CA Final Audit Amendments

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Highlights for
May 2021 Exams
CA Final Audit – Highlights for May 2021 Exams

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Standards on Auditing
STEPS FOR RISK IDENTIFICATION
 Assess the significance of the assessed risk, impact of its occurrence & also revise the
materiality accordingly for the specific account balance.
 Determine the likelihood for assessed risk to occur & its impact on our auditing
procedures.
 Document the assertions that are affected.
 Consider the impact of the risk on each of the assertions (completeness, existence,
accuracy, validity, valuation & presentation) relevant to the account balance, class of
transactions, or disclosure.
 Identify the degree of Significant risks that would require separate attention &
response by the auditor. Planned audit procedures should directly address these risks.
 Enquire & document the management’s response.
 Consider the nature of the internal control system in place & its possible
effectiveness in mitigating the risks involved. Ensure the controls:
▪ Routine in nature (occur daily) or periodic such as monthly.
▪ Designed to prevent or detect & correct errors.
▪ Manual or automated.
 Consider any unique characteristics of the risk.
 Consider the existence of any particular characteristics (inherent risks) in the class of
transactions, account balance or disclosure that need to be addressed in designing
further audit procedures.
 Examples could include high value inventory, complex contractual agreements, absence
of a paper trail on certain transaction streams or a large percentage of sales coming
from a single customer.
GOING CONCERN & AUDIT REPORT – SA 570

Where applicable, the auditor shall report in accordance with SA 570. SA 570 deals with
the auditor’s responsibilities in the audit of FS relating to going concern & the implications
for the auditor’s report. The auditor’s responsibilities are to obtain SAAE regarding, &
conclude on, the appropriateness of management’s use of the going concern basis of
accounting in the preparation of the FS, & to conclude, based on the audit evidence
obtained, whether a material uncertainty exists about the entity’s ability to continue as a
going concern.

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RELATIONSHIP BETWEEN EMPHASIS OF MATTER PARAGRAPHS & KEY

AUDIT MATTERS IN THE AUDITOR’S REPORT
KEY AUDIT MATTER EMPHASIS OF MATTER
Key audit matters - Those matters that, in Emphasis of Matter paragraph - A paragraph
the auditor’s professional judgment, were of included in the auditor’s report that refers
most significance in the audit of the FS of to a matter appropriately presented or
the current period. Key audit matters are disclosed in the FS that, in the auditor’s
selected from matters communicated with judgment, is of such importance that it is
those charged with governance. [SA 701] fundamental to users’ understanding of the
FS. [SA 706]
Matters that are determined to be key audit A widespread use of Emphasis of Matter
matters in accordance with SA 701 may also paragraphs may diminish the effectiveness
be, in the auditor’s judgment, fundamental to of the auditor’s communication about such
users’ understanding of the FS. In such matters.
cases, in communicating the matter as a key Use of Emphasis of Matter paragraphs is not
audit matter in accordance with SA 701, the a substitute for a description of individual
auditor may wish to highlight or draw key audit matters where SA 701 is
further attention to its relative importance. applicable.
Communicating key audit matters provides There may be a matter that is not
additional information to intended users of determined to be a key audit matter in
the FS to assist them in understanding those accordance with SA 701 (i.e., because it did
matters that, in the auditor’s professional not require significant auditor attention), but
judgment, were of most significance in the which, in the auditor’s judgment, is
audit & may also assist them in understanding fundamental to users’ understanding of the
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the entity & areas of significant management FS (e.g., a subsequent event). If the auditor
judgment in the audited FS. considers it necessary to draw users’
attention to such a matter, the matter is
included in an Emphasis of Matter paragraph
in the auditor’s report in accordance with
this SA.
The communication of key audit matters in The auditor may do so by presenting the
the auditor’s report may also provide matter more prominently than other matters
intended users a basis to further engage in the Key Audit Matters section (e.g., as the
with management & those charged with first matter) or by including additional
governance about certain matters relating to information in the description of the key
the entity, the audited FS, or the audit that audit matter to indicate the importance of
was performed. the matter to users’ understanding of the
FS.
Professional Ethics
OVERVIEW OF THE CODE OF ETHICS
Part 1 Complying with the Code, Fundamental Principles & Conceptual Framework, which
includes the fundamental principles & the conceptual framework & is applicable to all
professional accountants.
Part 2 Professional Accountants in Service, which sets out additional material that applies to
professional accountants in service when performing professional activities. Professional
accountants in service include professional accountants employed, engaged or contracted
in an executive or non-executive capacity in, for example:
 Commerce, industry or service.
 The public sector.
 Education.
 The not-for-profit sector.
 Regulatory or professional bodies.
It is also applicable to individuals who are professional accountants in public practice
when performing professional activities pursuant to their relationship with the firm as an
employee.
Part 3 Professional Accountants in Public Practice, which sets out additional material that
applies to professional accountants in public practice when providing professional
services.
Independence Standards, which sets out additional material that applies to professional
accountants in public practice when providing assurance services, as follows:
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Part 4A Independence for Audit & Review Engagements, which applies when performing audit or
review engagements.
Part 4B Independence for Assurance Engagements Other than Audit & Review Engagements,
which applies when performing assurance engagements that are not audit or review
engagements.
THREATS, EVALUATION OF THREATS & SAFEGUARDS
THREATS TO INDEPENDENCE
 SELF-INTEREST THREATS
 SELF-REVIEW THREATS
 ADVOCACY THREATS
 FAMILIARITY THREATS
 INTIMIDATION THREATS
EVALUATION OF THREATS
Acceptable level  The conditions, policies & procedures described above might impact the
evaluation of whether a threat to compliance with the fundamental principles is
at an acceptable level.
 An acceptable level is a level at which a professional accountant using the
reasonable & informed third party test would likely conclude that the accountant
complies with the fundamental principles.
Reasonable &  The reasonable & informed third party test is a consideration by the professional
Informed Third accountant about whether the same conclusions would likely be reached by
another party.
Party (RITP)  Such consideration is made from the perspective of a reasonable & informed third
party, who weighs all the relevant facts & circumstances that the accountant
knows, or could reasonably be expected to know, at the time the conclusions are
made.
 The reasonable & informed third party does not need to be an accountant but
would possess the relevant knowledge & experience to understand & evaluate
the appropriateness of the accountant’s conclusions in an impartial manner.
MEMBERS WHO ARE DEEMED TO BE IN PRACTICE [SECTION 2(2)]

The expression “other services” include “Management consultancy & other services”.
The expression Management Consultancy & Other Services shall not include the function of statutory or
periodical audit, tax (both direct taxes & indirect taxes) representation or advice concerning tax matters
or acting as liquidator, trustee, executor, administrator, arbitrator or receiver, but shall include the
following:
 Financial management planning & financial policy determination*
 Capital structure planning & advice regarding raising finance*
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 Working capital management*

 Preparing project reports & feasibility studies*
* (Consideration of “tax implications” while rendering the above services will be considered as part
of “Management Consultancy & other services”.)
 Acting as Registered Valuer under the Companies Act, 2013 read with the Companies (Registered
Valuers & Valuation) Rules, 2017.
 Acting as Insolvency Professional in terms of Insolvency & Bankruptcy Code, 2016
 Administrative Services. Administrative Services involve assisting clients with their routine or
mechanical tasks within the normal course of operations. Such services require little to no
professional judgment & are clerical in nature. Examples of administrative services include –
(a) Word processing services.
(b) Preparing administrative or statutory forms for client approval.
(c) Submitting such forms as instructed by the client.
(d) Monitoring statutory filing dates, & advising an audit client of those dates.
For example, the functions of a GST practitioner as specified under Rule 83(8) of Central Goods &
Services Tax Rules, 2017 –
 furnish the details of outward & inward supplies
 furnish monthly, quarterly, annual or final return
 making deposit for credit into the electronic cash ledger
 file a claim for refund
 file an application for amendment or cancellation of registration
 furnish information for generation of e-way bill
 furnish details of challan in form GST ITC-04
 file an application for amendment or cancellation of enrollment under rule 58 &
 file an intimation to pay tax under the composition scheme or withdraw from the said scheme.
MEMBER IN PRACTICE PROHIBITED FROM USING A DESIGNATION OTHER

THAN CHARTERED ACCOUNTANT [SECTION 7]
Directors of The members of the Institute who are also Directors in Companies, members of
Companies, Political parties or CAs Cells in the political parties, holding different positions in
clubs or other organisations are not permitted to mention these positions as these
Members of would be violative of the provisions of Section 7 of the Act.
political parties,
position in clubs,
etc.
Members who are Though a member cannot designate himself as a Cost Accountant, he can use the
also Cost letters A.C.M.A (Associate) or F.C.M.A (Fellow) after his name, when he is a member
of that Institute.
Accountants
Permission to The members are permitted to mention membership of a foreign Institute of
mention Accountancy, which has been recognized by the Council through a Memorandum of
Understanding (MoU)/Mutual Recognition Agreement (MRA) with the said
qualifications of Institute.
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certain
Institutions
CS/CMA Members of the Institute in practice who are otherwise eligible may also practice as
Company Secretaries &/or Cost Accountants. Such members shall, however, not use
designation/s of the aforesaid Institute/s simultaneously with the designation
“Chartered Accountant”.
MAINTENANCE OF BRANCH OFFICES (SECTION 27)

Separate Charge  If a CA in practice or a Firm of CAs has more than one office in India, each one
of such offices should be in the SEPARATE CHARGE OF A MEMBER OF THE
INSTITUTE.
Active Association  The requirement of Section 27 in regard to a member being in charge of an
office of a CA in practice or a firm of such CAs shall be satisfied only if the
member is actively associated with such office.
 Such association shall be deemed to exist if the member resides in the place
where the office is situated for a period of not less than 182 days in a year or if
he attends the said office for a period of not less than 182 days in a year or in
such other circumstances as, in the opinion of the Executive Committee,
establish such active association.
CLAUSES OF ETHICS
CLAUSE (2) OF PART 1 OF FIRST SCHEDULE

Fee Payable to State  The Institute came across certain Circulars/Orders issued by the Registrars
Government of various State Co-operative Societies wherein it has been mentioned that
certain amount of audit fee is payable to the concerned SG & the auditor
has to deposit a percentage of his audit fee in the state Treasury by a
prescribed challan within a prescribed time of the receipt of Audit fee.
 The Council decided that as such there is no bar in the Code of Ethics to
accept such assignment wherein a percentage of professional fee is
deducted by the Government to meet the administrative & other
expenditure.

REFERRAL FEES  It is not prohibited for a member in practice to charge Referral Fees, being
AMONGST MEMBERS the fees obtained by a member in practice from another member in
practice in relation to referring a client to him.
Advertisements  A member is permitted to issue a classified advertisement in the journal/

newsletter of the Institute intended to give information for sharing professional
& notes in work on assignment basis or for seeking partnership or salaried employment of an
the press accountancy nature, provided it only contains the accountant’s name, address or

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telephone no., fax no., e-mail address & address(es) of Social Networking sites of
members. However, mere factual position of experience & area of specialization,
relevant to seek response to the advertisement, are permissible.
Publication of  It is not permissible for a member to mention in a book or an article published by
Books, him, or a presentation made by him, any professional attainment(s), whether of the
member or the firm of CAs, with which he is associated.
Articles or  However, he may indicate in a book, article or presentation the designation “CA” as
Presentation well as the name of the firm.
Advertisement  It is not permitted to advertise the events organised by a Firm of CAs.
 However, considering the need of interpersonal socialization/relationship of the
for Silver,
members through such get together occasions, the advertisement for Silver,
Golden, Golden, Diamond, Platinum or Centenary celebrations of the CAs Firms may be
Platinum or published in newspaper or newsletter.
Centenary
celebrations
Sponsoring  A member in practice or a Firm of CAs is not permitted to sponsor an event.
Activities However, such member or Firm may sponsor an event conducted by a Programme
Organizing Unit (PoU) of the ICAI, provided such event has the prior approval of
Continuing Professional Education (CPE) Directorate of the ICAI.
 Members sponsoring activities relating to Corporate Social Responsibility may
mention their individual name with the prefix “CA”. However, the mention of Firm
name or CA Logo is not permitted.
Sharing Firm  It is not permitted to share Firm profile with a prospective Client unless it is in
Profile with response to a proposed client’s specific query, & otherwise not prohibited to be
used by the client.
prospective
Client
Television or  While sharing name of the member or Firm of CAs for inclusion in Television or
Movie Credits Movie Credits, it must be taken care of that exhibition of name is not made
differently as compared to other entries in the credits.
Soliciting  It is not permissible for a member to address letters, emails or circulars specifically
professional to persons who are likely to require services of a CA since it would tantamount to
advertisement.
work by
making roving
enquiries
Members &/or  Members/Firms are prohibited from inserting advertisements for soliciting clients
firms who or professional work under box numbers in the newspapers. This practice is in
violation of this clause.
publish
advertisements
under Box
numbers
Educational  While the videos of educational nature may be uploaded on the internet by
members, no reference should be made to the CAs Firm wherein the member is a
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Videos partner/ proprietor. Further, it should not contain any contact details or website
address.
Guidelines for posting the particulars on Website

1. Not to issue any circular or any other advertisement or any other material of any kind whatsoever by
virtue of which they solicit people to visit their Website. CA can mention website address on
professional stationery & email.
2. Display of Passport Style photograph is permitted.
3. Can provide link of its page on Social Networking site. However, the members should not solicit
people to visit or like their respective page(s) on such social Networking site.
4. Can provide on line advice to their clients who specifically request for the advice whether free of
charge or on payment.
ONLINE THIRD PARTY PLATFORMS

 A number of non-CAs’ firms, corporates including banks, finance Companies & newspapers have set
up their own Websites providing advisory services on taxation & other areas where CAs are rendering
professional service.
 Some of such Websites may request CAs or CAs’ firms to provide consultation & advice through their
Websites. No other service, besides consultancy & advice can be rendered through such websites.
 This would be permitted subject to the condition that on the Website, contact address of the CA
concerned is not provided nor such Website will contain any material which advertises professional
achievements or status of such CA except making a statement that they are CAs.
 The name of CAs’ firm with suffix “Chartered Accountants” would not be permitted.
PUBLICATION OF NAME OR FIRM NAME BY CAS IN THE TELEPHONE OR

OTHER DIRECTORIES PUBLISHED BY TELEPHONE AUTHORITIES OR
PRIVATE BODIES
The CAs & CAs Firms may have entries made in a Telephone Directory (in printed & electronic form) either
by making a special request or by means of an additional payment. The Council has also considered the
question of permitting entries in respect of CAs & their firms under specified groups in telephone/trade
directories subject to the following additional restrictions: -
 The entry should not appear in any other section/category except that of ‘Chartered Accountants’.
 The member/firm should belong to the town/city in respect of which the directory is being published.
 The order of the entries should not be in any manner other than alphabetical.
 The entry should not be made in a differential or prominent manner giving the impression of
publicity/advertisement.
 The entries should not be restricted & should be open to all the CAs/firms of CAs in the particular
city/town in respect whereof the directory is published.
 The members can also include their names in trade/social directories.
APPLICATION BASED SERVICE PROVIDER AGGREGATORS

 It is not permissible for members to list themselves with online application based service provider
Aggregators, wherein other categories like businessmen, technicians, maintenance workers, event
organizers etc. are also listed.

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SPECIALISED DIRECTORIES FOR LIMITED CIRCULATION

 The name, description & address of member (or firm) may appear in any directory or list of members
of a particular body in which the names are listed alphabetically. For a specialised directory or a
publication such as a “Who’s Who” (including those compiled on purely local basis), a member should
use his discretion in supplying information, bearing in mind the nature & purpose of the publications.
 In addition to his name, description & address & those of his firm, a member may give where
appropriate, directorships held & reasonable personal details & may state his outside interests. He
should not, however, give the names of any of his clients.
CLAUSE (7) OF PART (I) OF FIRST SCHEDULE

Insolvency  A member empanelled as Insolvency Professional or Registered Valuer can mention
Professional/ “Insolvency Professional” or “Registered Valuer” respectively on his visiting card &
letter head.
Registered
Valuer
Permission to  The members are permitted to mention a title on their visiting cards to indicate
mention membership of a foreign Institute of Accountancy, which has been recognised by
the Council e.g. South African Institute of Chartered Accountants (SAICA), Institute
qualifications of Certified Public Accountants (CPA Ireland) & Institute of Chartered Accountants
of certain in England & Wales (ICAEW).
Institutions
Date of  The date of setting up the practice by a member or the date of establishment of
setting-up the firm on the letter heads & other professional documents etc. should not be
mentioned.
practice
Reports &  The reports & certificates issued by a CA bring him to the notice of the public in a
Certificates greater or lesser degree.
 The members may however note that they should use letterhead of their Firm for
issuing reports & certificates.
Appearance of  Members may appear on television, films & Internet & agree to broadcast in the
Chartered Radio or give lectures at forums & may give their names & describe themselves as
CAs.
Accountants  Special qualifications or specialised knowledge directly relevant to the subject
on Electronic matter of the programme may also be given. Firm name may also be mentioned,
Media however, any exaggerated claim or any kind of comparison is not permissible. What
he may say or write must not be promotional of him or his firm but must be an
(including objective professional view of the topic under consideration.
Internet)
Writing  Members writing articles or letters to the Press on subjects connected with the
Articles or profession may give their names & use the description CAs.
Letters to the
Press
Size of Sign  With regard to the size of sign board for his office that a member can put up, it is a
Board matter in which the members should exercise their own discretion & good taste
while keeping in mind the appropriate visibility & illumination (limited to the sake
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of visibility).
 However, use of glow signs or lights on large-sized boards as is used by traders or
shop-keepers is not permissible.
Common CA  To promote the brand of CA profession & responding to the long felt need to have
Logo a symbol of CA Profession in India, ICAI came up with a unique logo which could be
used by all members, whether in practice or not.
 The Council has decided that use of CA logo in the stamp is permissible, subject to
CA logo guidelines.
GUIDELINES FOR WRITE UP
The write-up shall comply with the following conditions:-
(i) It shall be honest & truthful.
(ii) There shall be no exaggerated claims for the services offered by the member or the Firm, or the
qualifications or experience of the member or any of the partners or any other person associated
with the Firm.
(iii) It must not make any disparaging references or unsubstantiated comparisons to the work of others.
(iv) It should not be of a nature that may bring the profession into disrepute.
(v) It should not contain testimonials or endorsements concerning Member(s) or names of clients (both
the past & present) or the fees charged.
(vi) It should not contain any information about achievements /awards (except the awards given by the
Central or State Governments or Regulatory bodies) or any other position held, or accreditation(s)
granted by any organisation.
(vii) Monogram of any kind or use of any kind of catch words is not permissible.
(viii) The Membership No./FRN (as may be applicable) is mandatory to be mentioned in the write-up.
(ix) It should not be of font size exceeding 14.
(x) It must not be violative of any provisions of CA Act, 1949, CA Regulations, 1988, Code of Ethics, 2020
or any Guideline of the Council.
The write-up may include only the following information:
(A) For Members (B) For Firms
- Passport style photograph - Affiliation with a Network registered with the Institute.
- Position held as Director or
Managing Director in a Management
Consultancy Company registered with
the Institute.

Previous auditor not  Where the Previous Auditor is not available for accepting payment of
available for undisputed audit fees, & it is not otherwise possible to transfer the payment
to him electronically, the Incoming Auditor may advise the client to purchase
accepting Demand Draft of the amount equivalent to undisputed Audit Fees of retiring
undisputed audit auditor, & may accept the Audit assignment after verifying the same.
fees  It will be the duty of the Incoming auditor to ensure the payment of
undisputed Audit Fees of the retiring auditor at the earliest possibility.
Client wants to  What should be the correct procedure to adopt when a prospective client
change auditor tells you that he wants to change his auditor & wants you to take up his

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work?
 There being two persons involved, the Company & the old auditor, the
former should be asked whether the retiring auditor had been informed of
the intention to change. If the answer is in the affirmative, then a
communication should be addressed to the retiring auditor.
 If, however, it is learnt that the old auditor has not been informed, & the
client is not willing to make the first move, it would be necessary to ask him
the reason for the proposed change. If there is no valid reason for a change,
it would be healthy practice not to accept the audit. If he decides to accept
the audit, he should address a communication to the retiring auditor.
Incoming auditor to  The object of the incoming auditor, in communicating with the retiring
ascertain auditor is to ascertain from him whether there are any circumstances which
warrant him not to accept the appointment.
circumstances for
change in auditor
Positive Evidence of Members should therefore communicate with a retiring auditor in such a manner
Delivery as to retain in their hands positive evidence of the delivery of the communication
to the addressee.
In the opinion of the Council, the following would in the normal course provide
such evidence:-
 Communication by a letter sent through “Registered Acknowledgement due”,
or
 By hand against a written acknowledgement, or
 Acknowledgement of the communication from retiring auditor’s vide email
address registered with the Institute or his last known official email address,
or
 Unique Identification Number (UDIN) generated on UDIN portal.
Premises found  The communication received back by the Incoming Auditor with “Office
Locked found Locked” written on the Acknowledgement Due shall be deemed as
having been delivered to the retiring auditor.
Firm not found at  If the Communication sent by the Incoming auditor is received back with
the given remarks "No such office exists at this address”, & the address of
communication is the same as registered with the Institute on the date of
Registered address dispatch, the letter will be deemed to be delivered, unless the retiring
auditor proves that it was not really served & that he was not responsible for
such non-service.
 As a matter of professional courtesy & professional obligation it is necessary
for the new auditor appointed to act jointly with the earlier auditor & to
communicate with such earlier auditor.
Special Audit under  It would be a healthy practice if a Tax Auditor appointed for conducting
Income Tax Act, special audit under the Income Tax Act, 1961 communicates with the
member who has conducted the Statutory Audit.
1961
Communication  The requirement for communicating with the previous auditor being a CA in
required for all practice would apply to all types of Audit viz., Statutory Audit, Tax Audit, GST
Audit, Internal Audit, Concurrent Audit or any other kind of audit.
kinds of audit

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Communication in  A Communication is mandatorily required for all types of Audit/Report where

case of the previous auditor is a CA.
 In case of assignments done by other professionals not being CAs, it would
Assignments done also be a healthy practice to communicate.
by other
professionals
Lack of time in  In the case of audit of government Companies/ banks or their branches, in
acceptance of case the time schedule given for the assignment is such that there is no time
to wait for the reply from the outgoing auditor, the incoming auditor may
Government Audits give a conditional acceptance of the appointment & commence the work
which needs to be attended to immediately after he has sent the
communication to the previous auditor in accordance with this clause.

EXCEPTIONS Fee should not be regarded as being contingent if fixed by a Court or other public
authority.
Regulation 192 – Exemption from clause (10)
a) any other service or audit as may be decided by the Council.
[Following activities have been decided by the Council under “h” above :-(i) Acting as
Insolvency Professional;(ii) Non-Assurance Services to Non-Audit Clients ]
`

SERVICES THAT CAN BE OFFERED (REGULATION 190A)
PERMISSION TO BE GRANTED SPECIFICALLY: Members of the Institute in practice may engage in the
following categories of business or occupations, after obtaining the specific & prior approval of the
Council in each case: -
a Office of managing director or a whole-time director of a body corporate within the meaning of the
Companies Act, 2013 provided that the member and/or any of his relatives do not hold substantial
interest in such concern.
a Interest in family business concerns (including such interest devolving on the members as a result of
inheritance /succession /partition of the family business) or concerns in which interest has been
acquired as a result of relationships & in the management of which no active part is taken.
a Member in practice in a HUF doing business: “A member of the Institute can acquire interest in family
business in any of the following manner:
- as a proprietary firm
- as a partnership firm
- in the name & style of Hindu Undivided Family as its Karta or a member.
a It would be necessary for the members to provide evidence that interest in the family business
concern devolved on him as a result of inheritance/succession/partition of the family business.
a It is also necessary for the member to show that he was not actively engaged in carrying on the said
business & that the family business concern in question was not created by himself.
a To establish his case, the member should furnish a declaration in the prescribed format & the
documents evidencing above for consideration to the concerned Decentralized Office.”

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Routine The Council has clarified that the power to sign routine documents on which a
Documents professional opinion or authentication is not required to be expressed may be
delegated in the following instances & such delegation will not attract provisions of this
clause:
(i) Issue of audit queries during the course of audit.
(ii) Asking for information or issue of questionnaire.
(iii) Letter forwarding draft observations/FS.
(iv) Initiating & stamping of vouchers & of schedules prepared for the purpose of
audit.
(v) Acknowledging & carrying on routine correspondence with clients.
(vi) Issue of memorandum of cash verification & other physical verification or
recording the results thereof in the books of the clients.
(vii) Issuing acknowledgements for records produced. Raising of bills & issuing
acknowledgements for money receipts.
(viii) Attending to routine matters in tax practice, subject to provisions of Section 288
of Income Tax Act.
(ix) Any other matter incidental to the office administration & routine work involved
in practice of accountancy.
CLAUSE (4) OF PART (I) OF SECOND SCHEDULE

Requirements of The requirements of Clause (4) are equally applicable while performing all types of
Clause applicable attest functions by the members. e.g., Tax Audit, GST Audit, Concurrent Audit of
Banks, Concurrent Audit of Borrowers of Financial institutions, Audit of non-
to all Attest corporate borrowers of Banks & Financial Institutions, Audit of Stock Exchange,
Functions Brokers, etc.
Tax Consultant An accountant is expected to be no less independent in the discharge of his duties as
a tax consultant or as a financial adviser than as auditor. In fact, it is necessary that
he should bear the same degree of integrity & independence of mind in all spheres of
his work.
Statutory auditor An Auditor appointed by an entity under the Companies Act or any other statute
not to be the shall not be the Internal Auditor of the same entity.
Internal Auditor
simultaneously
Internal auditor An Internal Auditor of an assessee, whether working with the organization or an
not to be the Tax independently practicing CA irrespective of being an individual CA or a firm of CAs
cannot be appointed as its Tax Auditor.
auditor
simultaneously
Internal Auditor The Internal Auditor of an entity cannot undertake GST Audit of the same entity.
not to be the
GST Auditor
simultaneously
Cooling off period A member shall not accept the assignment of audit of a Company for a period of 2
after completion years from the date of completion of his tenure as Director, or resignation as Director
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of tenure as of the said Company.

Director
Members to A member should satisfy himself before accepting an appointment as an auditor of
satisfy whether an entity that his appointment is in accordance with the statute governing the entity.
In case the entity is constituted under a trust deed/instrument, the member should
appointment is as satisfy whether his appointment is valid according to the instrument constituting the
per the statute entity & rules & regulations made thereunder.
In case the appointment is to be authorised by the regulatory authorities such as in
the case of co-operative societies, trusts etc. then the member must satisfy whether
such regulatory authorities have authorised the managing committee of the
society/trust for appointment of the auditors.
In a case where any entity is being managed by a Managing Committee or Board of
Trustees or Board of Governors by whatever name called he should ensure that his
appointment is duly made by a resolution passed of such Managing Committee or
Board of Trustees or Board of Governors.
Even in case of partnership or sole proprietary concerns, the member must ensure
that a letter of appointment/engagement is given by the firm/sole proprietor before
he accepts the appointment/ engagement.
CLAUSE (9) OF PART (I) OF SECOND SCHEDULE

Generally What constitutes "generally accepted audit procedure” would depend upon the facts &
Accepted circumstances of each case, but guidance is available in general terms from the various
pronouncements of the Institute is issued by way of Engagement & Quality Control Standards,
Audit Statements, General Clarifications, Guidance Notes Technical Guides, Practice Manuals,
Procedures Studies & Other Papers.
Audit of Pursuant to SEBI Notification, Statutory Audit of Listed Companies under the Companies Act,
Listed 2013 shall be done by only those auditors who have subjected themselves to the Peer Review
process of the Institute, & hold a valid certificate issued by the Peer Review Board of the ICAI.
Companies
FRN & The members are required to mention the Membership number & Firm registration number
Membership to all reports issued pursuant to any attestation engagements, including certificates, issued by
them as proprietor of/partner in the said firm.
No.
Unique The members may note that UDIN is mandatory from 1st July, 2019 on all Corporate/ Non-
Document Corporate Audit, Attest & Assurance Functions. Thus, a member of the Institute in practice
shall generate Unique Document Identification Number (UDIN) for all kinds of the
Identification certification, GST & Tax Audit Reports & other Audit, Assurance & Attestation functions
Number undertaken/signed by him.
(UDIN)
Statutory An auditor of a company is appointed by the shareholders to perform certain statutory
Functions & functions & duties & it is expected of him that he will in fact, perform these functions &
duties. The failure to perform a statutory duty in the manner required is not excused merely
Duties by giving a qualification or reservation in auditor's report.
COUNCIL GUIDELINES

16
CHAPTER VII – APPOINTMENT OF AN AUDITOR IN CASE OF NON-

PAYMENT OF UNDISPUTED FEES
a A member in practice shall not accept the appointment as auditor of entity; if undisputed audit fees
of another CA for statutory audit have not been paid. Above notification does not apply to sick units.
a The provision for audit fee in accounts signed by both - the auditee & the auditor along with other
expenses, if any, incurred by the auditor in connection with the audit, shall be considered as
“undisputed audit fees”.
a "Sick Unit” shall mean a unit registered for not less than 5 years, which has at the end of any financial
year accumulated losses equal to or exceeding its entire net worth.
CHAPTER VIII – SPECIFIED NUMBER OF AUDIT ASSIGNMENTS
A member of the Institute in practice shall not hold at any time appointment of more than the “specified
number of audit assignments” of Companies under Section 141 of the Companies Act 2013.
For the above purpose, the “specified number of audit assignments” means -
a in the case of a CA in practice or a proprietary firm of CA, 30 audit assignments whether in respect of
private Companies or other Companies, with the exception of one person Companies & dormant
companies.
a in the case of CAs in practice, 30 audit assignments per partner in the firm, whether in respect of
private Companies or other Companies, with the exception of One person Companies & dormant
companies.
CHAPTER X – APPOINTMENT OF AN AUDITOR WHEN HE IS INDEBTED TO

A CONCERN
A member of the Institute in practice or a partner of a firm in practice or a firm or a relative of such
member or partner shall not accept appointment as auditor of a concern while indebted to the concern or
given any guarantee or provided any security in connection with the indebtedness of any third person to
the concern, for limits fixed in the statute & in other cases for amount exceeding ' 100,000/-.
CHAPTER XI – DIRECTIONS IN CASE OF UNJUSTIFIED REMOVAL OF

AUDITORS
A member of the Institute in practice shall follow the direction given, by the Council or an appropriate
Committee or on behalf of any of them, to him being the incoming auditor(s) not to accept the
appointment as auditor(s), in the case of unjustified removal of the earlier auditor(s).
CHAPTER XIII – GUIDELINES ON TENDERS

a A member of the Institute in practice shall not respond to any tender issued by an organization or
user of professional services in areas of services which are exclusively reserved for CAs, such as audit
& attestation services.
a However, such restriction shall not be applicable where minimum fee of the assignment is prescribed
in the tender document itself or where the areas are open to other professionals along with the CAs.
CHAPTER XIV – UNIQUE DOCUMENT IDENTIFICATION NUMBER (UDIN)

GUIDELINES
17
a Whereas, to curb the malpractice of false certification/attestation by the unauthorized persons & to
eradicate the practice of bogus certificates & to save various regulators, banks, stakeholders etc. from
being misled, the Council of the Institute decided to implement an innovative concept to generate
Unique Document Identification Number (UDIN) mandatorily for all kinds of the certificates/GST &
Tax Audit Reports & other attest function in phased manner, for which members of the ICAI were
notified through the various announcements published on the website of ICAI www.icai.org at the
relevant times.
a A member of the Institute in practice shall generate Unique Document Identification Number (UDIN)
for all kinds of the certification, GST & Tax Audit Reports & other Audit, Assurance & Attestation
functions undertaken/signed by him which made mandatory from the following dates through
announcements published on the website of the ICAI www.icai.org at the relevant time: -
▪ For all Certificates w.e.f. 1st February, 2019.
▪ For all GST & Tax Audit Reports w.e.f. 1st April, 2019.
▪ For all other Audit, Assurance & Attestation functions w.e.f. 1st July, 2019.
CHAPTER XVI – LOGO GUIDELINES

a The logo consists of letter ‘CA’ with a tick mark inside a rounded rectangle with white background.
a The letters CA have been put in blue, the corporate colour which not only stands out on the
background but also denotes creativity, innovativeness, knowledge, integrity, trust, truth, stability &
depth.
a The upside down tick mark typically used by CAs, has been used to symbolize the wisdom & value of
the professional.
a The green colour in the tick mark signifies growth, prosperity, harmony & freshness.
a Members are encouraged to use the new logo, as published here as it is.
a Do not change the design & colours, including the white background.
a Refrain from rotating or tilting the logo.
CHAPTER XVII – GUIDELINES FOR CORPORATE FORM OF PRACTICE

a The Council decided to allow members in practice to hold the office of Managing Director, Whole-
time Director or Manager of a body corporate within the meaning of the Companies Act provided that
the body corporate is engaged exclusively in rendering Management Consultancy & Other Services
permitted by the Council in pursuant to Section 2(2)(iv) of the CA Act, 1949 & complies with the
conditions(s) as specified by the Council from time to time in this regard.
a The members can retain full time Certificate of Practice besides being the Managing Director, Whole-
time Director or Manager of such Management Consultancy Company. There will be no restriction on

18
the quantum of the equity holding of the members, either individually and/ or along with the
relatives, in such Company. Such members shall be regarded as being in full- time practice &
therefore can continue to do attest function either in individual capacity or in
Proprietorship/Partnership firm in which capacity they practice & wherein they are also entitled to
train articled/audit assistants.
a The name of the Management Consultancy Company is required to be approved by the Institute &
such Company has to be registered with the Institute.
a It may be clarified that no audit practice can be done in Corporate Form. The consultancy practice
hitherto done in Individual or Firm Status alone is now intended to be permitted in Corporate Form
also.
a Ethical Compliance: (i) Once the Management Consultancy Company is Registered with the Institute,
it will be necessary for such a Company to comply with the following requirements: -
a If the individual practitioner/sole-proprietorship firm/partnership firm is the statutory auditor of an
entity then the Management Consultancy Company should not accept the internal audit or book-
keeping or such other professional assignments, which are prohibited for the statutory auditor firm.
a The Notification in respect of ceiling on Non-audit fees is applicable in relation to a Management
Consultancy Company.
a The Management Consultancy Company shall comply with clauses (6) & (7) of Part-I of the First
Schedule.
Company Audit
CEILING ON NUMBER OF AUDITS
a It has been mentioned earlier that before appointment is given to any auditor, the company must
obtain a certificate from him to the effect that the appointment, if made, will not result in an excess
holding of company audit by the auditor concerned over the limit laid down in Sec 141(3)(g) of the
Companies Act, 2013 which prescribes that a person shall not be eligible for appointment as an
auditor if he is in full time employment elsewhere or a person or a partner of a firm holding
appointment as its auditor, if such person or partner is at the date of such appointment or
reappointment, already holding appointment as auditor of more than 20 companies other than one
person companies, dormant companies, small companies & private companies having paid- up share
capital less than ` 100 crore (private company which has not committed a default in filing its FS u/s
137 of the said Act or annual return u/s 92 of the said Act with the Registrar).
SECTION 143(3)(i)
a Clause (i) of Sub-Section (3) of Sec143 shall not apply to a private company:-(i) which is a one person
company or a small company; or (ii) which has turnover less than rupees 50 crores as per latest
audited financial statement & which has aggregate borrowings from banks or financial institutions or
anybody corporate at any point of time during the financial year less than rupees 25 crores)
MANAGERIAL REMUNERATION
a The auditor of the company shall, in his report u/s 143, make a statement as to whether the

19
remuneration paid by the company to its directors is in accordance with the provisions of this section,
whether remuneration paid to any director is in excess of the limit laid down under this section & give
such other details as may be prescribed” (as per section 197(16) of the Companies Act, 2013)
a The aforesaid reporting requirement for auditors of public companies needs to be covered in
auditor’s report under the Section “Report on Other Legal & Regulatory Requirements”.
CONSTITUTION OF NFRA
a According to Sec 132 of the Act, the Central Government may, by notification, constitute a National
Financial Reporting Authority (NFRA) to provide for matters relating to accounting & auditing
standards for adoption by companies or class of companies under the Act. The NFRA shall perform its
functions through such divisions as may be prescribed.
a Every auditor referred to in Rule 3 shall file a return with the NFRA on or before 30th November
every year in Form NFRA-2”
a Punishment in case of non-compliance –
If a company or any officer of a company or an auditor or any other person contravenes any of the
provisions of NFRA Rules, the company & every officer of the company who is in default or the auditor
or such other person shall be punishable as per the provisions of Sec 450 of the Act.
a Further, as per Sec 132(4) of the Companies Act, 2013 as amended by the Companies Amendment
Act, 2019, National Financial Reporting Authority, where professional or other misconduct is
proved, have the power to make order for:
(A) imposing penalty of—
i) not less than one lakh rupees, but which may extend to five times of the fees received, in
case of individuals; &
ii) not less than five lakh rupees, but which may extend to ten times of the fees received, in
case of firms;
(B) debarring the member or the firm from:
i) being appointed as an auditor or internal auditor or undertaking any audit in respect of
financial statements or internal audit of the functions & activities of any company or body
corporate; or
ii) performing any valuation as provided u/s 247, for a minimum period of 6 months or such
higher period not exceeding 10 years as may be determined by the NFRA.
PAYMENT OF DIVIDENDS
a As per Accounting Standards (AS) 4 - Contingencies & Events Occurring After the Balance Sheet Date
& Ind AS 10- Events after the Reporting Period, if dividends are declared after the balance sheet date
but before the FS are approved for issue, the dividends are not recognised as a liability at the balance
sheet date because no obligation exists at that time unless a statute requires otherwise. Such
dividends are disclosed in the notes.
AUDIT PROCEDURE FOR PAYMENT OF DIVIDEND
a If dividends are declared after the balance sheet date but before the FS are approved for issue, check
that the dividends have not been recognised as a liability as per Accounting Standard (AS) 4 -
Contingencies & Events Occurring After the Balance Sheet Date & Ind AS 10- Events after the
Reporting Period, but whether a disclosure of the same has been made in the notes.

20
Audit Committee & Corporate

Governance
VERIFICATION REGARDING COMPOSITION OF BOARD
a The auditor shall ensure that the Chairperson of the board of the top 500 listed entities is - (a) a non-
executive director; (b) not related to the Managing Director or the Chief Executive Officer as per the
definition of the term “relative” defined under the Companies Act, 2013.
OBLIGATIONS WITH RESPECT TO EMPLOYEES, INCLUDING SENIOR
MANAGEMENT, KEY MANAGERIAL PERSONS, DIRECTORS & PROMOTERS
a The Board shall meet at least 4 times a year, with a maximum time gap of 120 days between any two
meetings.
a The quorum for every meeting of the board of directors of the top 2,000 listed entities shall be 1/3 of
its total strength or 3 directors, whichever is higher, including at least 1 independent director. The
participation of the directors by video conferencing or by other audio-visual means shall also be
counted for the purposes of such quorum.
a The top 2,000 entities shall be determined on the basis of market capitalisation, as at the end of the
immediate previous financial year. For the purpose of above-mentioned provision, the count for the
number of listed entities on which a person is a director/independent director shall be only those
whose equity shares are listed on a stock exchange.
a The independent directors of the listed entity shall hold at least one meeting in a year, without the
presence of non-independent directors & members of the management & all the independent
directors shall strive to be present at such meeting.
INFORMATION TO SHAREHOLDERS
a The listed entity shall send the soft copy of the full annual report to the shareholders who have
registered their email address(es) or hard copies of the salient features of all the documents, as
prescribed in Sec 136 of the Companies Act, 2013 or rules made thereunder (unless the full annual has
been specifically requested) where the email address has not been registered, not less than 21 days
before the annual general meeting.
DISCLOSURE OF EVENTS OR INFORMATION
a Every listed entity shall make disclosures of any events or information which, in the opinion of the
board of directors of the listed company, is material.
a Board of directors of the listed entity shall authorize one or more Key Managerial Personnel for the
purpose of determining materiality of an event or information & for the purpose of making
disclosures to stock exchange(s) under this regulation & the contact details of such personnel shall be
also disclosed to the stock exchange(s) & as well as on the listed entity`s website.
a Such disclosures shall be hosted on the website of the listed entity for a minimum period of 5 years &
thereafter as per the archival policy of the listed entity, as disclosed on its website.

21
Audit of Consolidated
Financial Statements
AUDIT CONSIDERATIONS
a While considering the observations (for instance modification & /or emphasis of matter in accordance
with SA 705/706) of the component auditor in his report on the standalone FS, the principles of SA
600 needs to be considered. ICAI issued an announcement dated May 25, 2017 which amended
paragraph 17 of Guidance Note & states that while considering the observations (for instance
modification & /or emphasis of matter/other matter in accordance with SA 705/706) of the
component auditor in his report on the standalone FS, the parent auditor should comply with the
requirements of SA 600, “Using the Work of Another Auditor”.
a Therefore, the concept of materiality would be considered while considering the observations of
the component auditor.
Audit under Fiscal Laws

TAX AUDIT
APPLICABILITY OF TAX AUDIT

Sec 44AB provides for the compulsory audit of accounts of certain persons carrying on business or
profession. Sec 44AB reads as under:
“Audit of accounts of certain persons carrying on business or profession”. Every person –
(a) carrying on business shall, if his total sales, turnover or gross receipts, as the case may be, in business
exceed or exceeds Rs. 1 crore in any previous year.
(b) carrying on profession shall, if his gross receipts, in profession exceed Rs. 50 lakhs in any previous
year,
With effect from assessment year 2020-21, the threshold limit, for a person carrying on business, has been
increased from ` 1 crore to `5 crores in case when cash receipts & payments made during the year does not
exceed 5% of total receipt or payment, as the case may be. In other words, 95% or more of the business
transactions should be done through banking channels.
ADDITIONS TO FORM 3CD
Clause 8A of The new clause inserted in part A of the form 3CD requires the assessee to state whether

22
Form 3CD the assessee has opted for taxation under any of the sections 115BA, 115BAA & 115BAB.
It may be noted that all the above sections i.e.115BA, 115BAA & 115BAB are applicable to
the company assesses only.
The reply to the above clause can either be a “yes” or “no”. If the assessee has not opted
for any concessional rates as provided under the sections 115BA, 115BAA & 115BAB, of
the Act, then, the tax auditor is not required to take any further steps & no further audit
procedure is required to be followed. The answer to such question as per the clause in
such case can be given as “No” only.
However, if the assessee informs that it has opted for the concessional rate of taxation as
per the provisions of sections 115BA, 115BAA & 115BAB of the Act, then the audit
approach is required to be modified.
Clause 18 of Particulars of depreciation allowable as per the Income-tax Act, 1961 in respect of each
Form 3CD asset or block of assets, as the case may be, in the following form:-
(a) Description of asset/block of assets.
(b) Rate of depreciation.
(c) Actual cost or written down value, as the case may be.
(ca) Adjustment made to the written down value u/s 115BAA (for assessment year
2020-21 only)
(cb) Adjusted written down value
(d) Additions/deductions during the year with dates; in the case of any addition of an
asset, date put to use; including adjustments on account of –
i) Central Value Added Tax credits claimed & allowed under the Central Excise
Rules, 1944, in respect of assets acquired on or after 1st March, 1994,
ii) Change in rate of exchange of currency, &
iii) Subsidy or grant or reimbursement, by whatever name called.
(e) Depreciation allowable.
(f) Written down value at the end of the year.
Clause 32a Details of brought forward loss or depreciation allowance, in the following manner, to
of Form 3CD the extent available:
1 Sl. No.
2 Assessment Year
3 Nature of loss/allowance (in rupees)
4 Amount as returned (in rupees)
5 All losses/allowances not allowed u/s 115BAA*
6 Amount as adjusted by withdrawal of additional depreciation on account of opting for
taxation u/s 115BAA*
7 Amount as assessed (give reference to relevant order)
8 Remarks
This clause requires information in respect of brought forwarded losses & unabsorbed
depreciation, which can be verified from the previous return & the assessment orders.
The above brought forwarded losses/allowance, not allowed u/s 115BAA, are to be listed
out assessment year wise & section wise as per the return (& where assessed, as per the
assessment order) are to be reported under this clause. A reporting format is prescribed
for the sake of standardization.
*Note: All losses/ allowances not allowed u/s 115BAA & Amount as adjusted by

23
withdrawal of additional depreciation on account of opting for taxation u/s 115BAA* is

required to be filled in for assessment year 2020-21 only.
SIGNATURE & STAMP/SEAL OF THE SIGNATORY
While issuing the tax audit report u/s 44AB of the Income Tax Act 1961, the Auditor should generate
appropriate UDIN (Unique Document Identification Number) & refer the same in its report.
GST AUDIT
1. AUDIT BY PROFESSIONALS
Audit of ✓ Every registered person must get his accounts audited by a Chartered Accountant
Accounts or a Cost Accountant if his aggregate turnover during a FY exceeds ` 2 crores.
✓ Such registered person is required to furnish electronically through the common
[Section 35(5)
portal alongwith Annual Return a copy of:
Read alongwith  Audited annual accounts
Section 44(2)  A Reconciliation Statement, duly certified, in prescribed FORM GSTR-9C.
& Rule 80]
Multiple Where a taxpayer has multiple branches registered under GST in different States/
Branches Union Territories, the total aggregate turnover of all such branches is considered while
calculating the threshold limit.
So, if the cumulative turnover of all the branches exceed threshold limit, then the GST
audit is applicable to each of these branches, irrespective of whether the turnover of a
particular branch is less than the threshold.
Same PAN If a registered person is liable to get his accounts audited u/s 35, all the registrations
obtained under the same PAN will also be liable for such audit, regardless of the
turnover in each State in which the other registrations have been obtained.
QUALIFICATI Only a Chartered Accountant or a Cost Accountant can perform GST audit under
ON OF GST section 35(5). Points to note:
AUDITOR &
ELIGIBILITY
No GST Audit of Government subject to CAG Audit: It may be noted that the section 35(5) shall not apply
to any department of the Central Government or a State Government or a local authority, whose books
of account are subject to audit by the Comptroller & Auditor- General of India or an auditor appointed for
auditing the accounts of local authorities under any law for the time being in force.
OIDAR & Foreign Airlines not liable for GST Audit: Further, persons supplying Online Information & Data
Base Access or Retrieval Services from a place outside India to a person in India & persons who are
foreign company which is an airline company shall not be required to furnish reconciliation statement in
FORM GSTR-9C.
However, the foreign airline company is required to submit a statement of receipts & payments for the FY
in respect of its Indian business operations, duly authenticated by a practicing chartered accountant in
India or a firm or a Limited Liability Partnership of practicing chartered accountants in India for each
GSTIN by the 30th September, of the year succeeding the FY.
2. GENERAL AUDIT
Audit by the ✓ In case of audit by the tax authorities the Commissioner or any officer authorised by

24
Tax Authorities him, can undertake audit of any registered person for such period, at such frequency &
u/s 65 in such manner as may be prescribed.
✓ Audit under section 65 is a routine audit by the tax office at the place of business of
registered person or in tax office.
Notice for ✓ The registered person shall be informed by way of a notice not less than 15 working
Audit by Tax days prior to the conduct of audit in such manner as may be prescribed. [Rule 101,
FORM GST ADT-01]
Authorities
Completion ✓ The audit by tax authorities shall be completed within a period of 3 months from the
period of audit date of commencement of the audit , & such period is further extendable for a period
of 6 months by Commissioner for the reasons to be recorded in writing.
✓ In this regard, “commencement of audit” shall mean the date on which the records &
other documents, called for by the tax authorities, are made available by the
registered person or the actual institution of audit, whichever is later.
3. SPECIAL AUDIT
Special Audit ✓ Special audit wherein the registered person can be directed to get his records including
u/s 66 books of account examined & audited by a chartered accountant or a cost accountant
during any stage of scrutiny, inquiry, investigation or any other proceedings; depending
upon the nature & complexity of the case on order of Assistant Commissioner or above
with prior approval of the Commissioner.
Procedure for ✓ An officer not below the rank of Assistant Commissioner, duly approved, may avail the
Special Audit services of a chartered accountant or cost accountant to conduct a detailed examination
of specific areas of operations of a registered person.
✓ Availing the services of the expert be it a CA or CMA is permitted by this section only
when the officer considering the nature & complexity of the business & in the interest of
revenue is of the opinion that:
 Value has not been correctly declared; or
 Credit availed is not within the normal limits.
Circumstances ✓ An Assistant Commissioner who frames an opinion on the above two aspects, after
for Notice for commencement & before completion of any scrutiny, inquiry, investigation or any other
Special Audit proceedings under the Act, may direct a registered person to get his books of accounts
audited by an expert.
✓ The Assistant Commissioner needs to obtain prior permission of the Commissioner to
issue such direction to the registered person.
✓ Identifying the expert is not left to the registered person whose audit is to be conducted
but the expert is to be nominated by the Commissioner.

25
Audit of Non Banking

Financial Companies
TYPES OF NBFCs
NBFCs MANDATED TO REGISTER UNDER RBI
NBFCs registered with RBI are categorized as follows:
1. in terms deposit acceptance or otherwise into Deposit & Non-Deposit accepting NBFCs;
2. non deposit taking NBFCs by their size into systemically important & non-systemically important
(NBFC-NDSI & NBFC-ND); &
3. by the kind of activities, they conduct.
Within the categorization mentioned in (c) above, (i.e. by the kind of activity they conduct) the different
types of NBFCs are as follows:
 Investment & Credit Company (ICC)
 Infrastructure Finance Company (IFC)
 Systematically Important Core Investment Company (CIC-ND-SI)
 Infrastructure Debt Fund- Non- Banking Financial Company (IDF-NBFC)
 Non-Banking Financial Company - Micro Finance Institution (NBFC-MFI)
 Non-Banking Financial Company - Factors (NBFC- Factors)
 NBFC- Non Operative Financial Holding Company (NOFHC)
All NBFCs are either deposit taking or non-deposit taking. If they are non-deposit taking, ND is suffixed to
their name (NBFC-ND).
COMPANIES EXEMPTED FROM REGISTRATION UNDER RBI
Companies that do financial business but are regulated by other regulators are given specific exemption by
the Reserve Bank from its regulatory requirements for avoiding duality of regulation. Following NBFCs
have been exempted from the requirement of registration under Section 45-IA of the RBI Act, 1934 subject
to certain conditions.
 Housing Finance Institutions (regulated by National Housing Bank);
 Merchant Banking Companies (regulated by Securities & Exchange Board of India);
 Stock Exchanges (regulated by Securities & Exchange Board of India);
 Companies engaged in the business of stock-broking/sub-broking (regulated by Securities & Exchange
Board of India);
 Venture Capital Fund Companies (regulated by Securities & Exchange Board of India);
 Nidhi Companies (regulated by Ministry of Corporate Affairs, Government of India);
 Insurance companies (regulated by Insurance Regulatory & Development Authority); &
 Chit Companies (as defined in clause (b) of section 2 of the Chit Funds Act, 1982 (Act 40 of 1982)).
 Micro Finance Companies
26
 Securitisation & Reconstruction Companies

 Mutual Benefit Companies
 Mortgage Guarantee Companies
 Core Investment Companies i.e. a NBFC being a Core Investment Company referred to in the Core
Investment Companies (Reserve Bank) Directions, 2016, which is not a Systemically Important Core
Investment Company, as defined in subparagraph (xxv) of paragraph 3 of the Core Investment
Companies (Reserve Bank) Directions, 2016.
 Alternative Investment Fund (AIF) Companies
DIFFERENCES BETWEEN DIVISION II (IND- AS- OTHER THAN NBFCS) &
DIVISION III (IND- AS- NBFCS) OF SCHEDULE III
The presentation requirements under Division III for NBFCs are similar to Division II (Non NBFC) to a large
extent except for the following:
(a) NBFCs have been allowed to present the items of the balance sheet in order of their liquidity which
is not allowed to companies required to follow Division II. Additionally, NBFCs are required to
classify items of the balance sheet into financial & non-financial whereas other companies are
required to classify the items into current & non-current.
(b) An NBFC is required to separately disclose by way of a note any item of ‘other income’ or ‘other
expenditure’ which exceeds 1 per cent of the total income e. Division II, on the other hand, requires
disclosure for any item of income or expenditure which exceeds 1 per cent of the revenue from
operations or ` 10 lakhs, whichever is higher.
(c) NBFCs are required to separately disclose under ‘receivables’, the debts due from any Limited
Liability Partnership (LLP) in which its director is a partner or member.
(d) NBFCs are also required to disclose items comprising ‘revenue from operations’ & ‘other
comprehensive income’ on the face of the Statement of profit & loss instead of showing those only
as part of the notes.
(e) Separate disclosure of trade receivable which have significant increase in credit risk & credit
impaired.
(f) The conditions or restrictions for distribution attached to statutory reserves have to be separately
disclose in the notes as stipulated by the relevant statute.
Peer Review & Quality Review

TECHNICAL, ETHICAL & PROFESSIONAL STANDARDS
a Accounting Standards issued by ICAI that are applicable for entities other than companies under the
Companies Act, 2013;
a Accounting Standards prescribed u/s 133 of the Companies Act; 2013 by the CG based on the
recommendation of ICAI & in consultation with the National Financial Reporting Authority (NFRA) &
notified as Accounting Standards Rules 2006, as amended from to time;
a Indian Accounting Standards prescribed u/s 133 of the Companies Act 2013 by the CG based on the
recommendation of ICAI & in consultation with NFRA & notified as Companies (Indian Accounting
27
Standards) Rules, 2015, as amended from time to time;

a Standards :
Standards issued by the ICAI including-
 Engagement  Standards on Internal Audit.
standards  Guidelines/
 Statements  Notifications/Directions/Announcements/Pronouncements/Profe
 Guidance notes ssional Standards issued from time to time by the Council or any
of its Committees.
a Framework for the preparation & presentation of FS, Preface to the Standards on Quality Control,
Auditing, Review, Other Assurance & Related Services & Framework for Assurance engagements;
a Provisions of the relevant statutes &/or rules or regulations which are applicable in the context of the
specific engagements being reviewed including instructions, guidelines, notifications, directions issued
by regulatory bodies as covered in the scope of assurance engagements.
APPLICABILITY OF PEER REVIEW
1. Every Practice Unit including its branches, based on their category as determined below will be
subject to Peer Review in accordance with this Statement.
Level I:
A Practice Unit which has undertaken any of the under-mentioned assurance services in the period
under review shall be treated a Level I entity:
 Central Statutory Audit of Public Sector Banks, Private Sector Banks, Foreign Banks, Cooperative
Banks & Public Financial Institutions;
 Central Statutory Audit of Central or State Public Sector Undertakings & Central Cooperative
Societies based on criteria such as turnover or paid up capital etc. as may be decided by the
Board;
 Central Statutory Audit of Insurance Companies;
 Statutory Audit of asset management companies or mutual funds;
 Statutory Audit of enterprises whose equity or debt securities are listed in India or abroad;
 Statutory audit of any body corporate including trusts which are covered under public interest
entities.
 Statutory Audit of Entities which have raised funds from public or banks or financial institutions
of over Rs. 50 Crores during the period under Review;
 Statutory Audit of Entities which have raised donations &/or contributions over Rs. 50 Crores
during the period under Review;
 Statutory Audit of entities having net worth of more than Rs. 250 Crores at any time during the
period under Review.
 Statutory Audit of entities which have been funded by Central &/or State Government(s)
schemes of over Rs. 50 Cores during the period under Review.
 Statutory Audit of NBFCs as may be defined by the Board.
 Central Statutory Audit of Regional Rural Banks.
 Statutory Audit of parent, subsidiary, associate, & joint venture of the above entities.
Level II:
A Practice Unit which has undertaken any of the under-mentioned assurance services in the period
under review shall be treated as Level II entity:
 Statutory/Internal/Concurrent/Systems/Tax audit &/or Departmental Review of Branches/Offices
of –
▪ Public Sector undertaking
28
▪ Public Sector or Private Sector &/or Foreign Banks

▪ Insurance Companies
▪ Co-operative Banks
▪ Regional Rural Banks
 Statutory Audit of NBFCs as may be defined by the Board.
 Statutory Audit of entities having Net Worth of over Rs. 5 Crores or an annual turnover of more
than Rs. 50 Crores during the period under Review.
 UDIN`s generated by the Practice Units more than the specified number determined by the Board
from time to time.
 Statutory Audit of entities which have raised funds from public or banks or financial institutions
of more than Rs. 25 Crores but less than Rs. 50 Crores during the period under review.
 Any other Practice Unit providing assurance or other services not covered under (i) (ii), (iii), (iv) &
(v) hereinabove.
2. Special case review
 The Board, based on specific information received from Secretary, ICAI or any other Committee
of the Institute including Disciplinary directorate or any other Regulator, which in the opinion of
the Board requires a special review of the Practice Unit, may conduct a special review of the
Practice Unit.
 Any Practice Unit not selected for Peer Review, may suo moto apply to the Board for the conduct
of its Peer Review. The Board shall act upon the same within 30 days from the date of receipt of
such request.
 An auditee (Client) may request the Board for the conduct of Peer Review of its auditor (Practice
Unit). The Board shall act upon the same within 30 days from the date of receipt of such request.
PERIODICITY OF PEER REVIEW
The periodicity of peer review will be –
a Level I Practice Units – Once in 3 years.
a Level II Practice Units – Once in 4 years.
However, if the Board so decides or otherwise at the request of the Practice Unit, the Peer Review for a
Practice Unit can be conducted at shorter intervals.
ELIGIBILITY TO BE A REVIEWER
1. A Peer Reviewer shall: -
(a) Shall be a member in practice with at least 10 years of experience for Level I entities & 7 years of
experience for Level II entities.
(b) In case a member has moved from industry to practice & is currently in practice he should have
at least 15 years of experience in industry & at least 5 years` experience in practice for Level I
entities & an experience of at least 10 years in industry & at least 3 years` experience in practice,
for Level II entities.
(c) Should have undergone the requisite training & cleared the requisite test for Peer Review as
prescribed by the Board.
(d) Should have conducted audit of Level I Entities for at least 7 years or got his entity audited for at
least 7 years which should be a Level I entity to be eligible for conducting Peer Review of Level I
Entities.
2. A Reviewer shall not accept any professional assignment from the Practice Unit for a period 2 years
from the date of appointment. Further, he should not have accepted any professional assignment
from the Practice Unit for a period of 2 years before the date of appointment as reviewer of that
Practice Unit.
29
OBLIGATIONS OF THE PRACTICE UNIT

Any Practice Unit, in addition to the prescribed information to be furnished including the questionnaire,
statements & such other particulars as the Board may deem fit, shall comply with the following.
i. Produce to the Reviewer or allow access to, any record, document or prescribed register maintained
by the Practice Unit.
ii. Provide to the Reviewer such explanation or further particulars/ information, as the Reviewer shall
specify.
iii. Provide to the Reviewer all assistance in connection with Peer Review;
iv. Where any information or matter relevant to a Practice Unit is recorded otherwise than in a legible
form, the Practice Unit shall provide & present to the Reviewer a reproduction of any such
information or matter, or of the relevant part of it in a legible form, with a translation in English or
Hindi, if the matter is in any other language, & if such translation is requested for by the Reviewer.
OBLIGATIONS OF THE PEER REVIEWER
(i) The Reviewer shall not take any extracts of the Practice Units clients ` file or records examined by him
while conducting Peer Review, as a part of his working papers.
(ii) The Reviewer shall complete the Review within the prescribed time frame.
DIFFERENCE BETWEEN PEER REVIEW & QUALITY REVIEW
PEER REVIEW
a Peer review is a review of the systems & procedures of an audit firm.
a Although sample audit files are inspected by the peer reviewer, it is done for the purpose of testing
the effectiveness of the systems & procedures.
a The intention is to not to find faults but to help the firm develop effective systems.
a It is a kind of mentoring process.
a Peer review is a part of the activities of ICAI aimed at improving the quality of service.
QUALITY REVIEW
a In contrast, a quality review is supposed to act as a deterrent.
a Quality Review Board (QRB) is constituted by the CG & is independent of ICAI.
a As per Sec 28A of the CA Act, the CG has the authority to constitute a QRB.
a QRB carries out supervisory & disciplinary functions.
a A quality review normally pertains to one particular audit conducted by an audit firm.
a The main objective quality review is to find errors or inadequacies, if any, committed by the auditor
while conducting the audit.
a Serious errors detected in quality review lead to disciplinary action against the member.
QUALITY REVIEW
IMPORTANT AREAS AS PER QUALITY REVIEW REPORT IN ACCORDANCE
WITH SQC-1 ARE
a Whether the audit firm establishes & implements policies & procedure on all the element of system
of quality control.
a Whether the engagement quality control reviewer review at an appropriate time for the planning of
an audit, significant audit judgement, & expressions of an audit opinion.

30
a Whether the audit firm assigns as the person responsible for the monitoring of the system of quality
control a person with appropriate experience for the role, vest the assigned person with sufficient &
appropriate authority.
a Whether the audit firm obtain, at least annually, a confirmation letter concerning compliance with
policies & procedure for the maintenance of independence from all person required to maintain
independence.
a Whether the audit firm perform the independence confirmation procedure set forth in its internal
rules before acceptance & continuance of an audit engagement, & when issuing the auditor `s report
appropriately confirms that there was no change in the status of independence.
a Whether the audit firm develop & provides education/ training program that fully take into account
the knowledge, experience, competence & capabilities of the professional staff.
SCOPE & OBJECTIVES OF QUALITY REVIEW
a Quality review is directed towards evaluation of audit quality & adherence to various statutory &
other regulatory requirements.
a They are designed to identify & address weaknesses & deficiencies related to how the audits were
performed by the audit firms.
a To achieve that goal, quality reviews included reviews of certain aspects of selected statutory audits
performed by the firm & reviews of other matters related to the firm`s quality control system.
a In the course of reviewing aspects of selected audits, a review may identify ways in which a particular
audit is deficient, including failures by the firm to identify, or to address appropriately, aspects in
which an entity`s FS do not present fairly the financial position or the results of operations in
conformity with the applicable Generally Accepted Accounting Principles (GAAP) & other technical
standards.
THE SCOPE & OBJECTIVE OF THE QUALITY REVIEW INCLUDES:
a Examining whether the Statutory Auditor has ensured compliance with the applicable technical
standards in India & other applicable professional & ethical standards & other relevant guidance.
a Examining whether the Statutory Auditor has ensured compliance with the relevant laws &
regulations as required under applicable auditing standard.
a Examining whether the Audit Firm Under Review (AFUR) has implemented a system of quality control
with reference to the applicable quality control standards.
a Examining whether there is no material misstatement of assets & liabilities as at the reporting date in
respect to the selected entity.
The review would encompass AFUR`s working papers of selected audit file/s to assess quality of their audit
& to ensure that FS are free of material misstatement/s; internal quality controls placed within AFUR,
including assessment of how internal controls impact audit quality; AFUR`s independence; compliance
with technical standards, other relevant guidance & relevant laws & regulations; on-site-inspections; &
discussion of findings with senior management of AFUR.
TECHNICAL STANDARDS
a Preface to the Statements of Accounting Standards;
a Preface to the Standards on Quality Control, Auditing, Review, Other Assurance & Related Services;
a The Accounting Standards notified u/s 133 of the Companies Act, 2013;
a The Accounting Standards issued by the ICAI;
a The Framework for the Preparation & Presentation of FS issued by the ICAI;
a The applicable Quality Control & Standards on Auditing issued by the ICAI & those notified under the
relevant statute;
a The Statements on Auditing issued by the ICAI;
a The Notifications/Directions/Guidelines issued by the ICAI including those of a self-regulatory nature;
31
a Other relevant legal & regulatory requirements.

a “Other Relevant Guidance” include:-
▪▪ The Guidance Notes on accounting & auditing matters issued by the ICAI;
▪▪ The Code of Ethics issued by the ICAI.
a Presently, the review undertaken by QRB covers statutory audit services only & does not extend to
internal audit services provided by the members of the Institute.
COVERAGE OF SERVICES FOR QUALITY REVIEW
Quality Review would involve assessment of the work of statutory auditors to assess:-
(a) Quality of statutory audit & reporting by statutory auditors; &
(b) Quality control framework adopted by the AFUR in conducting statutory audit.
Exclusions : This Procedure would not extend to:
(I) Review of internal audit, tax audit, GST audit & other such special purpose audits conducted by the
members of the Institute which may be covered by the Board at a later stage or unless otherwise
specified; &
(II) Review of services provided by the members of the Institute in employment.
SELECTION OF AUDIT FIRMS
Selection of audit firms for review may be made on the basis of one or more of the following criteria:-
(a) Criteria based on Entities Audited:
(I) The entities other than those specified under NFRA Rules, 2018 may be selected on the basis of
one or more of the following:-
▪ risk based selection including regulatory concerns pointing towards stakeholder risks.
▪ on account of being part of a sector otherwise identified as being susceptible to risk on the
basis of market intelligence reports.
▪ reported fraud or likelihood of fraud.
▪ serious accounting irregularities in the FS highlighted by the media & other reports.
▪ major non-compliances under relevant statutes highlighted in past reviews.
(II) The Board may also review the quality of the statutory audit services of AFUR on a reference
made to it by any regulatory body like RBI, SEBI, IRDA, MCA, NFRA etc.
(b) Criteria based on Audit Firms:
Selection of audit firms should also be made for quality review of their statutory audit work on –
▪ random basis,
▪ the volume of work handled by them represented by the number & nature of clients,
▪ sectors that may be identified as facing high risk, or
▪ on account of fraud or likelihood of fraud.
(c) Quality Review Cycle:
(I) The following quality review cycle of Audit firms may be followed generally or as may be decided
by the Board:
▪ Once in 3 years for Audit firms having 20 or more Partners
▪ Once in 4 years for Audit firms having 10 or more but less than 20 Partners
▪ Once in 5 years for Audit firms having less than 10 Partners.
(II) Upto 3 audit engagements of an AFUR may be selected by the Board, as may be considered
appropriate. However, in the absence of any adverse finding in a past review, not more than 1
audit engagement of the same engagement partner/ proprietor of an AFUR may be selected for
quality review by the Board during a particular quality review cycle.
(III) However, in case of any adverse findings in past review/s or in any other situation, QRB may
conduct quality review of any particular audit firm or of a particular engagement partner at more

32
frequent interval &/or select more than 3 audit engagements.

EMPANELMENT OF TECHNICAL REVIEWERS
The Board has specified the following basic minimum criteria for empanelment of Technical Reviewers
with the Board, applications in respect whereof are invited through an online empanelment process at the
website of QRB :
a Reviewer should have minimum 15 years of post qualification experience as a CA & be currently active
in the practice of accounting & auditing.
a Reviewer should have handled as a signing partner/proprietor at least 3 statutory audit assignments
as a Central Statutory Auditor of Banks/Public Limited Companies/Government Companies/Private
Limited Companies having annual turnover of Rs. 50 crores & above during the last 10 financial years;
Provided that out of the aforesaid 3 statutory audit assignments, at least 1 must be in respect of
entities other than Private Limited Companies.
a Reviewer should not have any disciplinary proceeding under the CA Act, 1949 pending against him or
any disciplinary action under the CA Act, 1949/penal action under any other law taken/pending
against you during last 3 financial years &/or thereafter.
a Reviewer should not currently be a Member of the QRB or ICAI`s Central Council/Regional
Council/Branch level Management Committee.
INDEPENDENCE & QUALIFICATIONS OF TECHNICAL REVIEWERS
For being a technical reviewer(TR):
a He should not have disciplinary proceeding under the CA Act, 1949 pending against him/her or any
disciplinary action under the CA Act, 1949/penal action under any other law taken/pending against
him during last 3 financial years and/or thereafter.
a He or his/her firm any of the network firms or any of the partners of the firm or that of the network
firms should not have been the statutory auditor of the company, as specified, or have rendered any
other services to the said entity during last 3 financial years and /or thereafter.
a He or his/her firm or any of the network firms or any of the partners of the firm or that of the network
firms should not have had any association with the specified AFUR, during the last 3 financial years
and /or thereafter.
a He should comply with all the eligibility conditions laid down for appointment as an auditor of a
company u/s 141(3) of the Companies Act, 2013 which apply mutatis mutandis in respect of the
review of the quality of statutory audit of the entity, as specified, so far as applicable.
a He does not belong to the city/region of head office of the AFUR.
ACTIONS THAT MAY BE RECOMMENDED BY THE QRB

The actions that the Board may take, based upon consideration of recommendations of the QRG,
include one or more of the following:-
a Make recommendations to the Council of ICAI for referring the case to the Director (Discipline) of the
Institute for consideration & necessary action under the CA Act, 1949.
a Issue advisory & guidance to the AFUR for improvement in the quality of services & adherence to
various statutory & other regulatory requirements. A copy of such advisory may also be sent to the
ICAI for information.
a Inform the details of the non-compliance to the regulatory bodies relevant to the entity as may be
decided by the Board.
a Intimate the AFUR as to the findings of the Report as well as action initiated as above.

33
Due Diligence, Investigations

& Forensic Audit
INVENTORY FRAUDS –
Inventory frauds are many & varied but here we are concerned with misappropriation of goods & their
concealment.
 Employees may simply remove goods from the premises.
 Theft of goods may be concealed by writing them off as damaged goods, etc.
 Inventory records may be manipulated by employees who have committed theft so that book
quantities tally with the actual quantities of inventories in hand.
 Inflating the quantities issued for production is another way of defalcating raw materials & store
items.
 Stocks actually dispatched but not entered in sales/ debtor`s account.
VERIFICATION PROCEDURE FOR DEFALCATION OF INVENTORY

System of  Study the entire system of receipts, storage & dispatch of all goods, etc. should be
Inventory reviewed to localise the weakness in the system.
Inventory  Establish the different items of inventory defalcated & their quantities by checking
book physically the quantities in inventory held & those shown by the Inventory Book.
Duties of  Investigating accountant should ascertain the exact duties of persons handling the
persons stocks received in & issued from store for production/ sale or any other purpose.
Inventory  All the receipts & issues of inventory recorded in the Inventory Book should be
Records verified by reference to entries in the Goods Inward & Outward Registers & the
documentary evidence as regards purchases & sales.
Shortages  The shortages observed on physical verification of inventory should be reconciled
observed with the discrepancies observed on checking the books in the manner mentioned
above.
Source  In the case of an industrial concern, issue of raw materials, stores & tools to the
Documents factory & receipts of manufactured goods in the godown also should be verified
with relative source documents.
Assistance  Defalcations of inventory, sometimes, also are committed by the management, by
of engineer diverting a part of production & the consequent shortages in production being
adjusted by inflating the wastage in production; similar defalcations of inventories
& stores are covered up by inflating quantities issued for production. For detecting
such shortages, the investigating accountant should take assistance of an engineer.
Past Records  In this regard, guidance can also be taken from past records showing the extent of
wastage in production in the past. Similarly, he would be able to better judge

34
whether the material issued for production was excessive &, if so to what extent.
Per hour  The per hour capacity of the machine & the time that it took to complete one cycle
machine of production, also would show whether the issues have been larger than those
required.
capacity
Internal Controls, Internal

Audit, Management &
Operational Audit
INTERNATIONAL INTERNAL CONTROL FRAMEWORKS
Internal Control - Integrated Framework issued by Committee of the

Sponsoring Organisations of the Treadway Commission (COSO Framework)
The Framework lists three categories of objectives as below:
 Operations Objectives - related to the effectiveness & efficiency of the entity`s operations, including
operational & financial performance goals, & safeguarding assets against loss.
 Reporting Objectives - related to internal & external financial & non-financial reporting to
stakeholders, which would encompass reliability, timeliness, transparency, or other terms as
established by regulators, standard setters, or the entity`s policies.
 Compliance objectives - In the Framework, the compliance objective was described as "relating to
the entity`s compliance with applicable laws & regulations.”
Guidance on Assessing Control published by the Canadian Institute of
Chartered Accountants (CoCo)
The Criteria of Control (CoCo) framework was developed by the Canadian Institute of Chartered
Accountants with the objective of improving organisational performance & decision making with better
controls, risk management, & corporate governance.
The CoCo framework outlines criteria for effective control in the following four areas:
 Purpose
 Commitment

35
 Capability
 Monitoring & Learning
Control Objectives for Information & Related Technology (COBIT)
 It is a framework created by the ISACA (Information Systems Audit & Control Association) for IT
governance & management.
 This framework guides an organization on how to use IT resources (i.e., applications, information,
infrastructure, & people) to manage IT domains, processes, & activities to respond to business
requirements, which include compliance, effectiveness, efficiency, confidentiality, integrity,
availability, & reliability.
 Well-governed IT practices can assist businesses in complying with laws, regulations, & contractual
arrangements.
Internal Control: Guidance for Directors on the Combined Code, published
by the Institute of Chartered Accountants in England & Wales (known
as the Turnbull Report)
The key principles of the Code are enunciated as below:
 The board should maintain a sound system of internal control to safeguard shareholders` investment
& the company`s assets.
 The directors should, at least annually, conduct a review of the effectiveness of the group`s system of
internal control & should report to shareholders that they have done so. The review should cover all
controls, including financial, operational & compliance controls & risk management.
 Companies which do not have an internal audit function should from time to time review the need
for one.
Sarbanes-Oxley Section 404
SOX Section 404 (Sarbanes-Oxley Act Section 404) mandates that all publicly-traded companies must
establish internal controls & procedures for financial reporting & must document, test & mainta in
those controls & procedures to ensure their effectiveness. It requires that:
 Management perform a formal assessment of its controls over financial reporting including tests that
confirm the design & operating effectiveness of the controls.
 Management include in its annual report an assessment of ICFR.
 The external auditors provide two opinions as part of a single integrated audit of the company:
 An independent opinion on the effectiveness of the system of ICFR.
 The traditional opinion on the financial statements.
DEFINITION OF INTERNAL AUDIT

As defined in Framework Governing Internal Audits, “Internal Audit provides independent assurance on
the effectiveness of internal controls & risk management processes to enhance governance & achieve
organisational objectives.”
The Framework also indicates the nature of internal audit services may go beyond assurance to include an
advisory (consulting) role. Further, the internal auditing need not to be confined financial transactions
only. The objectives & scope of Internal Audit Function as per SA 610, “Using the Work of an Internal
Auditor” may include:
▪ Monitoring of internal controls;

36
▪ Examination of financial & operating information

▪ Review of operating activities
▪ Review of compliance with laws & regulations
▪ Risk management
▪ Governance
SIA 370
As per Standard on Internal Audit (SIA) 370 Reporting Results, reporting of internal audit results is
generally undertaken in two stages:
a At the end of a particular audit assignment, an “Internal Audit Report” covering a specific area,
function or part of the entity is prepared by the Internal Auditor highlighting key observations arising
from those assignments. This report is generally issued with details of the manner in which the
assignment was conducted & the key findings from the audit procedures undertaken. This report is
issued to the auditee, with copies shared with local & executive management, as agreed during the
planning phase.
a On a periodic basis, at the close of a plan period, a comprehensive report of all the internal audit
activities covering the entity & the plan period is prepared by the Chief Internal Auditor (or the
Engagement Partner, in case of external service provider). Such reporting is normally done on a
quarterly basis & submitted to the highest governing authority responsible for internal audits,
generally the Audit Committee. Some part of the aforementioned Internal Audit Reports may form
part of the periodic (e.g. Quarterly) report shared with the Audit Committee.
a This Standard on Internal Audit (SIA) deals with the internal auditor`s responsibility to issue only the
first type of reports, the Internal Audit Report pertaining to specific audit assignments & not to the
periodic (e.g. Quarterly) reporting for the whole entity as per the Annual/Quarterly audit plan.
ELEMENTS OF INTERNAL AUDIT REPORT
On the basis of the internal audit work completed, the Internal Auditor shall issue a clear, well
documented Internal Audit Report which includes the following key elements:
a An overview of the objectives, scope & approach of the audit assignments;
a The fact that an internal audit has been conducted in accordance the Standards of Internal Audit;
a An executive summary of key observations covering all important aspects, & specific to the scope of
the assignment;
a A summary of the corrective actions required (or agreed by management) for each observation; &
a Nature of assurance, if any, which can be derived from the observations.
FOLLOW-UP AS PER SIA 390

a As per SIA 390 Monitoring & Reporting of Prior Audit Issues, the Chief Internal Auditor is responsible
for continuously monitoring the closure of prior audit issues through timely implementation of action
plans included in past audits.
a In monitoring & reporting of prior audit issues, the responsibility of the Internal Auditor is usually in
the form of an “Action Taken Report (ATR) of previous audits”.
a The term “Monitoring & Reporting” used in this Standard refers to the periodic tracking of issues
raised during prior audits & evaluation of the corrective actions undertaken by the auditee to resolve
them & to report any open & pending matters to the management & those charged with governance
(e.g. the Audit Committee).

37
Audit of Banks
STRESS TESTING
a RBI has required that all commercial banks (excluding RRBs & LABs) shall put in place a Board
approved ‘Stress Testing framework’ to suit their individual requirements which would integrate into
their risk management systems.
a Stress tests are designed to understand whether a bank has enough capital to survive plausible
adverse economic conditions & to maintain enough buffer to stay afloat under extreme scenarios.
BASEL III FRAMEWORK

a Basel III norms relate to the Capital Adequacy requirement compliance which the Bank has to achieve
as contained in the BASEL III accord. Basel capital adequacy norms are meant for the protection of
depositors & shareholders by prescriptive rules for measuring capital adequacy, thereby evolving
methods of determining regulatory capital & ensuring efficient use of capital.
a Basel III accord strengthens the regulation, supervision & risk management of the banking sector. It is
global regulatory standard on capital adequacy of banks, stress testing as well as market liquidity risk.
a The Basel III accord, aims at:
(I) improving the banking sector’s ability to absorb shocks arising from financial & economic stress,
irrespective of reasons thereof;
(II) improving risk management & governance practices; &
(III) strengthening banks` transparency & disclosure standards.
Audit of Insurance Companies

INDIAN INSURANCE COMPANY
a An Indian Insurance company includes a company "in which the aggregate holdings of equity shares
by foreign investors, including portfolio investors, do not exceed 49% of the paid-up equity capital of
such Indian insurance company, which is Indian owned & controlled, in such manner as may be
prescribed”.
FOREIGN INSURANCE COMPANY
a Amendment to the Insurance Act also stipulates about foreign companies in India, a foreign insurance
company can engage in reinsurance through a branch established in India. The term “re-insurance”
means the “insurance of part of one insurer’s risk by another insurer who accepts the risk for a
mutually acceptable premium”.
REQUIREMENTS AS TO MINIMUM PAID-UP CAPITAL

38
a The minimum paid-up equity share capital of an Indian insurance company carrying on insurance
business should be `100 crores excluding preliminary expenses incurred in the formation &
registration of company. The insurer may enhance the same in accordance with the provisions of the
Companies Act, 2013, SEBI Act, 1992 & the rules, regulations or directions issued thereunder or any
other law for the time being in force.
a Insurance companies are required to maintain a minimum solvency ratio of 150%. Solvency Ratio is
the excess of assets over liabilities of an Insurance Company. There is a detailed working provided by
IRDAI on the manner of computing Solvency Margin.
AUDIT OF ACCOUNTS OF LIFE INSURANCE COMPANIES
Audit of Accounting of Premiums
Collection of Premium
a The Premium collections are credited to separate bank account & no withdrawals are normally
permitted from that account for meeting general expenditure.
Commission Payable to Agent
a Insurance business is generally solicited by the Insurance agents. The remuneration of agent is paid by
way of commission which is calculated by applying percentage to premium collected by him. Agency
commission contributes towards significant portion of expenses incurred by the Insurance
Commission. Commission is payable towards generation of new business & towards settlement of
renewal premium
a Role of Auditor: The Auditor during his review of Commission paid to Agents should mainly consider
the following:
1. Review the system established by the Insurer with respect to calculation of commission to eligible
agents accurately & processing the same in timely manner.
2. Review the commission payment system is in sync with the premium collection system.
3. Check whether commission paid is within the limit prescribed under Insurance Act.
4. Check whether commission is clawed-back on the cancelled policies.
5. Check the completeness of commission processing system.
Special Aspects of Auditing

in an Automated Environment
ENTERPRISE RISK MANAGEMENT
a Integrated Framework expands on Internal Control, providing a more robust & extensive focus on the
broader subject of enterprise risk management. While it is not intended to & does not replace the
internal control framework, but rather incorporates the internal control framework within it,
companies may decide to look to this enterprise risk management framework both to satisfy their
internal control needs & to move toward a fuller risk management process.
39
ISO 31000:2008
a The ISO 31000:2008 is a Risk Management Standard published by the International Organisation for
Standardisation & provides guidelines on managing risk faced by organisations.
a The application of these guidelines can be customised to any organisation & its context. It also
provides a common approach to managing any type of risk & is not industry or sector specific & can
be used throughout the life of the organisation & can be applied to any activity, including decision
making at all levels.

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CA Final Audit – Highlights for May 2021 Exams

GOING CONCERN & AUDIT REPORT – SA 570

CA Final Audit – Highlights for May 2021 Exams

RELATIONSHIP BETWEEN EMPHASIS OF MATTER PARAGRAPHS & KEY

THREATS, EVALUATION OF THREATS & SAFEGUARDS

MEMBERS WHO ARE DEEMED TO BE IN PRACTICE [SECTION 2(2)]

 Working capital management*

MEMBER IN PRACTICE PROHIBITED FROM USING A DESIGNATION OTHER

MAINTENANCE OF BRANCH OFFICES (SECTION 27)

CLAUSE (2) OF PART 1 OF FIRST SCHEDULE

CLAUSE (3) OF PART 1 OF FIRST SCHEDULE

Advertisements  A member is permitted to issue a classified advertisement in the journal/

CA Final Audit – Highlights for May 2021 Exams

Guidelines for posting the particulars on Website

ONLINE THIRD PARTY PLATFORMS

PUBLICATION OF NAME OR FIRM NAME BY CAS IN THE TELEPHONE OR

APPLICATION BASED SERVICE PROVIDER AGGREGATORS

CA Final Audit – Highlights for May 2021 Exams

SPECIALISED DIRECTORIES FOR LIMITED CIRCULATION

CLAUSE (7) OF PART (I) OF FIRST SCHEDULE

CLAUSE (8) OF PART (I) OF FIRST SCHEDULE

CA Final Audit – Highlights for May 2021 Exams

CA Final Audit – Highlights for May 2021 Exams

Communication in  A Communication is mandatorily required for all types of Audit/Report where

CLAUSE (10) OF PART (I) OF FIRST SCHEDULE

CLAUSE (11) OF PART (I) OF FIRST SCHEDULE

CLAUSE (12) OF PART (I) OF FIRST SCHEDULE

CA Final Audit – Highlights for May 2021 Exams

CLAUSE (4) OF PART (I) OF SECOND SCHEDULE

of tenure as of the said Company.

CLAUSE (9) OF PART (I) OF SECOND SCHEDULE

CA Final Audit – Highlights for May 2021 Exams

CHAPTER VII – APPOINTMENT OF AN AUDITOR IN CASE OF NON-

CHAPTER X – APPOINTMENT OF AN AUDITOR WHEN HE IS INDEBTED TO

CHAPTER XI – DIRECTIONS IN CASE OF UNJUSTIFIED REMOVAL OF

CHAPTER XIII – GUIDELINES ON TENDERS

CHAPTER XIV – UNIQUE DOCUMENT IDENTIFICATION NUMBER (UDIN)

CHAPTER XVI – LOGO GUIDELINES

CHAPTER XVII – GUIDELINES FOR CORPORATE FORM OF PRACTICE

CA Final Audit – Highlights for May 2021 Exams

CA Final Audit – Highlights for May 2021 Exams

CA Final Audit – Highlights for May 2021 Exams

Audit Committee & Corporate

CA Final Audit – Highlights for May 2021 Exams

Audit under Fiscal Laws

APPLICABILITY OF TAX AUDIT

CA Final Audit – Highlights for May 2021 Exams

CA Final Audit – Highlights for May 2021 Exams

withdrawal of additional depreciation on account of opting for taxation u/s 115BAA* is

CA Final Audit – Highlights for May 2021 Exams

CA Final Audit – Highlights for May 2021 Exams

Audit of Non Banking

 Securitisation & Reconstruction Companies

Peer Review & Quality Review

Standards) Rules, 2015, as amended from time to time;

▪ Public Sector or Private Sector &/or Foreign Banks

OBLIGATIONS OF THE PRACTICE UNIT

CA Final Audit – Highlights for May 2021 Exams

a Other relevant legal & regulatory requirements.

CA Final Audit – Highlights for May 2021 Exams

frequent interval &/or select more than 3 audit engagements.

ACTIONS THAT MAY BE RECOMMENDED BY THE QRB

CA Final Audit – Highlights for May 2021 Exams