Chapter 1 "Quality Control and Engagement Standards"

Chapter 1 “Quality Control and Engagement Standards”
SQC – 1 “Quality Control for Firms that Perform Audits & Reviews of Historical Financial Information, and Other
Assurance & Related Services Engagements”
All firms to have system of quality control that provides reasonable assurance that: (a) Firm & personnel comply with professional standards,
regulatory & legal requirements, and (b) Reports issued by firm or partners are appropriate in the circumstances.
Leadership Ethical Independence Client Human Resources Engagement Monitoring

Acceptance/Continuance Performance
Responsibilities for Q. C. requirements
(a) Promote internal Establish policies Policies & procedures should Establish policies/ Establish policies Establish policies / Establish
enable: procedures to
culture w.r.t.: & procedures to to / procedures to Policies &
• Communication of procedures reasonable assure
• essential of quality reasonable assure independence requirements reasonable assure that reasonable assure w.r.t.: procedures to
to personnel & others. • Compliance with
in engagements. that Firm & reasonable
• Identification of clients are accepted/ that:
professional
• Compliance with personnel comply circumstances threatening assure that QC
independence. continued only where: • Firm has standards.
professional with relevant sufficient • Compliance with policies/
• Take appropriate action for • Client integrity has
standards, ethical elimination of threats / laws/ regulations. procedures are:
personnel with
requirements of withdrawal from been considered. • Engagement
regulatory / legal capabilities, • Relevant.
engagement. partner issues
requirements. 1. Integrity. • Resolution of breaches of
• Firm is competent • Adequate.
competence & reports that are
2. Objectivity. independence. to perform appropriate in the
• Issue of reports commitment to • Operating
Maintenance of independence circumstances.
appropriate in 3. Professional of personnel engagement w.r.t. effectively.
ethical Important aspects
competence & • Engagement partners to
circumstances. capability, time & principles of engagement • Complied
provide firm with relevant
(b) Require CEO/ due care. performance
information about client. resources. & with in
• Prompt notification of • Supervision.
managing partner to 4. Confidentiality. practice.
threats to independence. • Firm can comply • Responsibility • Review.
assume ultimate 5. Professional • Accumulation & • Consultation.
with ethical of engagement
responsibility for QC. behaviour. communication of relevant • Differences of Compiled by:
information to appropriate requirements. partner clearly opinion. Pankaj Garg
(c) Recognise & reward personnel. • Engagement Q. C.
defined & for students of
high quality work. These Charts are protected under Copyright and for students use only. Any Commercial review. CA - Final
communicated
use of these charts by anyone may attract Consequences under Copyright Act. • Engagement Audit
to him/ her. documentation.
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SA 200 (Revised) “Overall Objectives of the Independent Auditor & Conduct of audit in accordance with SAs
(a) To obtain reasonable assurance about whether the F. S. as a whole are free from material misstatement, whether due to fraud or error, thereby enabling the
auditor to express an opinion on whether the F.S. are prepared, in all material respects, in accordance with an applicable FRF.
(b) To report on the F.S. and communicate as required by the SAs, in accordance with the auditor’s findings.
Aspects to be considered by Auditor while performing Audit

Ethical Professional Professional Judgment Sufficient Appropriate Conduct of Audit in Other Explanation
Requirements Skepticism audit Evidence accordance with SAs
• Comprise Code of Attitude that includes a The application of relevant • Sufficiency refers to • The auditor shall Scope of Audit
Ethics issued by questioning mind, training, knowledge and quantum and comply with All SAs • To examine whether the F.S. are
ICAI including being alert to experience, Appropriateness relevant to the audit. prepared in accordance with FRF.
independence. conditions which may • within the context
refers to quality. • Compliance with SA • The auditor’s opinion does not assure,
indicate possible provided by auditing,
• The fundamental • Purpose: To reduce is to be specified in the future viability of the entity nor
misstatement due to accounting and ethical
principles are: audit risk to an Audit report only in the efficiency or effectiveness with
error or fraud, and a standards,
1. Integrity acceptably low level case of actual which mngt. has conducted the affairs.
critical assessment of • in making informed
2. Objectivity and thereby enable compliance. Preparation of F.S.
audit evidence. decisions about the
3. Professional the auditor to draw • To achieve overall • is the duty of Mngt. /TCWG.
courses of action
competence & reasonable objectives of audit, • Duty of management also includes to
due care Alertness is required • that are appropriate in conclusions on which use the objective make accounting estimates and
4. Confidentiality, w.r.t. the circumstances of the to base the auditor’s stated in Individual selection and application of
& 1. Contradictory audit audit engagement. opinion. SAs. appropriate accounting policies.
5. Professional evidence. • Audit Risk: Risk that • In case Entire SA is
behaviour 2. Reliability of It is required w.r.t.: the auditor expresses
Inherent Limitations for an audit
• Materiality & audit risk. not relevant due to
documents. (a) Nature of Financial reporting:
• Independence an inappropriate audit non-existence of
• NTE of audit procedures. involves judgment by Mngt. based
comprises both 3. Conditions opinion when the F.S. prescribed
indicating possible • Evaluating sufficiency & on facts and circumstances.
independence of are materially conditions, comply
frauds. appropriateness of audit (b) Nature of audit Procedures:
mind and misstated. with relevant
procedures. directed towards obtaining
independence of 4. Circumstances • Audit Risk is a requirements.
requiring audit • Evaluating management reasonable assurance.
appearance. function of the RMM • In case of failure to
procedures in judgment in applying (c) Balance between benefit and
and detection risk. achieve an objective
Compiled by: Pankaj addition to those applicable FRF. cost: user expectation to get AR
determine the need within a reasonable period and at
Garg for students of CA suggested in SAs. • Drawing conclusions
of modified opinion reasonable cost.
- Final Audit based on audit evidence.
or withdrawal.

SA – 210 (Revised) – “Agreeing the Terms of Engagement”
Objective of Auditor: To accept or continue an audit engagement only when the basis upon which it is to be performed has been agreed with the client.
Agreeing the terms of audit Engagement
At the Beginning of Audit During the Course of Audit
Initial audit Engagement Recurring Audit Mngt. request for changes in terms
Limitations Imposed by mngt. No Limitations Imposed by Mngt. Determine its effect on Level of
Determine requirements w.r.t.:
Assurance & reasonable
(a) Revision of terms of Engagement; &
Do not accept unless required Ascertain existence of Preconditions Justification
by law (b) Remind the entity of existing terms
Preconditions for an audit Exist Not Exist Required Not Required Auditor Satisfied Not Satisfied
1. Determine whether the FRF is
acceptable.
2. Obtain agreement of mngt that it Accept Audit Discuss matter Send New No Further Duty Record New Do not
with Mngt. Engagement Letter Terms in accept the
understands its responsibilities for:
Engagement changes
(a) Preparation of F.S. Letter
(b) Exercising necessary Internal
Controls to enable the Do not accept audit in case of: CIRCUMSTANCES REQUIRING REVISION IN TERMS Mngt. not
preparation of F.S. that are free • Indications that the entity misunderstands the objective and permit the
(a) Unacceptable FRF
from material misstatements. scope of the audit. auditor to
or • Revised or special terms of engagement.
(c) To provide the auditor: continue
• Access to all relevant info. (b) Mngt. does not agree with • Recent change of senior management.
• Significant change in ownership. Withdraw &
• Additional info that auditor responsibilities
• Significant change in nature or size of the entity’s business. Report to
requests from mngt.
• Change in legal or regulatory requirements. appropriate
• Unrestricted access to persons
Compiled by: Pankaj Garg for • Change in FRF adopted in the preparation of the F.S. authority
within the entity.
students of CA - Final Audit • A change in other reporting requirements.

SA – 220 (revised) “Quality Control for an audit of F.S.”
Objective: Implement QC Policies that provide Reasonable Assurance that audit complies with professional standards and audit report issued is appropriate
Leadership Ethical Independence Acceptance / Continuance Assignment of Engagement Performance Monitoring

Responsibilities
Requirements of Client relationship Engagement
Team
EP should EP to remain alert • Be satisfied that EP to be satisfied 1. Direction, Supervision and Obtain
performance: reasonable
emphasize the for evidence of Form a conclusion on appropriate procedures that ET &
• EP shall take the responsibility for
compliance with Auditor’s Expert assurance that
ET the following: non-compliance regarding client acceptance directions, supervision & performance
applicable independence not part of ET has firm’s policies /
/ continuance have been of audit engagement in compliance
• Compliance with relevant ethical requirements procedures
appropriate with standards & regulatory
with requirements by ET followed. requirements, &. relating to QC are
Obtain relevant competence &
through: • Determine whether capabilities to: • to make an appropriate AR. relevant,
professional
information from Firm 2. Reviews: adequate, and
Standards and • Inquiry. conclusions reached are ➢ Perform audit EP shall take the following
operating
appropriate. engagement in responsibilities:
legal • Observation. effectively.
Identify & Evaluate a. Reviews are being performed in
requirements. circumstances & accordance accordance with policies / procedures.
If there is an with b. Be Satisfied that SAAE has been Consider:
• Compliance
Relationship that threatens If EP obtains information
indication of non- independence that would have caused firm professional obtained to support the conclusions • Results of
with firm’s reached and AR to be issued through
compliance with to withdraw the engagement, standards and firm’s
• Review of Audit Documentation.
Q.C. Policies. Evaluate information on communicate information regulatory or
relevant ethical • Discussion with ET monitoring
• Issuance of identified breaches. promptly to firm legal 3. Consultation:
requirements, EP process.
requirements, EP shall undertake consultation
appropriate
should: • wherever required. • Whether
audit report. Determine if these Examples of Information and
• Ensure its implementation
• Consult others in threaten independence ➢ Enable an AR deficiencies
• Ability to raise
1. Integrity of Principal 4. Engagement Quality Control Review:
the firm. Owners, Mngt & TCWG that is required in case of listed entities. noted may
concerns Take appropriate action
• Determine 2. Competency of ET to appropriate in Matters to be evaluated by EQCR affect the
without fear. to eliminate such threats • Discussion of significant matters with
appropriate perform engagement. the audit
ET.
• Quality is or
3. Availability of necessary circumstances.
action. • Review of FS & proposed audit report. engagement.
essential & capabilities, including time • Review of selected audit
Promptly report & resources. documentation
indispensable Compiled by: inability to take 4. Compliance with relevant • Evaluation of conclusions reached.
in engagement Pankaj Garg appropriate action to • Considering whether proposed audit
ethical requirements.
report is appropriate.
performance. for students of firm. 5. Significant matters that
CA - Final 5. Differences of Opinion: follow the
arises during the current or
firm’s policies & procedures for dealing
Audit previous audit engagement. with and resolving differences of
opinion.

SA – 230 (Revised) – Audit Documentation
General concepts Form, Content & Extent of Specific Documentation Retention Ownership
Documentation Period
• Documentation is the
Meaning: Record of: Auditor shall prepare audit documentation property of the
• Audit procedures performed that is sufficient to enable an experienced Compiled by:
7 Years from Auditor.
• Relevant audit evidence auditor to understand:
Pankaj Garg
• May at his discretion
date of Audit
obtained, & for students of
(a) NTE of the audit procedures; Report make portions of or
• Conclusions reached CA - Final
extracts from
(b) Results of audit procedures performed, Audit
Purpose: includes the following: documentation
& audit evidence obtained;
• Assist in Planning and available to client.
(c) Significant matters arising during the
performance of Audit. Documentation of Documentation of Documentation of
audit and the conclusions reached
• Direction, supervision & Discussion Departure from a matters arising after the
Review of work. thereon, significant professional
relevant requirement Date of Auditor’s Report
• To fix accountability. judgments made in the reaching those
• Record for future reference. conclusions.
• Significant • Reasons for the • Circumstance
• Quality control review and Factors affecting form, content & extent
Matters departure. encountered.
inspections 1. The size and complexity of the entity. Discussed with • Alternative • New or additional
• Conduct of external
2. The nature of the audit procedures to be Mngt. And procedures procedures
inspections.
performed. TCWG. performed. performed, audit
Nature documentation must 3. Identified RMM. • When and with evidence obtained,
provide for: 4. Significance of audit evidence obtained. whom the conclusions reached,
These Charts are
• Sufficient and appropriate 5. Nature & extent of exceptions identified. discussion took protected under and their effect on the
record of the basis for 6. Need to document a conclusion or the place. Copyright and for auditor’s report.
auditor’s report. basis for a conclusion not readily • How the auditor students use only. Any • When and by whom
determinable from the documentation of addresses the Commercial use of these the changes to audit
• Evidence that the audit was
inconsistency (if charts by anyone may documentation were
planned and performed in the work performed or audit evidence
any detected attract Consequences made and reviewed.
accordance with SAs & other obtained.
during under Copyright Act.
regulatory requirements. 7. The audit methodology and tools used.
discussion)

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

Meaning and Nature of Fraud
Characteristics of Fraud
Meaning: Intentional Act involving use of deception to • Incentive or pressure to Commit Fraud: Primary responsibility To obtain reasonable assurance
for prevention & that F.S. as a whole are free from
obtain an unjust or illegal advantage. Arises when mngt is under pressure to material Misstatements.
achieve an unrealistic target. detection of fraud rests
Auditor is concerned with Fraud that causes • Perceived opportunity to do so: with Mngt and TCWG
Arises when an individual believes that Maintain an attitude of
Material Misstatement.
internal control can be overridden. To ensure prevention of Professional Skepticism
Misstatement may result from: • Rationalization to do so: fraud Mngt. must have a
A Fraudulent Financial Reporting Arises when an individual possesses an commitment to create a Circumstances indicate existence
1. Recording fictitious journal entries to attitude or character that allows them culture of honesty and of material Misstatement
manipulate operating results.
knowingly and intentionally to commit a
2. Inappropriate assumptions. Ethical behaviour.
3. Changing judgments to estimate account dishonest act.
balances. Consider whether such a
4. Omitting, advancing or delaying recognition of Risk associated for non-detection of material misstatements misstatement is an indication
events and transactions occurred during the of Fraud. If Fraud identified:
• Due to Inherent limitations there is always an unavoidable risk of material
year.
5. Concealing facts that affect the amount misstatement in F.S. due to Fraud.
recorded in F.S. • Risk of non-detecting a material misstatement resulting from fraud is Communicate to Mngt. &
6. Engaging in Complex Transactions that are higher than the risk of non-detecting one resulting from error. TCWG (also to Regulatory &
structured to misrepresent the financial • Risk of Material Misstatements due to Management Fraud is higher than Enforcement authorities, if
position or financial performance.
7. Altering records relating to significant due to Employee Fraud. required by Law)
transactions.
B Misappropriation of Assets Conditions or events which increases risk of fraud or error Auditor unable to complete
1. Embezzling receipts. 1. Discrepancies in Accounting Records: arises due to improper recording, the engagement.
2. Stealing physical assets. unauthorised transactions, last minute adjustments.
3. Causing an entity to pay for goods and services
2. Conflicting or missing evidences: missing documents, altered Consider the Possibility of
not received.
documents, non-availability of original documents, unexplained items etc. withdrawing.
4. Using entity assets for personal use.
3. Unusual relationship between auditor & mngt: undue time pressure,
Compiled by: Pankaj Garg for students of unusual delay in providing info, unwillingness to address weaknesses in IC. If withdraw:
4. Others: Mngt not allowing auditor to meet with TCWG, varied accounting • Discuss with Mngt & TCWG, &
. CA - Final Audit
• Report to appropriate persons
policies, frequent changes in accounting estimates.

SA 250 (Revised) “Consideration of Laws and Regulations in an Audit of F.S.”
Management Responsibilities Auditor’s Responsibilities
Basic Responsibilities Specific Auditor Indicators considered by

Reporting responsibilities
Responsibilities w.r.t. Auditor
Procedure in
Obtain general
case any Non-
understanding of L&R having Other L&R that do not To TCWG Auditor Report Regularity &
Compliance is
• Legal & Regulatory direct effect on affect amount and Enforcement Authorities
Framework applicable determination disclosures in F.S. but identified /
• Compliance by Entity of material compliance with which Suspected Material Unable to If required by Law
with that Framework. amount and may be fundamental to Effect on Conclude
due to • Investigations by regulatory
disclosures in operating aspects. F.S.
Compliance of L&R is duty of
Limitation bodies.
F.S.
Mngt & TCWG and may be imposed by • Payment of fines or penalties.
performed through: • Payments for unspecified
Q/A services to consultants,
1. Monitoring legal requirements • Obtain
& ensuring that operating related parties etc.
procedures are designed to
obtain SAAE Perform limited understanding of • Excessive Sales commissions
procedures: Mngt. Circumstances
meet these requirements. the Act. or agent’s fees.
2. Instituting & operating • Inquiring of Mngt; & • Purchasing at prices
• Circumstances in
appropriate systems of IC. • Inspecting Q/D Consider the significantly above or below
which it is
3. Developing, publicising and Correspondence with Effect market price.
following a code of conduct. to ensure relevant Licensing / occurred. • Unusual payments in cash.
4. Ensuring employees are compliance • Evaluate possible • Unusual payments towards
Regulatory authority
properly trained & understand legal and retainership fees.
effects on F.S.
the code of conduct. • Matters involving non- • Payments without proper
5. Monitoring compliance with • Discuss with exchange control
to identify instances of compliance.
code of conduct & take actions Mngt. & TCWG documentation.
to discipline employees who noncompliance. • If TCWG is involved,
• Obtain legal • Existence of an information
fail to comply with it. communicate to Higher Level,
system which fails, to provide
6. Engaging legal advisors to advice wherever if any an adequate audit trail or
assist in monitoring legal required • Otherwise, obtain Legal Advice sufficient evidence.
Obtain Written Representation that all
requirements.
• Unauthorised transactions or
7. Maintaining a register of instances of non-compliance or These Charts are protected under Copyright and for students use improperly recorded
significant L & R with which the suspected non-compliance have been only. Any Commercial use of these charts by anyone may attract transactions.
entity has to comply. disclosed to auditor. Consequences under Copyright Act. • Adverse media comment.

SA 260 (Revised) – “Communication with TCWG”
Meaning of Auditor’s Responsibilities Communication Process Factors affecting Mode of

Management & Communication
TCWG
TCWG: Persons with Determine the Matters to be communicated • Communication may be • Size, operating structure,
responsibility for appropriate Oral /written control environment, & legal
overseeing the (a) Auditor’s responsibilities in relation to F.S. Detail/Summarised structure of entity.
person to whom
Audit. Structured /Unstructured • In the case of an audit of
strategic directions & communication
(b) Planned scope & timing of audit • Should be in writing special purpose F.S., whether
obligations related to is to be made.
(c) Significant findings from audit w.r.t. the auditor also audits the
Accountability. when oral
• Accounting Policies entity’s general-purpose F. S.
Management: Person communication is not
• Accounting Estimates • Requirements of respective
with executive • F. S. Disclosures adequate. law specifying written
responsibility for • Significant difficulties encountered • Communication should communication with TCWG in
Compiled by:
during the audit. be on timely basis a prescribed form.
conduct of entity’s Pankaj Garg Examples of Significant difficulties
for students of 1. Significant delay in providing info • Expectations of TCWG,
operation
CA - Final 2. Unnecessarily brief time to complete including arrangements made
Audit the audit. Evaluate adequacy of for periodic meetings or
3. Extensive unexpected effort to obtain communication for the communications with the
SAAE. purpose of the audit. auditor.
• Determine the need to communicate with
4. Unavailability of Expected • The amount of ongoing
Governing body, if communicates with information. contact and dialogue the
subgroup. 5. Restriction imposed by management. If not adequate, evaluate
auditor has with TCWG.
• If all of TCWG are involved in managing the 6. Scope limitation imposed by its effect, on the auditor’s
• Significant changes in the
management assessment of the risks of
entity, and the matter has been membership of a governing
communicated with persons having material misstatement. body.
• Material weakness in I.C.
managerial responsibility, the matters need • Matters discuss with Mngt.
• Other significant Matters. These Charts are protected under Copyright and for students
not be communicated again to the same
use only. Any Commercial use of these charts by anyone may
persons in their governing role. (d) Statement w.r.t. compliance of ethical
attract Consequences under Copyright Act.
requirements regarding independence.

SA-265 “Communicating Deficiencies in Internal Control to TCWG & Management
Meaning of deficiency Auditor’s Responsibilities

in internal control
(a) Inability of I.C to prevent Identification of deficiencies in Communication of deficiencies in Internal Control
detect & correct misstatement; Internal Control
or
Mode of communication Content of communication
(b) Absence of control necessary
Determine whether on the basis of
to prevent, detect & correct
work done any deficiency in In writing
misstatements internal control is identified
Determine whether individually or To TCWG To Mngt. (a) Description of deficiencies

Compiled by: Pankaj Garg for
in combination they constitute (b) Explanation of their potential
students of CA - Final Audit
significant deficiencies effect
(c) Sufficient information to explain
Indicators of Significant Deficiencies Significant Significant • that purpose of the audit is to
deficiencies deficiencies express an opinion
1. Evidence of ineffective aspects of control environment.
and other • I. C. is evaluated to design
2. Entity’s Risk assessment process – Absent/ineffective. deficiencies further audit procedures
3. Ineffective response to identified significant Risks.
4. Correction of prior period misstatements arising due to fraud/error.
These Charts are protected under Copyright and for students use only. Any
5. Management inability to oversee F.S. Preparation.
Commercial use of these charts by anyone may attract Consequences under
6. Misstatements detected by the auditor’s procedures were not Copyright Act.
prevented, or detected and corrected by the entity I.C.

SA 299 (Revised) “Joint Audit of Financial Statements”
A joint audit is an audit of F.S. of an entity by two or more auditors appointed with the objective of issuing the audit report. Such auditors
are described as joint auditors.
Audit Planning and Allocation of Work Responsibility of Joint Auditors Audit Conclusion and Reporting
1 Development of Audit Plan • In respect of audit work divided among the joint 1 Reporting Requirements
In developing the joint audit plan, joint auditors shall: auditors, each joint auditor shall be responsible • Joint auditors are required to issue
a. Identify division of audit areas and common audit areas only for the work allocated to such joint auditor common audit report.
amongst the joint auditors that define the scope of the work of including proper execution of the audit procedures. • However, in case of any disagreement with
each joint auditor; regard to the opinion or any matters to be
• All joint auditors shall be jointly & severally
b. Ascertain the reporting objectives of the engagement to plan covered by the audit report, they shall
responsible for:
the timing of the audit and the nature of the communications express their opinion in a separate audit
required; a. audit work which is not divided among the joint
report.
c. Consider & communicate among all joint auditors the factors auditors and is carried out by all joint auditors; • A joint auditor is not bound by the views
that, in their professional judgment, are significant in directing b. decisions taken by all the joint auditors under of the majority of the joint auditors
engagement team’s efforts; audit planning in respect of common audit regarding the opinion or matters to be
d. Consider the results of preliminary engagement activities. areas concerning the NTE of the audit covered in the audit report.
e. Ascertain the NTE of resources necessary to perform the procedures to be performed by each of the joint • In case of separate reports, the audit
engagement. auditors. report(s) issued by the joint auditor(s)
2 Allocation of Work c. matters which are brought to the notice of the shall make a reference to the separate
• Joint auditors should, by mutual discussion, divide the audit joint auditors by any one of them and on which audit report(s) issued by the other joint
work among themselves. there is an agreement among the joint auditors; auditor(s). Such reference shall be made
• The division of work would usually be in terms of audit of under the heading “Other Matter
d. examining that the F.S. of the entity comply
identifiable units or specified areas. Paragraph” as per SA 706.
with the requirements of the relevant statutes;
• In some cases, due to the nature of the business of the entity 2 Review of work by other joint auditor
e. presentation and disclosure of the F.S. as
under audit, such a division of work may not be possible. In • Each joint auditor is entitled to assume
such situations, the division of work may be with reference to required by the applicable FRF;
that the other joint auditors have carried
items of assets or liabilities or income or expenditure. f. ensuring that the audit report complies with out their part of the audit work and the
• Certain areas of work, owing to their importance or owing to the requirements of the relevant statutes, the work has actually been performed in
the nature of the work involved, would often not be divided applicable Standards on Auditing and the other accordance with the SAs.
and would be covered by all the joint auditors. relevant pronouncements issued by ICAI. • It is not necessary for a joint auditor to
Documentation of Work Allocated • It shall be the responsibility of each joint auditor to review the work performed by other joint
• The work allocation document shall be signed by all the joint determine the NTE of audit procedures to be auditors.
auditors & same shall be communicated to TCWG. applied in relation to the areas of work allocated to • Each joint auditor is entitled to assume
• Documentation of allocation of work helps in avoiding any said joint auditor. that the other joint auditors have brought
dispute or confusion which may arise among the joint auditors to said joint auditor’s notice any departure
• It is the individual responsibility of each joint
regarding the scope of work to be carried out by them. from applicable FRF or significant
auditor to study and evaluate the prevailing system
• Communication of allocation of work to the entity helps in observations that are relevant to their
avoiding any dispute or confusion which may arise between of internal control and assessment of risk relating responsibilities noticed in the course of
the entity and the joint auditors. to the areas of work allocated to said joint auditor. the audit.

SA 300 (Revised) – Planning in an audit of Financial Statements
Importance of Planning Preliminary Engagement Activities Planning Activities
1. To devote appropriate attention to (a) Procedures required by SA -220 w.r.t. Establishment of Audit Strategy Development of
important areas. continuous of Client relationship. Audit Plan.
2. Identify and Resolve potential (b) Evaluate compliance with Ethical so as to set the scope, timing &
problems on timely basis. direction of the audit
Requirements (SA-220) • NTE of RAP (SA-
3. Properly organized & managed Audit. Factors to be considered
(c) Understanding of terms of 315)
4. Assists selection of ET members with • Characteristics of Engagement.
Engagement (SA-210) • Reporting Objectives. • NTE of furthers
requisite capabilities and competence.
5. Co-ordination of work done by • Significant factors to direct ET Audit Procedures
efforts.
auditors of components and experts. Planning – A Continuous Process (SA-330)
• Result of Preliminary
6. Facilitating direction and supervision • Other Planned
Engagement Activities.
of Engagement team. Audit Procedure.
• NTE of Procedures to be
performed.
Planning is not a discrete phase of an audit but rather a continuous process. It begins shortly
CHANGES TO PLANNING DECISIONS
after completion of previous audit & continues until completion of current audit engagement.
• Auditor shall update & change overall audit strategy and audit
It includes consideration of timing of certain activities & audit procedures that need to be
plan as necessary during the course of the audit.
completed prior to performance of further audit procedures. E.g., planning includes the need to • Audit Strategy and Audit Plan may need to be modified as a result
consider, prior to the auditor’s identification and assessment of the RMM, such matters as: of unexpected events, changes in conditions, or the audit evidence
1. The analytical procedures to be applied as risk assessment procedures. Compiled by: obtained from the results of audit procedures.
• Based on the revised consideration of assessed risks, auditor
2. Obtaining a general understanding of the legal and regulatory framework. Pankaj Garg
for students of need to modify the NTE of further audit procedures. This may be
3. The determination of materiality.
CA - Final the case when information comes to the auditor’s attention that
4. The involvement of experts. Audit differs significantly from the information available when the
5. The performance of other risk assessment procedures. auditor planned the audit procedures.

SA 315 (Revised) – Identifying and Assessing the Risk of Material Misstatements through understanding the Entity and Its Environment .
Risk Assessment Understanding of Entity & its Environment Risk in CIS Environment
Procedures
Risk imposed by IT/CIS Areas to be examined
Auditor shall obtain understanding of:
• Procedures to obtain an • Reliance on programs that process • Program Development &
1. Relevant Industry, Regulatory & other External
Maintenance.
understanding of entity Factors including FRF. inaccurate data or do inaccurate
• System Software Support.
& its environment 2. Nature of Entity including. processing.
• Operations Including processing
including I.C. • Its Operations • Unauthorized access to data that of data.
• Ownership & Governance structure
• To Identify and assess may result in destruction of data. • Physical CIS security.
• Types of investments
the RMM at F.S. and • Unauthorized changes to data in • Control over access to
• The way Entity is structured & how it is financed
Assertion Level. Master files. specialized CIS utility programs.
3. Selection & Application of Accounting Policies &
reasons for changes thereto. • Unauthorized changes to systems.
1. Components
Control Environment
of Internal Control
It Includes 4. Entity objectives & Strategies & those business • Failure to make necessary changes. • Communication of Ethical values.
a. Inquiry of mngt. & others risks that may result in increase RMM. 2. Risk Assessment Process
• Potential loss of data
b. Analytical Procedures 5. Measurement & review of Financial Performance. • Identify Business Risk
• Inability to access data as required. • Estimating significant Risks
c. Observation & Inspection 6. Internal control relevant to audit.
• Assessing Likelihood of occurrence.
• Deciding response
Identification and Assessment of RMM 3. Information System relevant to FR:
• Classes of transactions
a) F.S. Level: RMM that Assertions evaluated • Accounting procedures
Steps in Risk Risk require special
relate pervasively to Transaction • Occurrence • Accounting records
Assessment consideration
the F.S. as a whole and occurred • Completeness • Financial Reporting Process.
Process: 1. Risk of fraud • Controls over journal entries
potentially affect many during the • Accuracy
assertions. year • Cut-Off • Identify risks 2. Risk related to recent 4. Control Activities relevant to Audit
b) Assertion level for • Classification • Assess & Evaluate significant Economic, • Information processes
classes of Account • Existence Accounting & other • Segregation of duties.
• Rights & Obligations
the identified risks.
Transaction, Account balances at Developments. • Physical controls
Balances & period end • Completeness • Relate identified • Performance Reviews
disclosures: It helps • Valuation & risk to what go 3. Complexity of Transactions.
5. Monitoring of Controls
in determining the NTE Disclosure 4. Transactions with Related • Assess effectiveness of I.C. Performance.
wrong at assertion
of further audit Presentation • Occurrence Parties
& • Completeness level.
procedures necessary 5. Significant Unusual
to obtain SAAE. Disclosures • Classification • Likelihood of
• Accuracy & Valuation Transaction
misstatement.

SA 320 (Revised) “Materiality in Planning and Performing an Audit”
Concept of Materiality Performance Materiality Auditor’s Duties
Materiality is a subject of • The amount set by auditor at (a) Upon establishing the overall audit strategy, the auditor shall
professional judgment and • less than materiality for F.S as a whole determine the materiality for the F. S. as a whole.
discussion presented in FRF (b) Determine the materiality level for specific transactions for
• to reduce to an appropriately low level
which misstatements of lower amount be expected to influence
provides a reference to the auditor in • the probability that the aggregate of the
the economic decisions of users.
determining materiality. uncorrected & undetected misstatement (c) Determine performance materiality for purpose of assessing
If FRF does not include a discussion, • exceeds materiality for F. S. as a whole the RMM and determining the NTE of further audit procedures.
following can be referred:
(a) Misstatements including
omissions expected to influence Revision of Materiality Use of benchmark in determining Materiality
the economic decision of users.

• In event of becoming aware of information A %age is often applied to a chosen benchmark as a starting
(b) Size or nature of misstatement &
that would have caused auditor to have point in determining materiality for the F.S. as a whole.
the surrounding circumstances.
determined a different amount initially,
(c) Common financial information Factors affecting identification of appropriate benchmark
auditor shall revise materiality for the F.S. as a
needs of the users as a group. 1. The elements of the financial statements;
whole & if required, for particular classes of
2. Items on which the attention of the users of the particular
transactions, account balances or disclosures.
entity’s financial statements tends to be focused;
• If the auditor concludes that a lower
3. The nature of the entity, where the entity is at in its life
materiality than that initially determined is
Judgment of materiality provides a cycle, and the industry and economic environment in
appropriate, the auditor shall determine
basis for: which the entity operates;
whether it is necessary to revise performance
(a) Determination of NTE of RAP materiality, and whether the NTE of the 4. The entity’s ownership structure and the way it is
(b) Identifying and assessing RMM. further audit procedures remain appropriate. financed; and
(c) NTE of further audit procedures. 5. The relative volatility of the benchmark.

SA – 330 “Responses to Assessed Risks”
Objective: To obtain Sufficient and Appropriate Audit Evidence about Assessed Risk of Material Misstatement through design and implementing Appropriate Responses
Tests of Controls Substantive Procedures
Procedures designed to evaluate the operating effectiveness of controls in preventing, Procedures designed to detect material misstatements at assertion level.
detecting or correcting material misstatements at assertion level. It comprises of:
a) Test of details (of classes of transactions, Account Balances and
Obtain audit evidences w.r.t. (a) Application of controls (b) Consistency of application Disclosures); &
(c) By whom & by what means they applied Compiled by: Pankaj Garg
b) Substantive Analytical Procedures for students of CA - Final
Evaluate the audit evidences Audit
External Auditor shall consider whether EC procedures are to be

Material weaknesses identified Confirmation performed as substantive audit procedures.
(EC) Factors that may assist the auditor are:
Communicate to Mngt. & TCWG – on timely basis
procedures 1. Confirming party knowledge of Subject Matter.
Special Considerations as 2. Ability or Willingness of intended confirming part to

Factors warranting re-test of
Using Audit Evidence obtained in Interim Period: controls substantive respond.
• Obtain audit Evidence for significant changes 1. Deficient control environment. procedures 3. Objectivity of Intending Party.
subsequent to Interim Period. 2. Deficient monitoring of
controls. Closing • Reconciling F.S. with underlying accounting records.
• Determine the additional Evidence to be obtain for
3. Significant manual element to Process • Examine Material Journal Entries & other adjustments
remaining period.
relevant controls.
Using Audit Evidence obtained during previous made during the course of preparing the F.S.
4. Personnel changes that
audits: Establish Continuing relevance of that evidence significantly affect the Significant Procedures that are specifically responsive to that risk
by determining significant changes subsequent to application of control. Risks needs to be applied
previous audit 5. Changing circumstances that
• Changes occurs: Test the controls in current audit indicate the need for changes
• No Change Occurs: Test the controls once in three in the control.
Timing: When Substantive procedures are applied for interim period, the
audits 6. Deficient general IT-controls.
auditor shall cover remaining period by appropriate procedures

SA 402 (Revised) – Audit Considerations relating to an Entity Using a Service Organisation
Auditor’s Objective Obtaining understanding of services Auditor’s considerations

provided by service Organisation (S.O.)
• Obtain an The user auditor shall obtain an • User auditor shall evaluate the design and implementation of relevant controls of
understanding of understanding of how user entity uses the user entity that relate to the services provided by service organization.
nature & significance • User auditor shall determine whether a sufficient understanding of nature and
services of a service organization in the user
of service provided by significance of services provided by service organization and their effect on the
entity operation, including:
the S.O. and their user entity internal control relevant to the audit has been obtained.
(a) Nature of service provided by the S.O. and • If user auditor is unable to obtain a sufficient understanding from the user entity,
effect on the user’s
entity internal control significance of services to user entity. user auditor shall obtain that understanding from the following procedures:
(b) Nature and materiality of the transactions (a) Obtaining a Type 1 or Type 2 Report, if available.
relevant to the audit,
(b) Contacting the service organization, through the user entity.
sufficient to identify processed or financial reporting processes
(c) Visiting the service organization.
and assess the RMM. affected by service organizations.
(d) Using another auditor to perform procedures that will provide the
• To design and (c) Degree of interaction between activities of necessary information about the relevant controls at the S.O.
perform audit
S.O. and those of the user entity. • If a S.O. uses subservice organisation, the service auditor’s report may either
procedures
(d) The nature of relationship between user include or exclude the subservice organisation’s relevant control objectives
responsive to those
& related controls in the service organisation’s description of its system & in
risks. entity and the service organization.
the scope of service auditor’s engagement. These two methods of reporting
are known as the inclusive method and the carve-out method, respectively.
User Auditor: An auditor who audits and Reports on the financial • If Type 1 or Type 2 report excludes the controls at a subservice
statements of a user entity. organisation, and the services provided by the subservice organisation are
User Entity: An Entity that uses a service organization and whose financial relevant to the audit of the user entity’s financial statements, the user
statements are being audited. auditor is required to apply the requirements of this SA in respect of the
subservice organisation.
Type 1 Report: Report on the description and design of internal controls at
• Nature and extent of work to be performed by the user auditor regarding
a service organization for a specified date.
the services provided by a subservice organisation depend on the nature
Type 2 Report: Report on the description, design and operating and significance of those services to the user entity and the relevance of
effectiveness of controls at a service organisation for a specified period. those services to the audit.

SA 450 “Evaluation of Misstatements Identified during the Audit
Meaning and Causes of Auditor’s Procedures if Misstatements identified

Misstatements
Difference between Accumulate the misstatements other than those that clearly trivial
amounts, classification, presentation

or disclosure of a reported financial Communicate to management & request them to correct. Determine whether any
statement item, revision required in Audit
and Strategy/Plan.
amount, classification, presentation or Management corrects Management refuses
disclosure that is required for the item

Perform Additional Understand the reason for not making
to be in accordance of FRF. Audit Strategy and Audit
Procedures to corrections
Causes of Misstatement Plan require revision if
(a) Inaccuracy in gathering or determine whether
Re-assess the materiality
processing data from which the misstatements Nature of identified
F.S. are prepared; remain. misstatements and the
(b) Omission of an amount or circumstances of their
If material, communicate uncorrected
disclosure; occurrence indicate that
misstatement and their effect on his opinion to
(c) Incorrect accounting estimate
other misstatements may
TCWG with a request that uncorrected
arising from overlooking, or clear
These Charts are exist that, could be material;
misstatements be corrected.
misinterpretation of, facts; and
protected under or
(d) Unreasonable judgments of Copyright and for
Not corrected Aggregate of misstatements
management concerning students use only. Any
accumulated during the
accounting estimates. Commercial use of these
charts by anyone may Obtain a written representation from audit approaches materiality
(e) Inappropriate selection &
attract Consequences management/TCWG w.r.t their believing that determined in accordance
application of accounting policies under Copyright Act. effect of uncorrected misstatements is with SA 320 (Revised).
immaterial.
SA 500 “Audit Evidence”
Meaning and Nature of Auditor’s duties when an information to be used as audit evidence Audit Procedures & Methods
Audit Evidence (A.E.) for obtaining audit evidence
Meaning of A.E. Information prepared using Information Procedures to obtain A.E. Methods to obtain A.E.
Information used by auditor (a) RAP 1. Inspection
work of Management Expert Produced by entity
(b) FAP (Responses): 2. Observation.
In arriving at the conclusion 3. External Confirmations

1 Evaluate Competence, Capability and Obtain A.E. about the • Tests of Control (ToC),
4. Recalculation
Objectivity of the Expert • Substantive
Source of Information for evaluation: 5. Re-performance
On which auditor’s opinion is 1. Tests of Details (ToD)
Accuracy and 6. Analytical procedures
• Personal Experience with previous work.
based. 2. Substantive Analytical
• Discussion with that expert. Completeness of info. 7. Inquiry (Oral/Written)
Nature of A.E. Procedures (SAP)
• Discussion with others. Evaluate whether info
A.E. needs to be • Knowledge of expert’s qualification,
is
memberships, other forms of recognitions.
• Published books or papers.
Reliability of Audit Evidence
Sufficient Appropriate • Auditor’s expert. sufficiently precise
Measure of Measure of 2 Obtain an understating of expert work
and detailed for Compiled by: Pankaj Garg
• Area of Specialty
quantity quality auditor’s purposes.
for students of CA - Final
• Applicable professional standards.
Affected by Relevance & Audit
• Legal & Regulatory Requirements.
• RMM & reliability in • Assumptions and Methods used. (a) External Evidences are considered more reliable than internal evidences.
providing • Nature of Source Data used. (b) The reliability of internal evidence is increased when the related controls,
• Quality of
3 Evaluate the appropriateness of Expert work imposed by entity are effective.
Audit support for
• Finding & Conclusion – Relevance,
(c) Audit evidence obtained directly by the auditor is more reliable than audit
evidences conclusion. Reasonableness & Consistency with other
A.E. evidence obtained indirectly.
• Assumptions and Methods – Relevance (d) Audit evidence in documentary form, is more reliable than evidence obtained
and Reasonableness. orally.
• Source Data – Relevance, Completeness
(e) Audit evidence provided by original documents is more reliable than audit
and accuracy.
evidence provided by photocopies.
SA 501 “Audit Evidence – Specific Considerations for Selected Items”
Inventory – Litigation & Claims – Completeness

Existence & Condition
Auditor is required to identify litigation and claims
by following procedures:
• Inquiry: of Mngt. & others within entity,
General Procedures Special Procedures including in house legal counsel.
• Review – minutes of meetings of TCWG,
When inventory is material to the F.S. 1 Inventory counting conducted at date other than communication between entity & external legal
B/S date counsel.
the auditor shall obtain SAAE Perform audit procedures to obtain audit evidence • Review – legal expenses account.
about whether changes in inventory between the count If management refuses to permit auditor to
regarding existence & condition by communicate with legal counsel / external legal
date and the date of the F.S. are properly recorded.
counsel refuses / auditor unable to collect SAAE
2 Auditor unable to attend Inventory Count by performing alternate procedures
(a) Attendance at physical inventory Make or observe some physical counts on an alternative
counting, unless impracticable, to: date, Modify Opinion in accordance with SA 705
• Evaluate mngt. instructions &

and perform audit procedures on intervening
procedures for recording & Segment Reporting –
transactions
controlling the results of the entity’s
3 Attendance at inventory count is impracticable
Presentation & Disclosures
physical inventory counting; Perform alternative audit procedures to obtain S.A.A.E.
• Observe the performance of regarding existence and condition of inventory. Obtain SAAE regarding presentation & disclosure of segment
management’s count procedures; information in accordance with the applicable FRF by:
(a) Obtaining an understanding of the methods used by
• Inspect the inventory; If it is not possible to do so, modify the opinion in the
management in determining segment information, and
auditor’s report in accordance with SA 705.
• Perform test counts; • Evaluate whether such methods are likely to result in
4 Inventory under custody and control of Third Party disclosure in accordance with the applicable FRF; and
(b) Performing audit procedures over the
Obtain S.A.A.E by performing the following: • Where appropriate, testing the application of such
entity’s final inventory records to (a) Request confirmation from third party. methods; and
determine whether they accurately (b) Perform Inspection/other audit procedure. (b) Performing analytical procedures or other audit
reflect actual inventory count results. procedures appropriate in the circumstances.
SA – 505 “External Confirmation”
The objective of the auditor, when using external confirmation procedures, is to design and perform such procedures to obtain relevant and reliable audit
evidence.
Meaning & Type of E.C. External Confirmation Audit Procedures in Special Circumstances Limited use of –ve
Procedures Request
Mngt. refuses to allow the auditor to send request
Audit Evidence obtained as a direct written As it provides less
Determining the information to
response to auditor from 3rd Party in • Inquire the reasons persuasive evidence
be confirmed.
Paper/Electronic/Other form. • Evaluate the implications on RMM than the positive
Selecting the Appropriate Third • Perform Alternative Audit procedure. Confirmation request.
2 Types Party. • Refusal appears to • Communicate to
be unreasonable TCWG.
+ ve Request - ve request Designing the confirmation Circumstances in
request. • Unable to collect • Determine its effect
Request that 3rd Party Request that 3rd Party
which negative
respond directly to respond directly to audit evidence on Opinion
Sending the request including request may be used
auditor auditor
follow up. Responses to E.C. request as sole substantive
indicating whether it only if it disagrees
agrees or disagrees • Creates Doubt Obtain Further procedure:
With the info in request with the information in Factors to be considered while Evidences
• Low RMM.
or the request designing E.C. request: • Not Reliable Consider its effect on
providing requested • Population consists
• Assertions being addressed. NTE of other procedures
info. of large number of
• Specific identified RMM. • No Response Perform Alternative small, homogeneous
Areas where External Confirmation may be obtained: • Layout and presentation of procedure
(a) Bank balance & Other confirmation from account balances.
request.
bankers • Unable to collect Determine its effect on
• Expectation of low
• Prior Experience of audit.
(b) Account Receivable/Account Payable Balances evidence Opinion
• Method of Communication. exception rate.
(c) Stock Lying with Third Parties
• Exception occurs Investigate to determine • Auditor not aware
(d) Property Title Deed held by third parties • Management Authorization.
(e) Investments Purchased but delivery not taken. misstatement of circumstances
• Ability of confirming party to
(f) Loan from Lenders that 3rd party
provide the requested
(g) Terms of agreement or Transaction with Third Compiled by: Pankaj Garg for students of
information disregard request.
Parties CA - Final Audit

SA – 510 “Initial Audit Engagements – Opening Balances”
Meaning of Initial Audit Engagement: An Engagement in which financial statements for prior period are not audited or were audited by predecessor auditor.
Meaning of Opening balance – A/c balance that exist at beginning of period & also includes disclosures exists at beginning of period.
Audit Procedures Audit Conclusion & Reporting
Opening Balance Consistency of Modification in Opening Balance Consistency of Modification in

Accounting Predecessor Accounting Predecessor Auditor’s
Auditor’s Report
Policies Policies
Report
Balance
• Read most recent F.S. and auditor Obtain SAAE Evaluate the Unable to Contain material Inconsistency Modification remains
report thereon. effect of obtain SAAE misstatements not exists relevant & material for
• Obtain S.A. audit evidence w.r.t. modification properly or Current Period F.S.
existence of any material accounted / Changes not
misstatement by disclosed in properly
Compiled by:
➢ Determining correct b/f of prior current year F. S. accounted or
Pankaj Garg
period closing balance. for students of disclosed
➢ Determining application of CA - Final
appropriate accounting policies. w.r.t. Audit
• If any misstatement detected consistent Modify Current Year

Qualified / Audit Report
perform additional procedures to application
Disclaimer Qualified / Adverse Report accordingly
determine their effect on current or
Period financial statements. Proper
• If misstatement exists in Current accounting & in assessing
These Charts are protected under Copyright and for students use only. Any Commercial
Period F.S. communicate to Mngt & disclosure for RMM in Current use of these charts by anyone may attract Consequences under Copyright Act.
TCWG. changes. period F.S.

SA 520 “Analytical Procedures”
Meaning and Nature of Analytical Procedures Auditor’s Procedures
Evaluation of financial information 1 Determine the suitability of particular substantive analytical procedures (SAPs)
Following factors requires consideration:
through analysis of relationships 1. SAPs more suitable to large volumes of transactions tending to be predictable over time.
2. But suitability of AP influenced by:
among both financial and non-financial data.
• Nature of assertion.
AND
• Auditor’s assessment of APs effectiveness to identify material misstatement.
also encompass such investigation as is necessary of
3. In some cases, unsophisticated predictive models may be useful.
identified fluctuations or relationships that are
inconsistent with other relevant information or that 4. Different types of APs provide different levels of assurance.
differ from expected values by a significant amount. 5. Particular SAP may be considered suitable when Tests of Details are performed on same assertion.
Analytical Procedures 2 Evaluate the reliability of data
Compiled by:
Following factors affects the reliability:
Pankaj Garg
Consideration of Consideration of • Source of the information available. for students of
Comparisons of relationships among
• Comparability of the information available. CA - Final
Financial Information
• Nature and relevance of the information available, and Audit
with comparable Elements of financial
information for prior information • Controls over the preparation of the information
periods. or 3 Develop an expectation of recorded amounts or ratios and evaluate whether the expectation is
or Financial information sufficiently precise to identify material misstatement.
with anticipated results and relevant non- 4 Determine the amount of any difference of recorded amounts from expected values that is
of the entity financial information.
acceptable without further investigation.
or
Auditor’s expectations 5 Investigating Results of Analytical Procedures
or If auditor identified fluctuations or relationships that are inconsistent with other relevant information
Similar industry or differ from expected values by a significant amount, the auditor shall investigate such differences by:
information. (a) Inquiring of management; and
(b) Performing other audit procedures as necessary in the circumstances.

SA – 530 (Revised) “AUDIT SAMPLING”
Meaning & Types of Audit Sampling Sampling Risk Auditor’s Duties
Application of audit procedures to < Risk that auditor’s conclusion based on a sample may be different from 1 Sample design, size and selection of items
100 % of items within a population. the conclusion if the entire population were subjected to same audit (i) While designing, consider the purpose of
Types of Sampling procedure. the audit procedure and the
characteristics of the population.
(a) Statistical Sampling: An
(ii) Sample size should be sufficient to
approach to sampling that has the Compiled by:
Pankaj Garg reduce sampling risk to an acceptably
following characteristics: Test of Tests of details
for students of low level.
• Random selection of the controls (iii) Selection should be in such a way that
CA - Final
sample items; and Audit each sampling unit in the population has
a chance of selection.
• The use of probability
Controls are Material Affects audit 2 Perform audit procedures
theory to evaluate sample
misstatements does effectiveness and is (i) Perform audit procedures, appropriate
results, including more effective
to the purpose, on each item selected.
than they not exist when in more likely to lead to
measurement of sampling (ii) If the audit procedure is not applicable
actually are fact it does. an inappropriate to selected item, perform the procedure
risk.
audit opinion. on a replacement item.
(b) Non-Statistical Sampling: A
(iii) If the auditor is unable to apply designed
sampling approach that does not
audit procedures/alternative procedure
have characteristics of random Controls are Material Affects audit to a selected item, consider that item as
selection and use of probability efficiency as it would a deviation.
less effective misstatement exists
theory is considered non- than they when in fact it does lead to additional 3 Evaluation of results of audit sampling
statistical sampling. work to establish To determine whether the use of audit
actually are not
that initial sampling has provided a reasonable basis
conclusions were for conclusions about the population that
incorrect. has been tested.

SA – 540 (Revised) “Auditing Accounting Estimates (AE), including Fair Value Accounting Estimates and Related Disclosures”
Objective of Auditor: To obtain SAAE whether (a) AE including Fair Value AE are reasonable; and (b) related disclosures in the F.S. are adequate.
Compiled by:
Meaning & Nature of Auditor’s Duties
Pankaj Garg
Accounting Estimates for students of
CA - Final
Audit
• Accounting estimate: Risk Assessment Procedures & Responses to Assessed Risks
“An approximation of a monetary
Related Activities
amount in the absence of a Based on assessed RMM, auditor shall determine:
precise means of measurement”. • Whether management has appropriately applied the applicable FRF.
This term is used for an amount • Whether the methods are appropriate and have been applied consistently.
1. Obtain an understating of:
measured at fair value where
there is estimation uncertainty. → Requirements of applicable FRF
• Estimation Uncertainty: → How management identifies
transactions, events and General Responses to Specific Responses to Significant Estimation
The susceptibility of an
conditions that give rise to need Assessed RMM Uncertainties
accounting estimate & related
for accounting estimates. 1. Determine whether events 1. Evaluate the following:
disclosures to an inherent risk of
→ Estimation making process occurring up to date of • How management has considered
precision in its measurement.
adopted by mngt. and data on auditor’s report provide alternative assumptions or outcomes,
• Examples of Accounting Estimates
which they are based. audit evidence regarding • How management has addressed
→ Provision for Bad Debt,
Estimation making process AE. estimation uncertainty in making the
→ Inventory loss,
• Methods/Model used in making 2. Test how management accounting estimate.
→ Warranty Obligations,
Accounting estimates. made the accounting • Whether the significant assumptions
→ Depreciation,
→ Provision against carrying • Relevant Controls estimate and the data on used by management are reasonable.
amount of investments, etc. • Use of Management Expert. which it is based. • Management’s intent to carry out
• Examples of Fair Value A.E. • Changes in the methods from 3. Test the operating specific courses of action and its ability
→ Share Based Payments, the prior period along with effectiveness of the to do so.
→ Assets held for disposal, reasons. controls. 2. If in auditor’s judgment, management has
• Assessment of effect of 4. Develop a point estimate not adequately addressed the effects of
→ Financial Instruments,
estimation uncertainties. or a range to evaluate estimation uncertainty, the auditor shall
→ Assets acquired in business
2. Review of outcome of accounting management’s point develop a range with which to evaluate the
combinations
estimates of prior period. estimate. reasonableness of the accounting estimates.

SA 550 “Related Parties”
Meaning of Related Party Auditor’s Duties
EITHER Risk Assessment procedures Responses to Assessed Risks

Related party as defined in applicable FRF (AS
18).
OR 1 Understanding the Entity’s RP relationship and Transactions
a. Auditor to inquire management regarding: 1 Identification of unidentified /
Where applicable FRF establishes minimal or undisclosed RP or RP transaction.
no RP requirements: • Identity of entity’s RP, changes from prior period.
• Nature of relationships between entity and RP. • Communicate to other members of ET.
a. A person/entity having control/ significant
• Type & purpose of transactions with RP. • Request management to identify the
influence, over reporting entity;
b. Obtain understanding whether management has established controls to: transactions with the newly identified
b. Entity over which reporting entity has
• Identify, account for & disclose RP relationships & transactions. RP.
control / significant influence, and
• Authorise & approve significant transactions with RP. • Inquire reasons for management failure
c. Entity under common control with
• Authorise & approve significant transactions outside normal course of to identify RP or disclose RP
reporting entity, through:
business. relationship and transactions.
• Common controlling ownership
• Owners who are close family members 2 Maintaining Alertness for RP Information when Reviewing • Reconsider the risk that other
• Common key management Records/Documents unidentified RP or undisclosed RP
• Auditor to remain alert when inspecting records w.r.t. info indicating transactions may exist.
existence of RP relationships or transactions not previously identified or • If non-disclosure appears intentional,
Auditor’s responsibilities in relation to RP evaluate implications for audit.
disclosed.
• If auditor identifies significant transactions outside entity’s normal course of 2 Identified significant RP Transactions
Obtain an understanding of RP
business, inquire of management about (a) Nature of these transactions, and outside Entity’s Normal course of
Relation and Transactions:
(b) Whether RP could be involved. Business.
a. To recognize Fraud Risk factors
• Inspect underlying contracts to evaluate
General
b. To conclude whether F.S. in so far Possible Sources for identification of RP Information:

1 Income Tax Returns 7 Shareholder’s Register business rationale.
as they are affected by those
2 Internal Audit Report 8 Life insurance Policies • Examine the terms on which
relations and transactions achieve
3 Contracts with Management 9 Statement of conflict of interest transactions takes place.
• true and fair presentation and
4 Contracts outside normal 10 Information supplied to • Collect evidences w.r.t. approval and
• not misleading.
course of business regulatory authorities authorisation of transaction.
• Perform audit procedures to • Collect evidences for appropriate
5 Contracts re-negotiated 11 Specific Invoices from advisors
Identify, Assess & Respond to RMM. accounting & disclosure in compliance of
6 Register of Investments
• Evaluate whether Identified RP FRF.
Specific (FRF established
accounting & Disclosure
relationships & Transactions have 3 Identifying Fraud risk factors

3 Assertions that RP Transactions were
been appropriately accounted for & Domination of management by a single person or small group without
conducted on arm Length price.
requirements)
disclosed as per FRF. compensating controls is a fraud risk factor.

Indicators of dominant influence: • Collect SAAE w.r.t. management
• Obtain WR from management/ assertion of Arm’s length transaction.
TCWG w.r.t. • RP has vetoed significant business decisions taken by management or
TCWG. • Compare transaction prices with the
→ Disclosure to auditor the prices for identical transactions
• Significant transactions are referred to RP for final approval.
identity of RP of which they are prevailing in ordinary course of
• No/ little debate among mgmt. or TCWG regarding business proposal
aware; and business.
initiated by RP.
→ Appropriate accounting & • Engage expert to determine market
• Transactions involving RP are rarely independently reviewed / approved.
disclosure as per FRF. value.

SA 560 “Subsequent Events”
Meaning – Events occurring between the date of F.S. and the date of Auditor’s Report AND Facts that become known to auditor after the date of Auditor’s report.
Auditor’s Duties
Events occurring between the date of F.S. and the date of Auditor’s report Facts that become known to Auditor after date of Auditor’s report
(i) Perform procedures to obtain SAAE that all events which require adjustment / Before issue of F.S. After issue of F.S.
disclosure have been identified. 1. In general Auditor has no obligation. 1. In general Auditor has no
2. However, in case of significant obligation.
(ii) For the purpose of determining nature and timing of procedures, auditor may:
matter 2. However, in case of significant
(a) Obtain the understanding of procedures applied by management for matter
• Discuss with Management
identification of significant events. • Discuss with Management
• Determine need to amend F.S.
(b) Inquire the Management as to Occurrence of subsequent events which may • Determine need to amend F.S.
• Inquire how mngt intends to • Inquire how mngt intends to
affect the F.S. address the matter in F.S. address the matter in F.S.
(c) Read the Minutes of Meetings that held after the B/S date. 3. If Mngt. amend the F.S. auditor shall 3. If Mngt. amend F.S. auditor shall
(d) Study the Interim Financial Statements, if any. • extend procedures to date of new • Carry out procedures on
(iii) If auditor identifies any event which require any adjustment/disclosure, he should report, and amended F.S.
ensure its appropriate treatment in F.S. • provide a new auditor report on • Review the steps taken by mngt
amended F.S. to ensure that recipient of F.S.
(iv) Obtain a WR from the Management that all known events have been appropriately are informed of the situation.
adjusted/disclosed, as the case may be. or
• provide a new auditor report on
• amend the audit report to amended F.S.
Specific Inquiries to be made from management include an additional date or
1. Whether new commitments, borrowings or guarantees have been entered into. restricted to that amendment • Amend the audit report to
2. Whether sales or acquisitions of assets have occurred or are planned. and include an EOM/OMP. include an additional date
3. Whether there have been increases in capital or issuance of debt instruments. 4. If mngt refuses to amend the F.S. restricted to that amendment
• Modify the report if not yet and include an EOM/OMP.
4. Whether any assets have been appropriated by government or destroyed.
provided to entity. 4. If mngt refuses to amend the F.S.
5. Whether there have been any developments regarding contingencies.
• Notify to mngt and TCWG, that
6. Whether any unusual accounting adjustments have been made. • If report already issued, notify to
the auditor will seek to prevent
7. Whether any events have occurred that will bring into question the appropriateness mngt and TCWG not to issue F.S.
reliance on Auditor’s Report.
of accounting policies used in the F.S. to third parties. • If mngt/TCWG does not take
8. Whether any events have occurred that are relevant to the measurement of • If mngt still issues F.S., take necessary steps, take
estimates or provisions made in the F.S. appropriate action to prevent appropriate action to prevent
9. Whether any events have occurred that are relevant to the recoverability of assets. reliance on auditor’s report. reliance on auditor’s report.

SA – 570 (Revised) “Going Concern”
Mngt. Responsibilities Auditor’s Duties Conditions that may cast doubt

about G.C. Assumption
Responsibilities
• Assess the entity’s To obtain SAAE about the For this purpose, auditor is required to A Financial Conditions
ability to continue as a appropriateness of mngt use of a) Cover the same period as that used by mngt. 1. Net Liability position.
going concern. going concern basis of accounting. 2. Non-renewal of borrowings.
b) Consider whether mngt has considered all 3. Withdrawal of Financial
• General purpose F.S. are
relevant information of which auditor is aware. Support.
prepared on a going Determine whether mngt has 4. Adverse Financial Ratios.
concern basis unless already performed a preliminary 5. Inability to pay creditors.
• Request mngt to make its assessment of entity’s
management intends to 6. Substantial Losses.
assessment of entity ability to ability to continue as going concern. 7. Inability to arrange finances.
liquidate the entity or to continue as going concern.
• Evaluate management plans for future. 8. Negative Operating cash flow.
cease operation. 9. Deterioration in value of
• Consider the reliability of cash flow forecast.
• In case F.S. are not Auditor identifies events that cast assets.
prepared on going significant doubt on entity ability • Considering availability of additional facts or 10. Discontinuation of dividend.
concern basis, the fact to continue as going concern. information since the date of mngt assessment. B Operating Conditions
• Requesting WR from Mngt. regarding their plans 1. Management intention to
would need to be
Perform additional procedures liquidate the entity.
appropriately disclosed. for future action and the feasibility of these plans 2. Loss of KMP.
3. Loss of a major market, key
customer, franchise etc.
Use of Going concern Basis of Accounting is Use of Going Concern Mngt. unwilling to make its assessment
4. Labour Difficulties.
appropriate but Material Uncertainty exists
Basis of Accounting is 5. Shortage of Important
Inappropriate Compiled by: Pankaj Supplies.
Determine whether F.S. makes relevant Garg for students of 6. Emergence of successful
disclosure CA - Final Audit competitor.
C Others
Express an Adverse Consider the implications on Auditor’s Report 1. Non-compliance of Statutory
Yes No Requirements.
Opinion
2. Pending legal proceedings
Express unmodified opinion & Express
against the entity.
include a separate section Qualified These Charts are protected under Copyright and for students use only. Any
under heading “Material or 3. Changes in Law or regulation.
Adverse
Commercial use of these charts by anyone may attract Consequences under 4. Uninsured or underinsured
Uncertainty Related to Going
Concern” Opinion Copyright Act. assets.

SA 580 “Written Representation”
Compiled by:
Pankaj Garg
for students of
Meaning and Nature of WR Requirements of SA 580 CA - Final
Audit
A written statement by Matters for which WR may be obtained Auditor Responses in different Situations
Management
Management refuses to Reliability of WR is doubtful

provided to auditor
provide WR
(a) Preparation and
presentation of Financial
to confirm certain matters
Statements: • Discuss the matter with • In case of having concerns
or
Management responsibilities
In accordance with applicable management about competence and
to support other audit evidence. FRF. • Re-evaluate the reliability integrity of mngt, determine
• WR recognized as audit evidence (b) Information provided to and integrity of management. their effect in reliability of
as a response to inquiries. 1 Auditor: • Determine possible effect on WR and other audit
• WR do not provide SAAE As agreed in terms of the opinion. evidence in general.
• WR should be in the form of a engagement • Issue disclaimer of opinion. • IF WR inconsistent with
representation letter addressed (c) Description of management other evidences, perform
to Auditor. Responsibilities: additional procedures.
These Charts are protected
• WR shall be obtained for all In the manner as described in under Copyright and for • If conclude that WR is not
financial statements and terms of engagement students use only. Any reliable, determine possible
period(s) referred in Auditor’s As required by other SA Commercial use of these charts
effect on audit opinion.
by anyone may attract
Report. Or • In case of sufficient doubt
Consequences under Copyright
Others
• Date of WR shall be as near as 2 Where auditor determines that it Act. over integrity of
practicable to the date of the is necessary to obtain one or more management, issue a
Auditor’s report. WR. disclaimer of opinion.

SA – 600 “Using the Work of Another Auditor”
Applicability: In situation where an auditor (principal auditor - PA), reporting on the financial information of an entity, uses the work of another auditor (other auditor - OA)
w.r.t. to the financial information of one/more components (Division, Branch subsidiary, J. V. etc.), included in the financial information of the entity.
Non-applicability: (a) Joint auditors (b) Auditor’s relationship with a predecessor auditor.
Principal Auditor’s Procedures Documentation Coordination Reporting
1. Consider the professional competence of Other 1. Components whose FS are 1. Sufficient liaison/co- 1. Express a qualified /
Auditor, if Other Auditor is not a member of ICAI. audited by Other Auditor ordination between Principal disclaimer of opinion
2. Visit component and examine books of account, if and Other auditor. because of scope
and their significance to
essential. limitation:
2. Principal auditor may require
the financial information • If Principal Auditor
3. Obtain sufficient appropriate evidence, that work of Other Auditor to answer a
Other Auditor is adequate for Principal Auditor's of the entity as a whole. concludes that he
detailed questionnaire.
purposes. 2. Names of the other cannot use the work of
3. Other Auditor should
4. Discuss audit procedures applied by Other Auditor. auditors. Other Auditor;
coordinate with Principal
5. Review a written summary of Other Auditor’s 3. Any conclusions reached • PA unable to perform
Auditor:
procedures and findings through sufficient additional
that individual • Adhering to time-table.
questionnaires/checklist. procedures regarding
components are not • Bringing to the attention of
6. Consider significant findings of Other Auditor: Financial information
material. PA any significant finding.
• Discuss audit findings with OA and Management of of the component
component. 4. Procedures performed • Compliance with relevant
audited by OA.
• Perform supplemental tests if necessary. regarding components. statutory requirements.
2. Report should state
7. In case Other Auditor is not a professionally qualified 5. Conclusions reached. • Respond to detailed
clearly division of
auditor - for instance, where a component is situated in questionnaire.
6. Manner of dealing with responsibility
foreign country: Modified Report of Other between PA and OA.
• Procedures mentioned above assume added These Charts are protected under Copyright and for students use
Auditor while finalising
importance. only. Any Commercial use of these charts by anyone may attract
Principal Auditor’s Report. Consequences under Copyright Act.

SA 610 (Revised) “Using the Work of Internal Auditors”
Meaning & scope of External Auditor’s Procedures w.r.t. Evaluation of Internal Using Direct Assistance (DA) of Internal Auditors (IA)
Internal Audit Function Audit Function

1 Determining whether IA can be used to provide DA
If not prohibited by law or regulation, external auditor may use an
Meaning internal auditor to provide direct assistance if:
Determine Adequacy of Internal Audit Work for
A function of an entity that (a) There are no significant threats to objectivity of internal auditor; and
External Auditor’s Purpose
(b) Internal auditor is sufficiently competent to perform proposed work.
performs assurance & 2 Determining Nature & Extent of Work that can be assigned to IA
by evaluating the following
consulting activities IA shall not be used to provide DA to perform procedures that:
(a) Involve making significant judgments in the audit;
designed to evaluate and • Ob j e c t i v i t y o f t h e i n t er n al au d i to r s;
Significant judgments include the following:
• L e v e l o f c o m p et enc y;
improve the effectiveness • Assessing the risks of material misstatement;
• A p pl i c at i on o f S yst em at i c & d i sc i p l i n ed ap p ro ach
• Evaluating the sufficiency of tests performed;
of the entity’s governance, • Evaluating appropriateness of management’s use of going
risk management and If Not Satisfactory If Satisfactory concern assumption;
• Evaluating significant accounting estimates; and
internal control processes. • Evaluating the adequacy of disclosures in the F.S., and other
Do not use the work of Determine the Nature and
extent of work of internal audit matters affecting the auditor’s report
Scope of Internal Audit internal Audit function. (b) Relate to higher assessed risks of material misstatement;
function that can be used.
(c) Relate to work with which internal auditors have been involved; or
1 Activities relating to (d) Relate to decisions, external auditor makes in accordance with this SA
governance. Use the work of internal Audit Function w.r.t. internal audit function & use of its work or direct assistance.
2 Activities relating to Risk 3 Using Direct Assistance of Internal Auditor
1. Discuss the planned use of work of internal Auditor.
Management 1. Prior to using internal auditors to provide direct assistance for
2. Read the reports of the internal audit function relating to
3 Activities relating to purposes of the audit, the external auditor shall:
Internal Control
the work of the function that the external auditor plans to (a) Obtain written agreement from entity that the IA will be allowed
• Evaluation of Internal use to obtain an understanding of the nature and extent to follow the external auditor’s instructions, and that the entity
Control of audit procedures it performed and the related findings. will not intervene in the work the IA performs; and
• Examination of 3. Perform sufficient audit procedures on work of internal (b) Obtain written agreement from the IA that they will keep
Financial and confidential specific matters as instructed by the external auditor
audit function as a whole that external auditor plans to
operating information and inform the external auditor of any threat to their objectivity.
use to determine its adequacy for purposes of the audit. 2. The external auditor shall direct, supervise and review the work
• Review of Operating
4. Evaluate whether external auditor’s conclusions performed by IA on the engagement in accordance with SA 220.
Activities
regarding internal audit function and the determination 3. The direction, supervision and review by the external auditor of the
• Review of Compliance
of the nature and extent of use of the work of the function work performed by the IA shall be sufficient in order for the external
with Laws and
auditor to be satisfied that the IA have obtained sufficient appropriate
Regulations for purposes of the audit remain appropriate.
audit evidence to support the conclusions based on that work.

SA 620 “Using the Work of Auditor’s Expert”
Meaning of Auditor’s Expert Procedures to be followed while using the work of auditor’s expert
• An individual or organisation 1 Determining need for an Auditor’s Expert 4 Agreement with Auditor’s Expert
• possessing expertise in field An auditor’s expert may be needed to assist the auditor for the Need to be in writing and cover the followings:
followings: • Nature, scope and Objectives of Auditor’s Expert
other than accounting/auditing,
• Obtaining an understanding of entity & its environment, including IC. work.
• whose work is used by the • Identifying and assessing the risks of material misstatement. • Respective Role and Responsibilities of Auditor
auditor • Determining & implementing overall responses to assessed risks. and auditor’s Expert.
• to assist the auditor in obtaining • Designing and performing further audit procedures to respond to • NTE of Communication including form of report.
SAAE. assessed risks. • Confidentiality requirements to be observed by
• Evaluating the sufficiency and appropriateness of audit evidence
Auditor’s Expert.
obtained.
Areas where work of AE can be
2 Evaluate Competence, Capability and Objectivity of the Expert 5 Evaluate appropriateness of Expert work
used
Source of Information for evaluation: • Finding & Conclusion – Relevance,
• Personal Experience with previous work.
Reasonableness & Consistency with other A.E.
• Valuation of complex financial • Discussion with that expert.
• Discussion with other Auditors.
• Assumptions and Methods – Relevance and
instruments, L & B, P & M, jewellery,
• Knowledge of expert’s qualification, memberships, other forms of Reasonableness.
works of art, antiques, intangible
recognitions. • Source Data – Relevance, Completeness and
assets, assets acquired and
• Published books or papers.
liabilities assumed in business accuracy.
• Auditor’s firm Q. C. Policies and Procedures.
combinations and assets that may 3 Obtain an understating of expert work 6 Expert work not adequate for audit purposes
have been impaired. • To enable the auditor to determine the nature, scope and • If Auditor concludes that work of auditor’s expert is
• Actuarial calculation of liabilities objectives of that expert’s work for auditor’s purposes. not adequate for the auditor’s purposes and
associated with insurance contracts • Evaluate the adequacy of that work for the auditor’s • auditor cannot resolve the matter through the
or employee benefit plans. additional audit procedures,
purposes.
• it may be necessary to express a modified opinion.
• Estimation of oil and gas reserves.
• Valuation of environmental
liabilities, and site clean-up costs. Reference to the Auditor’s Expert in the Auditor’s Report
• Interpretation of contracts, laws
• No reference required in case of unmodified Audit Report unless required by L & R.
and regulations.
• Analysis of complex or unusual tax • In case of modified reports, it may be appropriate to refer to the auditor’s expert, to explain the nature of the modification. In
compliance issues. such case, auditor may need the permission of the auditor’s expert before making such a reference.

SA 700 (Revised) – Forming an Opinion and reporting on Financial Statements (w.e.f. 01.04.2018)
Meaning & Types of Audit Reports Elements of an Unmodified Audit Report
Reports in which auditor 1 Title “Independent Auditor’s Report” – so as to distinguish from reports 1. State the objective of auditor to
issued by others. obtain reasonable assurance that F.S.
expresses his opinion on financial as a whole are free from material
2 Addressee Auditor’s Report shall be addressed as appropriate. Generally, it is
statements. addressed to those for whom it is prepared. misstatements & issue the auditor’s
3 Opinion Section Fair In our opinion, the F.S. present fairly in all material report that includes an auditor’s
• For General purpose F.S. – SA
Meaning
Presentation respects in accordance with [applicable FRF]; Or opinion.

700, 701, 705 & 706 will Framework In our opinion, the F.S. gives a true and fair view of 2. Explanation w.r.t. reasonable
______________ in accordance with [applicable FRF] assurance and application of concept
apply. Compiled by:
Compliance In our opinion, the F.S. present, in all material of materiality.
• For Special Purpose F.S. – SA Pankaj Garg 3. Statement that auditor exercises
Framework respect in accordance with [applicable FRF]
800 along with 700, 701, 705 for students of Opinion Para shall also cover the following: professional judgment and maintain
CA - Final • Identify the Entity. professional skepticism throughout
& 706 will apply. audit.
Audit • Identify the title of each financial statement.
A. Unmodified reports • Specify the period/date covered by each F.S. 4. State auditor’s responsibilities w.r.t.:
• State that F.S. have been audited. • Identifying & assessing the RMM.
Reports issued when auditor • Design & perform audit
4 Basis for • States that audit was conducted in accordance with SAs.
concludes that F.S. are prepared Opinion procedures responsive to assessed
• Refer to Section of Auditor’s report that describes the auditor’s
risks.
in all material respects in responsibilities.
• Obtain SAAE.
• Compliance of Ethical requirements including independence.
accordance with applicable FRF. • Understanding of Internal Control.
• Auditor’s believing that they had obtained sufficient and appropriate
B. Modified Reports audit evidence to provide a basis for the opinion. • Expressing opinion on adequacy
5 Going Concern Where applicable, auditor shall report in accordance with SA 570. and operating effectiveness of
B.1 – Matters that affect Audit Internal Financial Control.
6 Key Audit In case of Listed Entity, auditor shall communicate Key Audit Matters in
Opinion. Matter Auditor’s Report in accordance with SA 701. • Evaluation of appropriateness of
Accounting policies &
Types
B.1.1 – Qualified Opinion 7 Management • To prepare F.S. in accordance with applicable FRF.
reasonableness of accounting
Responsibilities • Maintenance of adequate records for safeguarding of assets and
B.1.2 – Adverse Opinion estimates.
for the F.S. prevention and detection of fraud.
• Conclude on appropriateness of
B.1.3 – Disclaimer of Opinion • Making reasonable and prudent judgments and estimates.
management use of Going Concern
• Design, Implementation and maintenance of Internal Control.
Details of B.1 is dealt by SA 705. basis of accounting.
• Assessing the appropriateness of Going Concern basis of accounting.
• Evaluate overall presentation,
B.2 – Matters that do not affect • Overseeing the financial reporting process. structure & content of F.S.
Audit opinion 8 Auditor’s responsibilities for the Audit of F.S. 5. State Auditor’s responsibilities w.r.t.:
9 Other • Heading: “Reporting on Other Legal and Regulatory Requirements”. • Matters communicated to TCWG.
B.2.1 – With EOM Para Reporting • Will include reporting of CARO, 2016, reporting u/s 143(3) of • Providing statement to TCWG on
B.2.1 – With OM Para responsibilities Companies Act, 2013, Rule 11 of CAAR, 2014. compliance of Ethical
10 Signature In personal name and name of firm, along with the membership number requirements.
Details of B.2 is dealt by SA 706. and firm registration number. • Determining Key Audit matters out
11 Place The city where audit report is signed. of matters communicated to
12 Date It should not be earlier than date on which audit evidences are collected. TCWG.

SA 701 “Communicating Key Audit Matters in the Independent Auditor’s Report” (w.e.f. 01.04.2018)
Applicability Considerations for determining Key Circumstances in which a matter determined to

be key audit matter is not communicated
Audit Matters
• SA 701 applies to audit of complete set of Key audit Matters are to be determined from the • Law or regulation precludes public
general-purpose financial statements of matters communicated to TCWG, Considering the disclosure about the matter; or.
listed entities and circumstances when • Audit determines that the matter should not
following:
auditor decides to communicate key audit
(a) Areas of higher assessed RMM. be communicated in the auditor’s report
matter in the auditor’s report.
• SA 705 prohibits the auditor from (b) Significant auditor judgment relating to financial because the adverse consequences of doing
communicating key audit matters when the statement that involved management judgment so would reasonably be expected to
auditor disclaims the opinion on the outweigh the public interest benefit of such
for Ex. Accounting estimates having high
financial statements. communication.
estimation uncertainty.
• It will not be applied if entity has publicly
(c) Effect of significant event or transactions
Meaning and Purpose of Key Audit Matters disclosed information about the matter.
occurred during the year.
Meaning: Those matters that in the auditor’s Modified opinion Vs. Going concern Vs. Key
Manner of Reporting
judgment were of most significance in
Audit Matters
audit of financial statement of current
period.
• Use separate section titled as “Key audit Matter’s.” • Key audit matter is not a substitute for modified
These are selected from matters
communicated with TCWG. • Use introductory language in this section as – “Key opinion under SA 705 or reporting required
Purpose: audit Matters are those matters that in the under SA 570 w.r.t. existence of material
(a) To enhance the communicative value of the auditor’s judgment, were of most significance in uncertainty as to events that cast significant
auditor’s report by providing greater the audit of financial statements of current period doubt on an entity ability to continue as Going
transparency. and these matters were addressed in the context Concern.
(b) To provide additional information to intended
of audit of financial statements as a whole and • Auditor shall report modification / Going
users of F.S. to assist them in understating those
matters that in auditor’s judgment were of most auditor does not provide a separate opinion on concern in accordance with applicable SA, and
significance. these matters”. include a reference to basis for Qualified
(c) To assist intended users in understanding the • Description of each key audit matter shall follow (Adverse) opinion or the material ascertaining
entity & areas of significant management the introduction. related to going concern section in the Key
judgment. • Description of key audit matter shall address the Audit Matters Section.
(d) To provide a basis to further engage with
reason why the matter was considered as key
management and TCWG about certain matters
relating to the entity. audit matter.

SA 705 – Modifications to the Opinion in the Independent Auditor’s Report
Types of modified Opinion Considerations while issuing modified Opinion
Issued when: Opinion Section Basis for Opinion Section Auditor’s Responsibility Section
F.S. are misstated having material
but not pervasive effect. Use the heading – Amend the heading – Basis for Qualified Opinion When an auditor disclaims the
• Qualified Opinion Basis for Adverse Opinion opinion, the auditor shall
Or • Adverse Opinion Basis for Disclaimer of Opinion.
Qualified
Auditor not been able to collect • Disclaimer of Opinion. • Include a description of matter giving rise to amend the description of
Wordings of Opinion: modification. auditor’s responsibilities to
sufficient appropriate audit
Except for the effects of
Cause of Description include only the following:
evidence for transactions that are matters prescribed in “Basis
Modification
having material but not pervasive of Qualified Opinion” • Statement that the auditor’s
Qualified
section, the F.S. have been Material • Description of Misstatement.
effect. Misstatement responsibility is to conduct
prescribed fairly in all • Quantification of financial
Issued when F.S. are misstated material respects in in Amount effect, if determinable. an audit in accordance with
• If not determinable, state the
Adverse
having material and pervasive accordance with [applicable Standard on Auditing and to
FRF] fact.
effect. issue Auditor’s Report.
In auditor’s opinion, Material Explanation how the
Misstatement in
because of significance of disclosures are misstated. • Statement that because of
Issued when auditor not been able Disclosure
the matters described in Material Describe nature of omitted significance of matters
to collect sufficient appropriate
Adverse
Disclaimer
“Basis of Adverse Opinion” Misstatement

information. described in basis for
due to non-
audit evidence for transactions section, the F.S. does not And
disclosure of
give a true and fair view of Include the omitted disclosure disclaimer of opinion
that are having material and required
____________ in accordance information provided it is practicable. section, auditor was not able
pervasive effect.
with [applicable FRF]. Inability to State the reason for inability.
obtain SAAE to obtain SAAE to provide a
Pervasive Not Because of significance of
matters described in the • Amend the statement w.r.t. auditor believing that basis for an audit opinion.
Pervasive audit evidences are sufficient and appropriate to
“Basis for Disclaimer of • Statement about auditor’s
provide a basis for “Qualified Opinion” or “Adverse
Disclaimer
Material Opinion” section, the

Opinion”. independence and other
ADVERSE QUALIFIED auditor has not been able to
Misstatement
obtain sufficient • In case of disclaimer, auditor’s report shall not ethical requirements.
SAAE not appropriate audit evidence include the reference to section of auditor’s report
obtained for DISCLAIMER QUALIFIED that describes the auditor’s responsibilities and
to provide a basis for audit Compiled by: Pankaj Garg for
material statement w.r.t. auditor’s believing that sufficient
Transactions opinion on F.S. students of CA - Final Audit
appropriate audit evidence obtained.

SA 706 “Emphasis of Matter Paragraph & Other Matter Paragraph in the Independent Auditor’s Report” (w.e.f. 01.04.2018)
Emphasis of Matter Para Other Matter Para
1 Meaning 1 Meaning
A Para included in the Auditor’s report that refers to a matter appropriately A Para included in Auditors Report that refers to a matter other
reflected/ disclosed in the financial statement that in the auditor’s judgment is of than presented/ disclosed in financial statement that in the
such significance that it is fundamental to the user’s understanding of financial auditor’s judgment is relevant for users understanding of audit
statement. auditor’s responsibilities or auditor’s report.
2 Requirements 2 Requirements
• EOM Para is not a substitute of Key Audit Matter or Modified Opinion. • OM Para is not a substitute of Key Audit Matter.
• EOM should be included within a separate section titled as “Emphasis of • OM Para should be included in the audit report in a separate
Matter”. section termed as “Other Matter”.
• EOM should refer only to information presented/disclosed in the financial • Differentiate “Other Matter” with Key Audit Matter”.
statements. 3 Location in Audit Reports
• It must be indicated that auditor’s opinion is not modified in respect of this • Immediately after the “Key Audit Matter” section.
matter. • If other matter is related with other legal and regulatory
3 Circumstance when EOM Para can be issued requirements, it needs to be placed in “Reporting on other
(a) Uncertain situation as to future outcome of an exceptional litigation. legal and Regulatory requirements” Section.
(b) Significant subsequent events.
(c) Early application of new AS in advance of its effective date.
(d) Occurrence of major catastrophe that may have a significant effect on entity
financial position. These Charts are protected under Copyright and for students use
4 Location in Audit Reports only. Any Commercial use of these charts by anyone may attract
Consequences under Copyright Act.
Immediately following the “Basis of Opinion Section”.

SA 710 “Comparative Information – Corresponding Figures and Comparative Financial Statements”
Meaning & Types of Audit Procedures Audit Reporting

Comparative Information
1 Comparative Information 1 Determine Comparative F.S. Corresponding Figures

The amounts and disclosures (a) Whether F.S. include Comparative information
included in the F.S. in respect required by FRF, &
1. Audit opinion to refer Audit opinion not to refer to
of one or more prior periods (b) Whether such information is classified
to each period for corresponding figures, EXCEPT:
in accordance with appropriately.
which F.S. are • Auditor’s report in prior period
2 Evaluate presented and on FS was modified and the subject
applicable FRF.
(a) Whether the comparative information agrees which opinion is matter is still unresolved: Modify
2 Corresponding Figures
with the amounts and other disclosures expressed. current audit report also.
Comparative information
presented in the prior period; and 2. If opinion on prior • Auditor obtains audit evidence
where amounts and other period FS expressed in w.r.t. existence of material
(b) Whether the accounting policies reflected in
disclosures for the prior the comparative information are consistent current period differs misstatement in prior period F.S.
period, are included as an with those applied in the current period. from opinion on which unmodified opinion
integral part of current (c) Whether, changes in accounting policies, if expressed in the was issued: Express qualified/
period F.S., and are relevant prior period, adverse opinion on current F.S.
any, have been properly accounted for and
give substantive w.r.t. Corresponding figures if
intended to be read only in adequately presented and disclosed.
reason for difference misstatement has not been dealt as
relation to the amounts and 3 Doubt over existence of misstatement in Other Matter Para. required by applicable FRF.
other disclosures relating to Perform additional audit procedures to obtain
the current period. sufficient appropriate audit evidence to determine 1 Prior Period F.S. Audited by Another Auditor
3 Comparative F.S. existence of material misstatement. Audit report to also contain Other Matter para, stating that:
Note: SA 560 “Subsequent Event” also applies if • FS of prior period were audited by predecessor auditor.
Comparative information
auditor had audited the prior period F.S. • Type of opinion expressed by him (reasons for modifications,
where amounts and other if any).
4 Obtain WR
disclosures for the prior • Date of that report.
From management to re-affirm that the WR it
period, are included for 2 Prior Period F.S. are Unaudited
previously made with respect to the prior period Include Other Matters para:
comparison with the F.S. of
remain appropriate. • That corresponding FS are unaudited.
the current period but, if
• But this does not relieve the auditor from need to obtain
audited, are referred to in SAAE that opening balances do not contain misstatements
Compiled by: Pankaj Garg for students of
the auditor’s opinion. CA - Final Audit that can potentially affect current FS

SA 720 (Revised) - The Auditor’s Responsibilities relating to Other Information
Scope: SA 720 deals with auditor’s responsibilities relating to other information, whether financial or non-financial information included in an entity’s annual report. Auditor’s
opinion on the F.S. does not cover the other information, nor does this SA require the auditor to obtain audit evidence beyond that required to form an opinion on the F.S.
Auditor’s Procedures Auditor’s Responses Reporting
1 Obtaining the Other Information 1 When a Material Inconsistency Appears to Exist or Other Information • The auditor’s report shall include a separate
Appears to Be Materially Misstated section with a heading “Other Information”, when,
The auditor shall: at the date of the auditor’s report:
If the auditor identifies that a material inconsistency appears to exist (or becomes
(a) Determine, through discussion with mngt, (a) For an audit of F.S. of a listed entity, the
aware that the other information appears to be materially misstated), the auditor
which documents comprises the annual shall discuss the matter with management and, if necessary, perform other auditor has obtained, or expects to obtain,
report, and the entity’s planned manner and procedures to conclude whether: other information; or
(a) A material misstatement of the other information exists; (b) For an audit of F.S. of an unlisted corporate
timing of the issuance of such documents; entity, the auditor has obtained some or all of
(b) A material misstatement of the F.S. exists; or
(b) Make appropriate arrangements with the other information.
(c) The auditor’s understanding of the entity and its environment needs to be
management to obtain in a timely manner updated. • When the auditor’s report is required to include an
and, if possible, prior to the date of the 2 When the Auditor Concludes That a Material Misstatement of the Other Other Information section, it shall include:
(a) A statement that mngt. is responsible for the
auditor’s report, the final version of the Information Exists
other information;
documents comprising the annual report; & • If auditor concludes that a material misstatement of the other information
(b) An identification of:
exists, he shall request mngt to correct other information. If management:
(c) When some or all of the documents (i) Other information, if any, obtained by the
(a) Agrees to make the correction, the auditor shall determine that the
determined above will not be available until auditor prior to the date of the auditor’s
correction has been made; or
after the date of the auditor’s report, request report; and
(b) Refuses to make the correction, the auditor shall communicate the
(ii) For an audit of F.S. of a listed entity, other
management to provide a WR that the final matter with TCWG and request that the correction be made.
information, if any, expected to be
version of the documents will be provided • If the auditor concludes that a material misstatement exists in other
obtained after the date of the auditor’s
information obtained prior to the date of the auditor’s report, and the other
to the auditor when available, and prior to report;
information is not corrected after communicating with TCWG, the auditor
its issuance by the entity, such that the (c) A statement that the auditor’s opinion does
shall take appropriate action, including:
not cover the other information and,
auditor can complete the procedures (a) Considering the implications for the auditor’s report and communicating
accordingly, that the auditor does not express
required by this SA. with TCWG about how the auditor plans to address the material
an audit opinion;
misstatement in the auditor’s report,
2 Reading & Considering the Other information (d) A description of the auditor’s responsibilities
(b) Withdrawing from the engagement, where withdrawal is possible under
relating to reading, considering and reporting
The auditor shall read the other information & applicable law or regulation.
on other information as required by this SA;
consider • If the auditor concludes that a material misstatement exists in other
and
(a) whether there is a material inconsistency information obtained after the date of the auditor’s report, the auditor shall:
(e) When other information has been obtained
(a) If the other information is corrected, perform the procedures
between the other information & the F.S., & prior to the date of the auditor’s report, either:
necessary in the circumstances; or
(b) whether there is a material inconsistency (i) A statement that the auditor has nothing
(b) If the other information is not corrected after communicating with
to report; or
between the other information and the TCWG, take appropriate action considering the auditor’s legal rights
(ii) If the auditor has concluded that there is
auditor’s knowledge obtained in the audit, in and obligations, to seek to have the uncorrected material misstatement
an uncorrected material misstatement of
appropriately brought to the attention of users for whom the auditor’s
the context of audit evidence obtained and report is prepared.
the other information, a statement that
conclusions reached in the audit. describes the uncorrected material
3 When a Material Misstatement in the Financial Statements Exists or the misstatement of the other information.
While reading the other information, the auditor Auditor’s Understanding of the Entity and Its Environment Needs to Be
• When the auditor expresses a qualified or adverse
shall remain alert for indications that the other Updated
opinion in accordance with SA 705, the auditor
information not related to the F.S. or the If, as a result of performing the procedures, the auditor concludes that a material shall consider the implications of the matter giving
misstatement in the F.S. exists or the auditor’s understanding of the entity and its rise to the modification of opinion for the
auditor’s knowledge obtained in the audit environment needs to be updated, the auditor shall respond appropriately in statement required in above para.
appears to be materially misstated. accordance with the other SAs.

Chapter 1 "Quality Control and Engagement Standards"

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Chapter 1 "Quality Control and Engagement Standards"

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Chapter 1 “Quality Control and Engagement Standards”

Leadership Ethical Independence Client Human Resources Engagement Monitoring

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Aspects to be considered by Auditor while performing Audit

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Agreeing the terms of audit Engagement

At the Beginning of Audit During the Course of Audit

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Leadership Ethical Independence Acceptance / Continuance Assignment of Engagement Performance Monitoring

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Fraud Risk Factors / Management Duties Auditor’s Responsibilities

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Basic Responsibilities Specific Auditor Indicators considered by

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Meaning of Auditor’s Responsibilities Communication Process Factors affecting Mode of

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Meaning of deficiency Auditor’s Responsibilities

Determine whether individually or To TCWG To Mngt. (a) Description of deficiencies

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Importance of Planning Preliminary Engagement Activities Planning Activities

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Concept of Materiality Performance Materiality Auditor’s Duties

the economic decision of users.

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Tests of Controls Substantive Procedures

External Auditor shall consider whether EC procedures are to be

Special Considerations as 2. Ability or Willingness of intended confirming part to

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

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Meaning and Causes of Auditor’s Procedures if Misstatements identified

amounts, classification, presentation

disclosure that is required for the item

In arriving at the conclusion 3. External Confirmations

Inventory – Litigation & Claims – Completeness

• Evaluate mngt. instructions &

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Audit Procedures Audit Conclusion & Reporting

Opening Balance Consistency of Modification in Opening Balance Consistency of Modification in

• If any misstatement detected consistent Modify Current Year

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Meaning and Nature of Analytical Procedures Auditor’s Procedures

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Meaning & Types of Audit Sampling Sampling Risk Auditor’s Duties

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EITHER Risk Assessment procedures Responses to Assessed Risks

b. To conclude whether F.S. in so far Possible Sources for identification of RP Information:

relationships & Transactions have 3 Identifying Fraud risk factors

disclosed as per FRF. compensating controls is a fraud risk factor.

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Mngt. Responsibilities Auditor’s Duties Conditions that may cast doubt

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Management refuses to Reliability of WR is doubtful

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Principal Auditor’s Procedures Documentation Coordination Reporting

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Internal Audit Function Audit Function

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