Standards On Auditing: Documentation & External Confirmations Sirc of Icai

14-09-2020
Standards on Auditing
Documentation & External
Confirmations
SIRC of ICAI
CA. R Sundararajan, FCA., DISA (ICA)
14th September 2020 SIRC of ICAI 1
AUDITING STANDARDS-Criticality
The Companies Act 2013 - Section
• Mandatory u/s 143 (9) 143(9)
• Total compliance to be ensured
• Cultural Change Required Every Auditor shall
• Now, SA is Law,
comply with
•just as AS – notified under CA2013
AUDITING STANDARDS
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14-09-2020
Today’s Session – An overview

 SA 230 - Audit Documentation
 SA 505 – External Confirmations
 Both have a direct link to SA 500 & 501

- Audit Evidence & Additional Consideration for
specific items
Audit Documentation (SA 230 )
 This SA is effective for audits of financial

statements for periods beginning on or after April
1, 2009.
 The Standard is more comprehensive on the

procedures to be followed during the course of
audit and post-audit.
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Objective of SA 230
The primary objectives of SA 230 are two-fold :
 To have audit documentation which gives the basis

for preparation of the Audit Report and
 Provides evidence of the audit planned and

performed
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Additional purposes of Audit

Documentation
 Assisting the auditor in planning and performing

the audit
 Assisting in supervision and review work
 Creating accountability in work
 Retaining a record of significant matters for future
audits
 Enabling the conduct of quality control reviews
and inspections in accordance with SQC 1
 Aids in complying with Peer Review Process/
Disc. Mechanism
Form, Content and Extent of Audit

Documentation – [SAM-CAM]
Varies on case to case & depends on :
Size and Exceptions

Complexity Identified
Audit
Conclusions
Procedures
Risk of
Audit
Material
Evidence
Misstatements
Audit
Methodology
and Tools used
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Form, Content and Extent of Audit

Documentation
Form of Documentation :
Paper - Working papers
Electronic - System files
Other Media
CRITICAL : WRITTEN CONTEMPORANEOUS
Examples of Audit Documentation
 Audit Plan
 Audit programmes
 Copies of agreements entered into by the client
 Checklists
 Analysis done – ratio analysis
 Letter of Representation
 Correspondence (including e-mails) regarding
significant matters
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14-09-2020
Content and Extent of Documentation
Should be such that its sufficient for an

experienced auditor to understand the
work carried out despite having no
connection with the audit
Documentation – Key features
 Nature, timing and extent of audit procedures performed
 Results of the audit procedures performed
 Audit evidence obtained
 Significant matters – how dealt with and what

conclusions reached
 Significant professional judgment made

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14-09-2020
Nature, Timing & Extent
 The identifying characteristics of the specific items

or matters tested
 Who performed the audit work and the date such

work was completed; and
 Who reviewed the audit work performed and the

date and extent of such review
Contd….
 Documentation of “ significant matters” discussed

with the management and others (including the
nature of the significant matters discussed and
when and with whom the discussions took place)
and related significant professional judgments.
 If there was information about a significant matter

which was identified and as not being in
concurrence with the auditor’s final conclusion
regarding it, the auditor shall document how the
inconsistency was addressed
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14-09-2020
 For exceptional circumstances which results in

changes subsequent to signing of the Auditor’s
Report similar documentation needs to be done.
 A pivotal factor in determining the form, content

and extent of audit documentation for significant
matters is the extent of “ professional judgement ”
exercised in performing and reviewing the work.
Assembly of Final Audit File
 SQC 1 requires firms to establish policies and

procedures for the timely completion of the
assembly of audit files.
 An appropriate time limit within which to

complete the assembly of the final audit file is
ordinarily not more than 60 days after the date of
the auditor’s report.
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14-09-2020
Material Modifications to ISA 230, “Audit

Documentation”
 SQC 1 requires firms to establish policies and

procedures for the retention of engagement
documentation.
 Though ISA 230 prescribes the minimum period of

engagement documentation as five years, SA 230
prescribes the retention period for audit
engagements no shorter than ten years from the
date of the auditor’s report, or, if later, the date of
the group auditor’s report.
Applicability of AAS 3 Revised

(SA 230) vis a vis Other standards
 Other SA’s contain specific documentation

requirements but that does not limit the application
of this SA.
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14-09-2020
Case Studies
 Sathyam Episode
 PNB Episode
 Enron Corporation
 ILFS
 Not restricted to Large Companies only ……
 Lots of SMEs coming to action – but not
publicized – Eg. Banking fraud/defaults
(Kanishk Gold, First Leasing), Dispute
among partners, PMLA issues
Ultimately Auditor becomes Scapegoat !!

Difference between Audit Documentation

& Audit Evidence
 Audit Documentation is about planning and

performing an audit and the conclusions reached by
the auditor
 Audit Evidence is the evidence sought by an auditor

to satisfy himself / herself about the authenticity of a
transaction / document etc.
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14-09-2020
To Sum Up
SA 230 : Audit Documentation should contain,
 Who has done the audit ?

 What is the extent of work performed ?
 The time taken to complete it
 What are the audit conclusions arrived at ?
 Who has reviewed the work ?
 When was it reviewed ?
 Significant matter (s) documented for future audits
 New client – NOC and Terms of engagement -
Critical
Audit Documentation – Sample but not

exhaustive list
 Appointment Letter
 In new files, Previous auditors correspondence (by RPAD)
& NOC
 Eligibility & Independence Checklist
 Engagement Letter – SA 210

 Statement of Review of Internal Controls & Risk
Assessment
 Audit Plan (SA 300), Programmes & Checklists
 Audit Sampling (SA 530)

 Audit Analysis & review papers
 Basis of Conclusion
 Written Representations (SA 580)
 Audit
14th September 2020 Report SIRC of ICAI 22
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14-09-2020
SA 505 – EXTERNAL
CONFIRMATIONS
External Confirmation (SA 505)
 This SA is effective for audits of financial

statements for periods beginning on or after April
1, 2010
 Driving force is SA 500 – Audit Evidence &
reliability
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14-09-2020
Objective of SA 505
The primary objectives of SA 230 are :
 To obtain reliable Audit Evidence

 By direct response from a third party (confirming
party)
 Can be any form paper, electronic or any other
medium
 To assessing the Risk of material misstatement (SA
330) and design audit procedures
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14-09-2020
Characteristics of Reliable Evidence
1. Independence of provider
2. Effectiveness of client’s internal controls
3. Auditor’s direct knowledge
4. Qualification of individuals providing the
information
5. Degree of objectivity
6. Timeliness
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14-09-2020
Alternate Steps – in case of

nonconcurrence by management
 Inquire the reason for the refusal

 If found reasonable :
 Seek alternative evidence which is
reasonable and reliable
 Evaluate the implication of refusal and
determine the extent of risk of material
misstatement
 Perform alternative audit procedures &
obtain reliable evidence
Alternate Steps – in case of

nonconcurrence by management
 If reason found unreasonable :

 Seek alternative evidence which is
reasonable and reliable
 In case of non satisfaction,
communicate with those charged with
governance
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Types of responses & reaction
 Positive response – No issue

 Negative response – Evaluate and conclude the
audit report accordingly
 Non response – Perform alternative procedures and
obtain audit evidence
 Exception – Query is not answered directly in the
response
Conclusions to be recorded accordingly – Risk of
material misstatement or frauds
Examples of External Confirmations
 From Banks on Loans and current accounts

 From Critical Creditors / Debtors
 From External Professionals hired by Company
 Advocates
 Internal Auditors
 Actuary
 Surveyors
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14-09-2020
Inquiry Regarding Litigation and Claims
 Litigations and claims involving an entity may

have a material effect its financial statements.
 For the above the auditor needs to,

 Make inquiries from management
 Review board / committee minutes and
correspondence with the entity’s lawyers
 Examination of books of accounts
 Discussions with in-house legal department
Litigation and Claims
 Direct communication maybe made with the

entity’s lawyers through a letter.
 The letter must be prepared by the management
 The auditor should maintain control over the

preparation and dispatch of the letter
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Litigation and Claims

 The letter should specify :
 A list of litigation and claims
 Management’s assessment of the outcome of the

litigation or claim
 A request that the entity’s lawyer confirm the

reasonableness of management’s assessments;
 Provide further information if the list is considered

to be incomplete or incorrect;
Criticality of External Confirmations

 Sathyam Episode – Bank accounts & Debtors
manipulation
 First Leasing – Inflated Receivables
 Recent Scam – Wirecard (German’s Enron)
 And many more…………
 SMEs also significant issues croppoing up such as:
 Partners Disputes
 Legal Issues cropping up
 Property Disputes
 Insurance Claims
 Banking Frauds
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14-09-2020
THANK YOU
CA R. Sundararajan, FCA., DISA (ICA)

sundar@srbr.in
20

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14-09-2020

CA. R Sundararajan, FCA., DISA (ICA)

14th September 2020 SIRC of ICAI 1

14th September 2020 SIRC of ICAI 2

Today’s Session – An overview

 SA 505 – External Confirmations

 Both have a direct link to SA 500 & 501

14th September 2020 SIRC of ICAI 3

Audit Documentation (SA 230 )

 This SA is effective for audits of financial

 The Standard is more comprehensive on the

14th September 2020 SIRC of ICAI 4

The primary objectives of SA 230 are two-fold :

 To have audit documentation which gives the basis

 Provides evidence of the audit planned and

14th September 2020 SIRC of ICAI 5

14th September 2020 SIRC of ICAI 6

Additional purposes of Audit

 Assisting the auditor in planning and performing

Form, Content and Extent of Audit

Varies on case to case & depends on :

Size and Exceptions

14th September 2020 SIRC of ICAI 8

Form, Content and Extent of Audit

Paper - Working papers

Electronic - System files

CRITICAL : WRITTEN CONTEMPORANEOUS

14th September 2020 SIRC of ICAI 9

Examples of Audit Documentation

14th September 2020 SIRC of ICAI 10

Content and Extent of Documentation

Should be such that its sufficient for an

14th September 2020 SIRC of ICAI 11

Documentation – Key features

 Nature, timing and extent of audit procedures performed

 Results of the audit procedures performed

 Audit evidence obtained

 Significant matters – how dealt with and what

 Significant professional judgment made

Nature, Timing & Extent

 The identifying characteristics of the specific items

 Who performed the audit work and the date such

 Who reviewed the audit work performed and the

14th September 2020 SIRC of ICAI 13

 Documentation of “ significant matters” discussed

 If there was information about a significant matter

14th September 2020 SIRC of ICAI 14

 For exceptional circumstances which results in

 A pivotal factor in determining the form, content

14th September 2020 SIRC of ICAI 15

Assembly of Final Audit File

 SQC 1 requires firms to establish policies and

 An appropriate time limit within which to

14th September 2020 SIRC of ICAI 16

Material Modifications to ISA 230, “Audit

 SQC 1 requires firms to establish policies and

 Though ISA 230 prescribes the minimum period of

14th September 2020 SIRC of ICAI 17

Applicability of AAS 3 Revised

 Other SA’s contain specific documentation

14th September 2020 SIRC of ICAI 18

Ultimately Auditor becomes Scapegoat !!