entity’s normal approval.
• Identify, account for & disclose & conditions;
course of business:
RP relationships & transactions. • No/ little debate among mgmt
 Inquire of management  As between a willing buyer and
• Authorise & approve significant or TCWG regarding business
about: willing seller;
transactions/arrangements with
• Nature of these proposal initiated by RP.  Who are unrelated; and
RP.
• Authorise & approve significant transactions, and • Transactions involving the RP  Acting independently and pursuing
transactions/arrangements outside • Whether RP could be are rarely independently their own best interests.
normal course of business. involved.
reviewed / approved.
 CA Clues Nikhil Gupta

SA – 570 (Revised) “Going Concern”

Mngt. Responsibilities Auditor’s Duties.

 Asses the entity’s To obtain sufficient appropriate audit evidence about the For this purpose auditor is required to
ability to continue as a appropriateness of management’s use of going concern a) Cover the same period as that used by management.
going concern. assumption b) Consider whether management has considrerd all
 General purpose F.S. relevant information of which auditor is aware.
Identified events that cast significant doubt.
are prepared on a going
concern basis unless  Request management to make its assessment of entity’s
Perform additional procedures
management intends to ability to continue as going concern.

liquidate the entity or to  Evaluating management plans for future.

Going concern Going Mngt.  Consider the reliability of cash flow forecast.
cease operation.
Assumption Concern unwilling to  Considering availability of additional facts or
 In case F.S. are not
Appropriate but Assumption make its information since the date of management assessment.
prepared on going
Material Uncertainty Inappropriate assessment
concern basis, the fact  Requesting written representations from Mngt.
exists
would need to be regarding their plans for future action and the
appropriately disclosed. feasibility of these plans
Determine whether Adverse Consider the
F.S. Makes relevant Opinion implications
disclosure on Auditor’s
Report
Yes No

EOM Q/A
 CA Clues Nikhil Gupta

SA – 600 “Using the Work of Another Auditor”

Applicability: In situation where an auditor (principal auditor - PA), reporting on the financial information of an entity, uses the work of another auditor (other auditor -
OA) w.r.t. to the financial information of one/more components (Division, Branch subsidiary, J. V. etc.), included in the financial information of the entity.
Non applicability: (a) Joint auditors (b) Auditor’s relationship with a predecessor auditor.

Principal Auditor’s Procedures Documentation Coordination Reporting

1. Consider the professional competence of Other Auditor, if 1. Components whose FS are 1. Sufficient liaison/co- 1. Express a qualified /
Other Auditor is not a member of ICAI. audited by Other Auditor ordination between Principal disclaimer of opinion
2. Visit component and examine books of account, if and their significance to the and Other auditor. because of scope
limitation:
essential. financial information of the 2. Principal auditor may require
 If Principal Auditor
3. Obtain sufficient appropriate evidence, that work of Other entity as a whole. Other Auditor to answer a
concludes that he
Auditor is adequate for Principal Auditor's purposes. 2. Names of the other auditors. detailed questionnaire.
cannot use the work of
4. Discuss audit procedures applied by Other Auditor. 3. Any conclusions reached 3. Other Auditor should
Other Auditor;
5. Review a written summary of Other Auditor’s procedures that individual components coordinate with Principal
 PA unable to perform
and findings through questionnaires/checklist. are not material. Auditor:
sufficient additional
6. Consider significant findings of Other Auditor: 4. Procedures performed  Adhering to time-table.
procedures regarding
 Discuss audit findings with OA and Mgt. of regarding components.  Bringing to the attention
FI of the component
component. 5. Conclusions reached. of PA any significant
audited by OA.
 Perform supplemental tests if necessary. 6. Manner of dealing with finding.
2. Report should state
7. In case Other Auditor is not a professionally qualified Modified Report of Other  Compliance with relevant
clearly division of
auditor - for instance, where a component is situated in Auditor while finalising statutory requirements.
responsibility between
foreign country: Principal Auditor’s Report.  Respond to detailed
PA and OA.
 Procedures mentioned above assume added importance. questionnaire.
 CA Clues Nikhil Gupta

SA 610 (Revised) “Using the Work of Internal Auditors”

Meaning & scope of Relationship between External Auditor’s Procedures w.r.t. Evaluation of Internal Audit Function Documentation
Internal Audit Function Internal Audit
Function & External  Conclusions regarding the
Meaning: an evaluation & adequacy of
Auditor Determine
 Appraisal activity. work.
 Established/ provided. Adequacy of Internal Audit If Adequate, consider  Audit procedures
 Role & objectives of performed on internal
 As a service to entity. Work for External Auditor’s its effect on N, T, E of
internal audit auditor work.
Also include Purpose External auditor’s
function determined
 examining, Procedures. Using Specific Work of Internal auditor
by Mgt/ TCWG. By evaluating the following
 evaluating &
 Not withstanding
 monitoring  Ob j ecti vit y of t he Evaluate & perform audit procedures on
 Nature of specific
Degree of autonomy the work to determine its adequacy:
adequacy / effectiveness int ernal a udit work performed by
/objectivity, internal  Work was performed by IA having
of Internal Control. functi on; Internal Auditor.
audit function is not adequate technical training &
 T echni cal co mp et enc y  Assessed Risk of
Scope of Internal Audit: independent of proficiency.
 Monitoring of I. C. of i nt er nal audit ors; material
entity.  Work was properly supervised,
 Examination of  Professi on al care wit h Misstatement. reviewed & documented.
 External auditor has
financial & operating whi ch the i nt er nal  Adequate audit evidence obtained by
sole responsibility  Degree of
information. Internal auditor.
audit ors wor ks; and subjectivity in
 Review of operating for audit opinion,
 co mmun i cati on  Conclusions reached are appropriate &
activities. and evaluation of audit
Internal Auditor reports are consistent
 Review of compliance b et ween i nt er nal evidence by internal
 that responsibility with results of work.
with laws & audit ors & ext er nal auditor.  Exceptions/ unusual matters disclosed
regulations. not reduced by use
audit or.
 Risk management. of work of internal by Internal Auditor are properly
 Governance. resolved.
auditors.
 CA Clues Nikhil Gupta

SA 720 (Revised) - THE AUDITOR’S RESPONSIBILITY IN RELATION TO OTHER INFORMATION IN DOCUMENTS

CONTAINING AUDITED FINANCIAL STATEMENTS
Purpose: Auditor is not required to express an opinion on other information in documents containing audited F.S. (Ex. Annual Report), however, auditor reads the pother
information because credibility of F.S. may be undermined by Material inconsistencies between the audited financial statements and other information.
Auditor’s Procedures:
Make appropriate arrangements with Management & TCWG to obtain the other information prior to the date of auditor report & Read the
information so obtained. If Information is not available prior to date of auditors report, read the other information as soon as practicable.

Materi al I nco nsist enci es identi fi ed i n Ot her info rmatio n Mat eri al Misstat emen t of Fa cts fi nd out.
Missta temen t of Facts : Other info rma ti on
that is unr elat ed t o matt ers app ea ri ng i n
Prior to the Date of auditor’s Report Subsequent to the Date of auditor’s Report
audit ed F.S. that is corr ectl y state d

Revisi on of Revisi on of Revisi on of au dit e d Revisi on of

Discuss the matter with Management
a udit ed F.S . ot her fi na nci al stat eme nt s ot her
b ecomes infor mati on is b ecomes necessa r y info rmatio n
Request management to consult with a
n ec essar y but n ec essar y b ut is n ecess ar y
qualified third party and auditor shall
M ngt. refus es M ngt. refus es but
The consider the advice received.
mana gement
Audit or
Au dit or s hall commun i cat e r efuses.
shall Audit or concl udes exist en ce of
this matt er to T CW G; and
follow t he mat eri al misstat ement of facts,
r el evant but ma na gement r efuses to
Au dit or s hall co rr ect.
i n cl u de in the wit hd raw r eq uir e me
mo di f y t he
aud i t or’ s rep ort fr om the nts of S A
opi ni on in d es cri bi n g the
enga ge ment 5 60 Audit or sh all noti f y his concern t o those char g ed wit h
a ccor d ance wit h i n con si st en ci e s;
govern ance an d ta ke t he ap pr opri at e a ctio n.
r el evant SA. or