SARANSH

Last Mile Referencer for

AUDITING

The Institute of Chartered

Accountants of India
(Setup by an Act of Parliament)

Board of Studies (Academic)

www.icai.org | www.boslive.icai.org
Saransh - Last Mile Referencer for Auditing
While due care has been taken in preparing this booklet, if any errors or omissions are noticed, the
same may be brought to the notice of the Director, BoS. The Council of the Institute is not
responsible in any way for the correctness or otherwise of the matter published herein.

© 2023. The Institute of Chartered Accountants of India (Also referred to as ICAI)

All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or
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Published in January 2023 by:

Board of Studies (Academic)
The Institute of Chartered Accountants of India
‘ICAI Bhawan” A-29, Sector-62,
Noida 201 309
 Board of Studies (Academic), the student wing of the Institute, does not leave any
stone unturned in providing best-in-class services to its students. It imparts quality
academic education through its value-added study materials, wherein concepts are
explained in lucid language. Illustrations and Test Your Knowledge Questions
contained therein facilitate enhanced understanding and application of concepts
learnt. Booklet on MCQs & Case Scenarios contain a rich bank of MCQs and Case
Scenarios to hone the analytical skills of students, by applying the concepts learnt in
problem solving. Revision Test Papers contain updates and Q & A to help students
update themselves with the latest developments before each examination and revise
the concepts and provisions by solving questions contained therein. Suggested
PREFACE

Answers containing the ideal manner of answering questions set at examination also
helps students revise for the forthcoming examination. Mock Test Papers help
students assess their level of preparedness before each examination. BoS (Academic)
also conducts live virtual classes through eminent faculty for its students across the
length and breadth of the country.

To reach out to its students, the BoS (Academic) has also been publishing
subject-specific capsules in its monthly Students’ Journal “The Chartered
Accountant Student” since the year 2017 for facilitating effective revision of concepts
dealt with in different topics of each subject at the Foundation, Intermediate and
Final levels of the chartered accountancy course. Each issue of the journal includes a
capsule relating to specific topic(s) in one subject at each of the three levels. In these
capsules, the concepts and provisions are presented in attractive colours in the form
of tables, diagrams and flow charts for facilitating easy retention and quick revision
of topics.

The BoS (Academic) is now coming out with a comprehensive booklet ‘Saransh - Last
Mile Referencer for Auditing’. In Auditing, the significant features of the Engagement
and Quality Control Standards included within the scope of syllabi at intermediate
and final levels are highlighted. The important concepts of SQC 1 and Standards on
Auditing covered in syllabi have been explained precisely. Students would be able to
grasp these significant concepts quickly with the help of this booklet.

Happy Reading!

© ICAI BOS(A)
SARANSH

Message of Key ICAI Office Bearers

CA. (Dr.) Debashis Mitra

President, ICAI

The Board of Studies (Academic) of ICAI has always been at the forefront of providing
quality education to aspiring CA students and handholding them in preparing for their
exams. Saransh — Last Mile Referencer is a step in that direction. This pack of 3 booklets
on Accounting, Auditing & Cost Management and Strategic Decision Making covers
significant concepts of each chapter in precise form. This will not only help students for
their reference for examinations but also Members can use it for their practice reference.

CA. Aniket S. Talati

Vice-President, ICAI

It has always been the endeavour of ICAI to provide updated information to its student to
keep them abreast about the latest happenings in the accounting and related fields. The
Board of Studies (Academic), the academic wing of ICAI, has come up with a series of
booklets ‘Saransh – Last Mile Referencer’ with key points of different subjects. This will help
facilitate effective revision of concepts in each subject.

CA. Dayaniwas Sharma

Chairman, Board of Studies (Academic)

Saransh — Last Mile Referencer is a compilation of capsules on different subjects of

Foundation, Intermediate and Final levels of the chartered accountancy course. This
series of booklets consolidates all significant topics of Accounting including Accounting
Standards & Ind AS, Auditing with Auditing Standards and Cost Management and
Strategic Decision Making at one place by capturing the key points. The concepts and
provisions presented in attractive colours in the form of tables, diagrams and flow charts
will facilitate quick revision of topics and easy retention.

CA. Vishal Doshi

Vice-Chairman, Board of Studies (Academic)

Among the many best-in-class services that the Board of Studies (Academic) provides to
its students, Saransh — Last Mile Referencer is another initiative in that direction. These
booklets on different subjects have been provided in a concise and precise form. It will
facilitate understanding of the concepts better to students and grasp the essence of the
subject. These capsules will enhance of level of preparedness before the examinations.

© ICAI BOS(A)
SARANSH

The Institute of Chartered

Accountants of India
(Setup by an Act of Parliament)
Board of Studies (Academic)

INDEX
Topic Pg No.

AUDITING

Engagement & Quality Control Standards 1

SQC 1 3

SA 200-299: General Principles and Responsibilities 4

SA 300-499: Risk Assessment and Response to Assessed Risks 14

SA 500-599: Audit Evidence 20

SA 600-699: Using Work of Others 28

SA 700-799: Audit Conclusions and Reporting 32

© ICAI BOS(A)
SARANSH Auditing

AUDITING

Engagement & Quality Control Standards

International Auditing and Assurance Standards Board
(IAASB):
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issue, in the public interest and under its own authority, high
quality auditing standards for use around the world.
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under the auspices of IFAC.
Auditing and Assurance Standards Board (AASB):
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towards the implementation of the guidelines issued by the
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practices in India and to develop Engagement and Quality Control
Standards so that these may be issued by the Council of the
Institute.

Diagrammatic Representation of the Structure of Standards Under the New Preface

AUDITING STANDARDS  AN OVERVIEW

Auditing and Assurance STRUCTURE OF

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Scope / Objective ISSUED BY AASB

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Scope/ Objective/ Definitions/ Requirements

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© ICAI BOS(A) 1
SARANSH Auditing

Procedure for issuing SAs

2. In the preparation of SAs, the AASB is assisted
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1. The AASB determines the specific subjects. In the formation of Study
broad areas in which the (SPVQT QSPWJTJPO JT NBEF GPS QBSUJDJQBUJPO PG
SAs need to be formulated B DSPTTTFDUJPO PG NFNCFST PG UIF *OTUJUVUF
and the priority in regard
to the selection thereof.
4. After taking into consideration
3. On the basis of the work of the
the comments received, the
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draft of the proposed SA is
the proposed SA is prepared by the
finalised by the AASB and
Committee and issued for comments by
submitted to the Council of the
members of the Institute.
Institute.

5. The Council of the Institute considers the final draft of the proposed
SA, and, if necessary, modifies the same in consultation with the
AASB. The SA is then issued under the authority of the Council.

Structure of SAs

Application and
Introduction Objective Definitions Requirements Other Explanatory
Material

It includes the It includes the For higher Every objective It explains more exactly what
purpose, scope, and objective of the understanding is shored up by is meant by a requirement or is
subject matter as well auditor in the audit of the SAs, clearly stated intended to cover, or includes
as the responsibilities area addressed by pertinent terms are requirements. examples of procedures that
of the auditor and that particular SA. delineated in each can be appropriate under
others in that context. SA. certain circumstances.

Requirements are always

expressed by the phrase “the
auditor shall.”

Compliance with the SAs:

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financial inf ormation covered by their audit reports.
If for any reason a member has not been able to perform an audit in accordance with the SAs, his report should draw attention to the
material departures therefrom. Auditors are expected to follow SAs in the audits commencing on or after the date specified in the Standard.
Further, compliance of SAs are mandatory requirement as per the Companies Act, 2013.
Linkage between SAs and Disciplinary Proceedings: The SAs (as well as other statements on auditing) represent the generally accepted
procedure(s) of audit. As such, a member who does not perform his audit in accordance with these statements and fails to disclose the
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a Chartered Accountant in practice shall be deemed to be guilty of professional misconduct, if:
he fails to disclose a material fact known he does not exercise due diligence, or is grossly he fails to invite attention to any material
to him which is not disclosed in a financial negligent in the conduct of his professional departure from the generally accepted
statement, but disclosure of which is necessary duties. procedure of audit applicable to the
in making such financial statement where he circumstances.
is concerned with that financial statement in Clause 7 of Part I of the Second Schedule
a professional capacity. Clause (9) of Part I of the Second Schedule

Clause 5 of Part I of the Second Schedule

© ICAI BOS(A) 2
SARANSH Auditing

Engagement & Quality Control Standards

SQC

SQC 1 " Quality Control for Firms that Perform Audits & Reviews of
Historical Financial Information, & Other Assurance & Related Service Engagements"

Introduction Leadership Ethical Acceptance & Continuance Human Engagement Monitoring

responsibilities for Requirements of client relationships & Resources performance
quality within the firm specific engagements

1. The purpose Firm's policies & procedures should: 1. Firm's policies & 1. Firm's policies & procedures should
of this SQC 1. Provide it with reasonable procedures should provide it with reasonable assurance that:
is to establish assurance that the firm & its provide it with reason- a) it has sufficient personnel with the
standards & personnel comply with ethical able assurance that capabilities, competence, commitment
provide guidance requirements of: it will undertake or to ethical principles.
i) Integrity; continue relationships & b) enable the firm to issue appropriate
regarding a firm's reports.
responsibility ii) Objectivity; engagements only when it:
iii) Professional competence & a) has considered 2. Firm's performance evaluation, com-
for its system of pensation & promotion procedures give due
due care; the integrity of the
quality control for recognition & reward to the development &
iv) Confidentiality; client. maintenance of competence & commitment
audits & reviews v) Professional behaviour. b) is competent & has
of historical to ethical principles.
2. Emphasise the fundamental capabilities, time & 3. The firm should assign responsibility for
f i n a n c i a l principles which are reinforced in resources. each engagement to an engagement partner.
information & for particular by the leadership of firm, c) can comply 4. The firm should also assign appropriate
other assurance education & training, monitoring with ethical staff with capabilities, competence & time to
& related service & process for dealing with non requirements. perform engagements.
engagements. compliance. 2. When the firm obtains
3. Provide it with reasonable information that would 1. Firm's policies & procedures should
2. The firm should assurance that the firm, its have caused it to decline provide it with reasonable assurance that:
establish a system personnel, experts, network firms an engagement if that a) engagements are performed in
of quality control maintain independence to: information had been accordance with professional standards,
to provide it i) Communicate its available earlier, the firms legal & regulatory requirements.
requirements to management. policies & procedures b) that the firm issue appropriate report.
with reasonable
ii) Identify & evaluate should consider: 2. Firm should establish policies &
assurance that circumstances & relationships a) the professional & procedures w.r.t.:
the firm & its that create threats to legal responsibilities a) consultation
personnel comply independence & take b) the possibility of b) resolving differences of Opinion.
with professional appropriate action. withdrawing from c) engagement quality control review &
standards & 4. Provide it with reasonable the engagement & its documentation.
regulatory & legal assurance that it is notified client relationship. d) confidentiality, safe custody, accessi-
requirements & of breaches of independence 3. Policies & procedures bility & retrieval, retention, ownership
that the report of engagement documentation.
requirement & to enable it to take for withdrawal include:
issued by the appropriate action. a) discussing with
firm/ engagement appropriate level for 1. Firm's policies & procedures should provide
appropriate action it with reasonable assurance that:
partner(s) are a) the policies & procedures relating to the
appropriate in the 1. Firm should promote internal & the reasons for system of quality control are relevant,
circumstances. culture recognising quality as withdrawal. adequate, operating effectively.
essential in performing engagement. b) c o n s i d e r i n g b) it includes an ongoing consideration &
2. Firm's CEO (or equivalent) or professional, legal evaluation of firm's system of quality
3. The firm's or regulatory
firm's managing partner to assume control, including a periodic inspection
system of quality requirements.
ultimate responsibility for firms of a selection of completed engagements.
control should system of quality control. c) d o c u m e n t i n g 2. Firm should evaluate the deficiencies
include policies 3. If some other person(s) is assigned significant issues, noted as a result of monitoring process &
& procedures such operational responsibility, he consultations, con- should communicate to relevant engagement
addressing each of should have sufficient & appropriate clusions & the basis partners & other appropriate personnel.
the six elements experience, ability & authority to for conclusion. 3. Firm should also design policies &
of such system. assume that responsibility. procedures to appropriately address the
complaints & allegations.

Documentation Firm should establish policies and procedures requiring appropriate documentation to provide evidence of the
operation of each element of its system of quality control.
Factors to consider when determining the form and content of documentation for the same are:
• The s ze of the firm and the number of offices.
• The d gree of authority both personnel and offices have.
• The n ture and complexity of the firm’s practice and organization.
The firm retains this documentation for a period of time sufficient to permit those performing monitoring
procedures to evaluate the firm’s compliance with its system of quality control, or for a longer period if required by
law or regulation.

© ICAI BOS(A) 3
SARANSH Auditing

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This SA establishes the independent auditor's overall responsibilities when conducting an

Scope of the
audit of financial statements in accordance with SAs. It sets out the overall objectives of the
SA
independent auditor, and explains the nature and scope of an audit.
SA 200- "Overall Objectives of the Independent Auditor and the Conduct of an Audit

In conducting an audit of financial statements, the overall objectives of the auditor are:
Overall (a) To obtain reasonable assurance about whether the financial statements as a whole are free
objectives from material misstatement, whether due to fraud or error, thereby enabling the auditor to
of the express an opinion on whether the financial statements are prepared, in all material respects, in
Auditor accordance with an applicable financial reporting framework; and
(b) To report on the financial statements, and communicate as required by the SAs, in
accordance with the auditor’s findings.
in Accordance with Standards on Auditing"

Ethical
requirements, The auditor shall:
professional 1. comply with ethical requirements including independence.
skepticism, 2. plan & perform an audit with professional skepticism.
professional 3. exercise professional judgement in planning & performing an audit of financial statements.
judgement and
SAAE & audit 4. obtain sufficient appropriate audit evidence (SAAE) to reduce audit risk to an acceptably low
risk level.

A) The auditor shall:

1. comply with all SAs relevant to the audit.
2. have an understanding of the entire text of SA, including its application & other
explanatory material.
3. not represent compliance with SAs in the auditor's report unless the auditor has
complied with the requirements of this SA & all other SAs relevant to the audit.
B) To achieve the overall objectives, the auditor shall use the objectives stated in the
relevant SAs in planning & performing the audit.
Conduct of
an Audit in C) The auditor shall comply with each requirement of an SA unless, in the circumstances
accordance of the audit:
with SAs (a) The entire SA is not relevant; or
(b) The requirement is not relevant because it is conditional and the condition does not
exist.
In exceptional circumstances, the auditor may judge it necessary to depart from a relevant
requirement in an SA. In such circumstances, the auditor shall perform alternative audit
procedures to achieve the aim of that requirement.
D) If an objective in a relevant SA cannot be achieved, the auditor shall evaluate whether
this prevents the auditor from achieving the overall objectives of the auditor and thereby
require the auditor to modify the opinion or withdraw from the engagement.

“The more that you read, the more things you will know, the more that you learn,
the more places you’ll go.” —Dr. Seuss

© ICAI BOS(A) 4
SARANSH Auditing

SA 210

"Agreeing the Terms of Audit Engagements"

Scope of the SA Preconditions Requirements Acceptance of a Change in Additional

& Objective of for an Audit of the SA the audit engagement terms Considerations in
the auditor Engagement Acceptance

Scope
This SA deals with the
auditor's responsibilities
in agreeing the terms of
the audit engagement
with management/
TCWG.
Objective
To accept or continue
an audit engagement
only when the basis
upon which it is to be
performed has been
agreed, through:
a) Establishing whether
the preconditions
for an audit are
present.
b) Confirming that
there is a common
understanding
between the auditor
& management/
TCWG of the
terms of the audit
engagement.
1. If management/ TCWG impose limitation
on the scope of auditor's work, such that the
limitation will result the auditor in disclaiming
the opinion, the auditor shall not accept such a
limited engagement.
2. If the preconditions of audit are not present,
the auditor shall discuss the matter with
management. The auditor shall not accept the
proposed engagement if FRF is not acceptable or
if engagement agreement has not been obtained.
3. Audit Engagement Terms shall include:
i) Objective & scope of audit.
ii) Responsibilities of the auditor.
iii) Responsibilities of management.
iv) Identification of applicable FRF.
v) Reference to expected content & form of
report.
If law/ regulation prescribes terms, no need for a
separate written agreement, except for the fact that
such law/ regulation applies & the management
acknowledges the same.
4. Recurring Audits: Auditor shall assess whether
to revise/ remind the terms.
1. If, prior to completing the audit
engagement, the auditor is
requested to change the audit
engagement that conveys a
lower level of assurance, the
auditor shall determine whether
there is reasonable justification
for doing so.
2. If terms of audit engagement
are changed, the auditor &
management shall agree on the
new terms of engagement.
3. If the auditor is unable to
agree to the changed terms &
management doesn't permit the
auditor to continue the original
audit engagement, the auditor
shall withdraw & report to
TCWG.
1. The auditor shall determine whether there
is conflict between the financial reporting
standards & the additional requirements.

In order to establish whether the preconditions

for an audit are present, the auditor shall: 2. If such conflict exists, auditor shall discuss
with the management as to whether:
i) additional requirements can be met
1. Determine whether the FRF to be applied in through additional disclosures.
the preparation of the financial statements is ii) a description of applicable FRF in the
acceptable and financial statements can be amended.

2. Obtain the agreement of management 3. If the above is not possible, auditor shall
that it acknowledges and understands its modify the audit report.
responsibilities:
i) For preparation of financial statement as
per FRF. 4. (i) If law prescribes the audit report
ii) For internal control such that financial format that is significantly different
statements are free from material from the requirements of the SA,
misstatements. auditor should give additional
iii) To provide the auditor with access to all explanation in the audit report.
the information, additional information, (ii) If that is not possible, auditor shall not
& unrestricted access to persons within accept the audit engagement.
the entity.

© ICAI BOS(A) 5
SARANSH Auditing

SA 220

"Quality Control for an Audit of Financial Statements"

Scope of the SA Some requirements Acceptance & Engagement Engagement Other important
& Objective of of the SA w.r.t Continuance Performance Quality Control points to be
the auditor engagement partner of Client Review considered
Relationships

Scope
This SA deals with the specific
1. If there is difference of opinion
responsibilities of the auditor The engagement partner shall within the engagement team, or with
regarding quality control take responsibility for: consultant or reviewer, the audit
procedures for an audit of financial 1. the direction, supervision team shall follow the firm's policies &
statements. It also addresses the & performance of procedures for resolving the same.
responsibilities of the engagement audit engagement & the 2. The engagement partner shall
quality control reviewer. appropriateness of auditor consider the results of firm's
report. monitoring process and the
Objective deficiencies noted.
To implement quality control 3. The auditor shall document:
2. the reviews being performed i) issues identified w.r.t. compliance
procedures at the engagement
in accordance with the firm's of ethical requirements including
level that provide a reasonable
review policies & Procedures. independence.
assurance that:
i) the audit complies with ii) conclusions regarding acceptance
professional standards & continuance of client
3. the engagement team taking relationships.
& regulatory & legal
appropriate consultation iii) nature, scope & conclusions of
requirements.
on difficult & contentious consultations.
ii) the auditor's report issued matters.
is appropriate in the 4. The engagement quality control
circumstances. reviewer shall document that:
i) the procedures required for review
that have been performed.
ii) review has been completed on or
before the audit report date.
The engagement partner shall: iii) there are no unresolved matters.
1. take leadership responsibilities for the
overall quality of audit.
2. remain alert for evidence of non compliance
with relevant ethical requirements by the The engagement partner shall:
engagement team members and in case a) Determine that the quality control reviewer
of non compliance shall take appropriate has been appointed.
action. b) Discuss significant matters arising during
3. shall form a conclusion on compliance with the audit & review with the reviewer.
independence requirements that apply to c) Not date auditor's report before the
the audit engagement. completion of review.
The quality control reviewer shall:
a) Discuss significant matters with the
1. If engagement partner obtains information that would Engagement partner.
have caused the firm to decline the audit engagement, the b) Review the financial statements & auditor's
engagement partner & the firm shall take necessary action. report.
c) Review selected audit documentation.
d) Evaluate the conclusions reached.
In case of listed entities, the reviewer shall
2. The engagement partner shall ensure that the audit team consider:
& auditor's expert have the appropriate competence & the a) Evaluation of firm's independence.
capabilities. b) Whether appropriate consultation has been
taken.
c) Audit documentation w.r.t. significant
judgments.

© ICAI BOS(A) 6
SARANSH Auditing

Scope
This SA deals with auditor's responsibility to prepare audit documentation for an audit of
Scope of financial statements.
the SA & Objective
Objective of The objective of the auditor is to prepare documentation that provides:
the Auditor a) sufficient appropriate record of the basis for auditor's report.
b) evidence that the audit was planned & performed in accordance with SAs & legal &
regulatory requirements.

Audit Documentation: The record of audit procedures performed, relevant audit evidence
obtained and conclusions the auditor reached.
Audit File:
One or more folders or other storage media, in physical or electronic form, containing the
records that comprise the audit documentation for a specific engagement.
Experienced Auditor:
Definitions An individual (whether internal or external to the firm) who has practical audit experience, and a
reasonable understanding of:
(i) Audit processes;
(ii) SAs and applicable legal and regulatory requirements;
(iii) The business environment in which the entity operates; and
(iv) Auditing and financial reporting issues relevant to the entity’s industry.

Audit documentation that meets the requirements of this SA and the specific documentation
requirements of other relevant SAs provides:
(a) Evidence of the auditor’s basis for a conclusion about the achievement of the overall
SA 230- "Audit Documentation"

objectives of the auditor; and

(b) Evidence that the audit was planned and performed in accordance with SAs and applicable
legal and regulatory requirements.
Nature and Audit documentation serves a number of additional purposes, including the following:
Purposes t
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or other requirements.

The auditor shall prepare audit documentation on a timely basis. Preparing sufficient and
Timely appropriate audit documentation on a timely basis helps to enhance the quality of the audit and
Preparation facilitates the effective review and evaluation of the audit evidence obtained and conclusions
of Audit reached before the auditor’s report is finalised. Documentation prepared after the audit work
Documentation has been performed is likely to be less accurate than documentation prepared at the time such
work is performed.

1. The auditor shall prepare audit documentation that is sufficient to enable an experienced
auditor, having no previous connection with the audit, to understand:
a) The nature, timing and extent of the audit procedures performed to comply with the SAs
and applicable legal and regulatory requirements;
b) The results of the audit procedures performed, and the audit evidence obtained; and
c) Significant matters arising during the audit, the conclusions reached thereon, and significant
professional judgements made in reaching those conclusions.
Form, content 2. In documenting the nature, timing and extent of audit procedures performed, the auditor
& extent shall record:
of Audit a) The identifying characteristics of the specific items or matters tested;
Documentation b) Who performed the audit work and the date such work was completed; and
c) Who reviewed the audit work performed and the date and extent of such review.
3. The auditor shall document discussions of significant matters with management, those
charged with governance, and others, including the nature of the significant matters discussed
and when and with whom the discussions took place.
4. If the auditor identified information that is inconsistent with the auditor’s final conclusion
regarding a significant matter, the auditor shall document how the auditor addressed the
inconsistency.

© ICAI BOS(A) 7
SARANSH Auditing

If, in exceptional circumstances, the auditor performs new or additional audit procedures or
SA 230- "Audit Documentation" contd...

draws new conclusions after the date of the auditor’s report, the auditor shall document:
Matters Arising
after the Date (a) The circumstances encountered;
of the Auditor’s (b) The new or additional audit procedures performed, audit evidence obtained, and
Report conclusions reached, and their effect on the auditor’s report; and
(c) When and by whom the resulting changes to audit documentation were made and
reviewed.

1. The auditor shall assemble the audit documentation in an audit file and complete the
administrative process of assembling the final audit file on a timely basis after the date of the
auditor’s report.
Assembly of 2. After the assembly of the final audit file has been completed, the auditor shall not delete or
Final Audit discard audit documentation of any nature before the end of its retention period.
File 3. Where the auditor finds it necessary to modify existing audit documentation or add new audit
documentation after the assembly of the final audit file has been completed, the auditor shall,
regardless of the nature of the modifications or additions, document:
(a) The specific reasons for making them; and
(b) When and by whom they were made and reviewed.

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Scope
This SA deals with auditor's responsibilities relating to fraud in an audit of financial statements.
It expands on how SA 315 & SA 330 are to be applied in relation to ROMM due to fraud.
The objectives of the auditor are:
Scope of the SA
(a) To identify and assess the risks of material misstatement in the financial statements due
& Objective of
to fraud;
the Auditor
(b) To obtain sufficient appropriate audit evidence about the assessed risks of material
misstatement due to fraud, through designing and implementing appropriate responses;
and
(c) To respond appropriately to identified or suspected fraud.
SA 240- " The Auditor's Responsibilities Relating to Fraud in an Audit of Financial Statements"

1. Misstatements in the financial statements can arise from either fraud or error.
2. The distinguishing factor between fraud and error is whether the underlying action that
results in the misstatement of the financial statements is intentional or unintentional.
3. Although fraud is a broad legal concept, for the purposes of the SAs, the auditor is concerned
Characteristics with fraud that causes a material misstatement in the financial statements.
of Fraud 4. Two types of intentional misstatements are relevant to the auditor–misstatements resulting
from fraudulent financial reporting and misstatements resulting from misappropriation of
assets.
5. Although the auditor may suspect or, in rare cases, identify the occurrence of fraud, the
auditor does not make legal determinations of whether fraud has actually occurred.

In accordance with SA 200, the auditor shall maintain professional skepticism throughout the
audit, recognizing the possibility that a material misstatement due to fraud could exist.
Professional Unless the auditor has reason to believe the contrary, the auditor may accept records and
Skepticism documents as genuine.
Where responses to inquiries of management or those charged with governance are inconsistent,
the auditor shall investigate the inconsistencies.

SA 315 requires a discussion among the engagement team members and a determination by
the engagement partner of matters which are to be communicated to those team members not
Discussion involved in the discussion.
Among the This discussion shall place particular emphasis on how and where the entity’s financial
Engagement statements may be susceptible to material misstatement due to fraud, including how fraud
Team might occur.
The discussion shall occur notwithstanding the engagement team members’ beliefs that
management and those charged with governance are honest and have integrity.

Risk
Assessment When performing risk assessment procedures and related activities to obtain an understanding
Procedures of the entity and its environment, including the entity’s internal control, required by SA 315,
and Related the auditor shall perform the specified procedures to obtain information for use in identifying
Activities the risks of material misstatement due to fraud.

In accordance with SA 315, the auditor shall identify and assess the risks of material
Identification misstatement due to fraud at the financial statement level, and at the assertion level for
and classes of transactions, account balances and disclosures.
Assessment
When identifying and assessing the risks of material misstatement due to fraud, the
of the Risks
auditor shall, based on a presumption that there are risks of fraud in revenue recognition,
of Material
evaluate which types of revenue, revenue transactions or assertions give rise to such risks.
Misstatement
Due to Fraud The auditor shall treat those assessed risks of material misstatement due to fraud as
significant risks.

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In accordance with SA 330, the auditor shall determine overall responses to address the
assessed risks of material misstatement due to fraud at the financial statement level.
In determining overall responses to address the assessed risks of material misstatement due to
Responses to fraud at the financial statement level, the auditor shall:
the Assessed
Risks of (a) Assign and supervise personnel taking account of the knowledge, skill and ability of
Material the individuals to be given significant engagement responsibilities and the auditor’s
Misstatement assessment of the risks of material misstatement due to fraud for the engagement;
SA 240- " The Auditor's Responsibilities Relating to Fraud in an Audit of Financial Statements" contd...

Due to Fraud- (b) Evaluate whether the selection and application of accounting policies by the entity,
Overall particularly those related to subjective measurements and complex transactions, may
Responses be indicative of fraudulent financial reporting resulting from management’s effort to
manage earnings; and
(c) Incorporate an element of unpredictability in the selection of the nature, timing and
extent of audit procedures.

Audit
Procedures
Responsive to
Assessed Risks In accordance with SA 330, the auditor shall design and perform further audit procedures
of Material whose nature, timing and extent are responsive to the assessed risks of material misstatement
Misstatement due to fraud at the assertion level.
Due to Fraud at
the Assertion
Level

The auditor shall evaluate whether analytical procedures that are performed when forming
an overall conclusion as to whether the financial statements as a whole are consistent with the
auditor’s understanding of the entity and its environment indicate a previously unrecognized
risk of material misstatement due to fraud.
When the auditor identifies a misstatement, the auditor shall evaluate whether such a
misstatement is indicative of fraud.
If there is such an indication, the auditor shall evaluate the implications of the misstatement in
Evaluation of relation to other aspects of the audit.
Audit Evidence If the auditor identifies a misstatement and the auditor has reason to believe that it is or may
be the result of fraud and that management (in particular, senior management) is involved,
the auditor shall re-evaluate the assessment of the risks of material misstatement due to fraud.
The auditor shall also consider whether circumstances or conditions indicate possible
collusion involving employees, management or third parties when reconsidering the reliability
of evidence previously obtained.
When the auditor confirms that, or is unable to conclude whether, the financial statements are
materially misstated as a result of fraud, the auditor shall evaluate the implications for the audit.

If, as a result of a misstatement resulting from fraud or suspected fraud, the auditor encounters
exceptional circumstances that bring into question the auditor’s ability to continue performing
the audit, the auditor shall:
(a) Determine the professional and legal responsibilities applicable in the circumstances.
Auditor Unable (b) Consider whether it is appropriate to withdraw from the engagement, where withdrawal
to Continue the from the engagement is legally permitted; and
Engagement (c) If the auditor withdraws:
(i) Discuss with the appropriate level of management and those charged with governance,
the auditor’s withdrawal from the engagement and the reasons for the withdrawal; and
(ii) Determine whether there is a professional or legal requirement to report to the person
or persons who made the audit appointment.

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SA 250

"Consideration of Laws and Regulations

in an Audit of Financial Statements"

Scope of the SA Definitions Auditor's Consideration Audit procedures Reporting of

& Objective of of Compliance with when non Identified/
the Auditor Laws & Regulations compliance is suspected non
Identified/ Suspected compliance

Scope Non Compliance: The auditor shall: 1. Obtain an understanding of

Deals with auditor's Acts of omission/ 1. Obtain a general understanding the nature of the act & the
responsibility to commission by the of applicable legal & regulatory circumstances.
consider laws & entity, either intentional framework & entities'
regulations when or unintentional, compliance with the same.
performing an which are contrary to 2. Evaluate possible effect on
audit of financial the prevailing laws or the financial statements.
statements. regulations. 2. Obtain sufficient appropriate
audit evidence about the
compliance with laws & 3. If auditor suspects non
regulations that have material compliance, discuss with
Such acts include management/ TCWG or
transactions entered effect on financial statements.
else consider the need to
Objective into by, or in the obtain legal advice.
a) To obtain name of, the entity, 3. Perform audit procedures to
sufficient or on its behalf, by identify instances of such non
appropriate TCWG, management compliance. 4. If unable to obtain sufficient
audit evidence or employees. Non information, evaluate the
regarding compliance does effect on auditor's opinion.
not include personal 4. The auditor shall remain alert to
compliance the instances of non compliance
with laws & misconduct (unrelated
to the business activities or suspected non compliance. 5. Evaluate the implications on
regulations.
of the entity) by TCWG, auditor's risk assessment,
b) To perform
management or 5. Obtain representation from reliability of management
specified audit
employees of the entity. management/ TCWG about representation & take
procedures
known non compliance. appropriate action.
to identify
instances of
non compliance
having material
effect. Reporting to TCWG:
c) To respond i) Auditor to communicate matters of non compliance to TCWG.
appropriately ii) If non compliance is intentional/ material, communicate immediately.
to identified iii) If management/ TCWG involved in non compliance, communicate to next
non-compliance/ higher level eg. audit committee/ supervisory board.
suspected non
compliance.
Reporting in Auditor's Report:
i) If non compliance has material effect & has not been adequately reflected in
financial statements- Qualified/ Adverse opinion.
ii) If unable to conclude the effect of non compliance, due to limitation imposed
by management - Qualified/ Disclaimer of opinion.

Reporting to Regulatory/ Enforcement authorities:

Report if required by law.

Documentation shall include:

i) identified & suspected non compliance.
ii) discussion with management/ TCWG/ parties outside the entity.

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SA 260

"Communication with Those Charged with Governance"

Scope of the SA & Definitions Matters to be Auditor's Other Important points

Objective of the Auditor Communicated Independence to be considered

Scope 1. Those charged The auditor shall In case of listed entities, the auditor shall
Deals with auditor's with governance: communicate to TCWG: communicate with TCWG:
responsibility to communi- a person(s) or 1. The responsibilities of the a) A statement that the engagement team
cate with TCWG in an audit organization(s) auditor in relation to the & others in the firm (network firms also)
of financial statements. with responsibility financial audit. have complied with relevant ethical
for overseeing the 2. The planned scope & requirements regarding independence &
Objective strategic direction timing of audit including b) the related safeguards that have been
a) To communicate of the entity & significant risks identified applied to eliminate identified threats
clearly with TCWG the obligations related by the auditor. to independence or reduce them to an
responsibilities of the to the accountability 3. The auditor's view about acceptable level.
auditor & overview of of the entity. This significant qualitative
planned scope & timing includes overseeing aspects of the entity's
of audit. the financial reporting accounting practices. The communication process:
b) To obtain from TCWG process. 4. Significant difficulties The auditor shall communicate with TCWG:
information relevant to 2. Management: encountered during the 1. the form, timing & expected general
the audit. The person(s) audit. content of communications.
c) To provide TCWG with with executive 5. Written representation the 2. in writing significant findings from the
timely observations that responsibility for the auditor is requesting. audit & regarding auditor independence.
are significant & relevant conduct of the entity's 6. Circumstances that affect 3. on timely basis.
to their responsibility operations. For some the form & content of The auditor shall evaluate the adequacy of the
to oversee the financial entities, management auditor's report. communication process with TCWG. If not
reporting process. includes some or all of 7. Any other significant found adequate, auditor shall evaluate the effect
d) To promote effective TCWG, for example, matter arising during & take appropriate action.
two way communication executive members of the audit relevant to the Documentation:
between auditor & a governance board, oversight of financial The auditor shall include the matters
TCWG. or an owner-manager. reporting process. communicated to TCWG (whether orally or in
writing) in audit documentation.

SA 265

"Communicating Deficiencies in Internal Control to

Those Charged With Governance and Management"

Scope of the SA Objective of the Definitions Requirements of

& Objective of Auditor the SA
the auditor
To communicate Deficiency in Internal Control: 1. The auditor shall determine, whether he has
Scope appropriately This exists when: identified one or more deficiencies in the
Deals with to TCWG and i) A control is designed, implemented internal control.
a u d i t o r ' s management or operated in such a way that 2. If Yes, the auditor shall determine whether,
responsibility to deficiencies in it is unable to prevent, or detect individually or in combination, they constitute
communicate internal control and correct, misstatements in the significant deficiencies.
appropriately that the auditor financial statements on a timely 3. The auditor shall communicate in writing
to TCWG and has identified basis. significant deficiencies identified to TCWG on
management during the audit timely basis.
ii) A control necessary to prevent, or
deficiencies in and that, in
detect and correct, misstatements 4. The auditor shall also communicate to
internal control the auditor's
in the financial statements on a management at an appropriate level of
that the auditor professional
timely basis is missing. responsibility on a timely basis, in writing about
has identified in an judgment, are
Significant deficiency in Internal significant deficiencies and other deficiencies.
audit of financial of sufficient
importance Control: 5. The written communication shall include:
statements.
to merit their A deficiency or combination of i) A description of the deficiencies and
respective deficiencies in internal control explanation of their possible effects.
attentions. that, in the auditor's professional ii) Sufficient information to enable TCWG/
judgment, is of sufficient importance management to understand the context of
to merit the attention of TCWG. the communication.

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SA 299

"Joint Audit of Financial Statements"

Scope of the SA Definitions Audit planning, Responsibility & Audit Conclusion Communication
& Objective of Risk assessment & Coordination among & Reporting with TCWG
the auditor Allocation of work joint auditors

Scope Individual Responsibility for: 1. Joint auditors to issue a

Deals with special considerations in In respect of work divided, each
carrying out audit by joint auditors. joint auditor shall be responsible
This SA lays down the principles for only for the work allocated to such
effective conduct of joint audit to joint auditor including proper
achieve the overall objectives of the execution of the audit procedures.
auditor laid down in SA 200.
Objective Jointly & Severally Responsible
for:
a) To lay down broad principles for
the joint auditors in conducting 1. Audit work not divided and
the joint audit. carried out by all joint auditors.
b) To provide a uniform approach to 2. Decisions taken by all joint
the process of joint audit. auditors in respect of common
audit areas.
c) To identify the distinct areas of
work & coverage thereof by each 3. Matters brought to the notice of
joint auditor. joint auditors by any one of them
& on which all of them agree.
d) To identify individual responsi-
bility & joint responsibility of the 4. Examining compliance of
joint auditors in relation to audit. financial statements with
relevant statutes.
5. Presentation & disclosure of
financial statements as per
Joint Audit: applicable FRF.
A joint audit is an audit of financial statements 6. Ensuring compliance with
of an entity by two or more auditors appointed relevant statute, applicable SA &
with the objective of issuing the audit report. other relevant pronouncements.
Such auditors are described as joint auditors.
1. Engagement partner & other key members from each of the
joint auditors be involved in planning the audit.
common audit report.
2. In case of disagreement, they
shall express their opinion in
separate audit report.
3. A joint auditor is not bound by
the views of the majority.
4. The audit report issued by joint
auditor should refer to the
separate audit reports issued
by other joint auditors.
5. Such reference shall be made
in Other Matter paragraph.
6. Each joint auditor to assume
that:
i) The other joint auditors
carried out their work as
per SA. There is no need
to review the work done by
other auditors.
ii) Other joint auditors have
informed the said joint
auditor about any departure
from applicable FRF.
7. Before finalising their audit
report, the joint auditors shall
discuss & communicate with
each other their respective
conclusions that will form
content of the audit report.

2. The joint auditors shall establish the overall audit strategy.

When the joint auditors expect

3. The joint auditors shall discuss & develop a joint audit plan. to modify the opinion or include
EOM/ OM paragraph, they shall
4. ROMM is to be considered and assessed by each Joint communicate with TCWG regarding
Auditor and shall be communicated to other joint auditors the circumstances and the proposed
and documented, whether pertaining to the overall financial wordings of the report.
statements level or to the area of allocation among the other
joint auditors.

5. The joint auditors shall discuss & document the NTE of audit
procedures and the same shall be communicated to TCWG.

6. The joint auditors shall obtain common engagement letter &

common management representation letter.

7. The work allocation document shall be signed by all joint

auditors & communicated to TCWG.

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SA 300 - 499: Risk Assessment and Response to Assessed Risks

SA 300

" Planning an Audit of

Financial Statements"

Scope of Objective of Involvement of Preliminary Other Important

Planning
the SA the Auditor Key Engagement Engagement points to be
Activities
Team Members Activities considered

This SA deals The engagement The auditor shall undertake Documentation:

with the auditor’s partner & other the following activities at the The auditor shall
responsibility to key members of the beginning of the current audit document:
plan an audit engagement team engagement: 1. The overall audit
of financial shall be involved in 1. Performing procedures strategy.
statements. This planning the audit, required by SA 220. 2. The audit plan and
SA is framed in including planning 2. Evaluating compliance 3. Any significant changes
& participating made to the strategy
the context of with ethical requirements,
or the audit plan along
recurring audits. in the discussion including independence, as with the reasons.
among engagement required by SA 220.
team members. 3. Establishing an understanding
of the terms of engagement, as
required by SA 210. Additional
Considerations in Initial
Audit Engagements:
The objective of the Prior to starting an audit,
auditor is to plan the 1. The auditor shall establish an overall audit strategy that sets the auditor shall:
audit so that it will the scope, timing and direction of the audit and that guides the 1. Perform procedures
be performed in an development of the audit plan. required by SA
2. In establishing the overall audit strategy, the auditor shall: 220 regarding the
effective manner. acceptance of the
a) Identify characteristics of the engagement that defines its
client relationship
scope.
and the specific audit
b) Ascertain the reporting objectives. engagement.
c) Conisder the factors significant in directing engagement team's 2. Communicate with the
efforts. predecessor auditor.
d) Consider the results of preliminary engagement activities.
e) Ascertain the resources necessary to perform the engagement.
3. The auditor shall develop an audit plan including description of:
a) The planned risk assessment procedures, as per SA 315.
b) The planned further audit procedures at the assertion level as
per SA 330.
c) Other planned audit procedures.
4. The auditor shall update/ change overall audit startegy or plan as
necessary.
5. The auditor shall direct & supervise the engagement team and
review their work.

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SA 315

" Identifying and Assessing the Risk of

Material Misstatement through understanding
the Entity and its Environment"

Scope of Objective of Risk Assessment Understanding Identifying & Other important

the SA the Auditor procedures and the Entity and its Assessing the points to be
related activities Environment including ROMM considered
Internal Control

This SA deals A) Risk Assessment Significant Risks:

with the auditor’s Procedures include the The auditor shall obtain an
Entity & its Environment: understanding of the entity's
responsibility following: The auditor shall obtain an
1. Inquiries of management control and control activities
to identify and understanding of: relevant to the significant risk.
assess the risks and of others within the
entity.
a) Relevant industry, regulatory
of material & other external factors.
2. Analytical procedures.
misstatement 3. Observation and b) The nature of the entity.
(ROMM) in c) The accounting policies Risks for which Substantive
Inspection.
the financial including reasons for changes. Procedures alone do
statements, not provide sufficient
d) Entity's Objectives & appropriate audit evidence:
t h r o u g h Strategies. In such case the auditor shall
understanding B) The auditor shall e) Measurement & review of obtain an understanding of
the entity and consider whether the entity's financial performance. entity's controls over such
its environment, information obtained from risks.
including the auditor's client acceptance
entity's internal or continuance process or
control. Entity's Internal Control: The
information from other
auditor shall evaluate the design Revision of Risk Assessment:
engagement or previous
of the controls to determine The auditor's assessment of
audits is relevant in
whether they have been ROMM at the assertion level
identifying the ROMM. may change during the course
implemented.
of audit as additional audit
The auditor shall obtain evidence is obtained. In such
understanding of : case, the auditor shall revise
C) The audit team to 1. the control environment. and the assessment and modify
discuss the susceptibility entity's risk assessment process. the further planned audit
of the entity's financial 2. the information system and procedures accordingly.
statements to material entiy's communication process.
misstatement and the 3. the control activities relevant to
the audit and the major activities
application of the
used by entity to monitor internal Documentation:
applicable FRF to control over financial reporting. Auditor shall document:
the entity's facts and 4. the internal audit function and 1. The discussion among the
circumstances. sources of information used in engagement team.
entity's monitoring activities. 2. Key elements of the
understanding obtained.
To identify and assess 3. Identified & Assessed
the ROMM, whether due ROMM.
to fraud or error at the 4. The risks identified and the
financial statement and related controls.
assertion levels, through The auditor shall identify and assess ROMM at:
understanding the entity & • financial statement level &
its environment, including • assertion level for classes of transactions and account balances.
the entity's internal control,
The auditor shall:
therby providing a basis for 1. Identify risks throughout the process of obtaining understanding of
designing and implementing the entity.
the responses to the assessed 2. Assess the identified risk and evaluate whether they have pervasive
ROMM. effect.
3. Relate the identified assertions to what can go wrong at the
assertion level.
4. Consider the likelihood of the misstatement and its magnitude.

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SA 320

"Materiality in Planning and Performing an Audit"

Scope of the SA Determining Materiality & Use of Benchmarks Other important

& Objective of Performance Materiality points
the Auditor

Scope 1. Determining materiality

1. The auditor shall determine the materiality for the
This SA deals involves exercise of
financial statements as a whole.
with the auditor's professional judgement.
responsibility to
apply the concept
of materiality
in planning & 2. If there is one or more particular classes of 2. A percentage is often applied
performing an transactions, account balances or disclosures for to a chosen benchmark as a
audit of financial which misstatements of lesser amounts than the starting point in determining
statements. materiality for the financial statements as a whole materiality for the financial
could reasonably be expected to influence the statements as a whole.
economic decisions of users taken on the basis of the
financial statements, the auditor shall also determine
Objective the materiality level or levels to be applied to those
particular classes of transactions, account balances 3. Examples of benchmarks:
To apply the a) Profit before tax
concept of or disclosures.
b) total revenue
materiality c) gross profit
appropriately d) total expenses etc.
in planning and
performing an 3. The auditor shall determine performance materiality
audit. for purposes of assessing the ROMM and
dertermining the nature, timimg & extent of further
audit procedures.

Revision as the Audit progresses:

Definition
Performance materiality means the
amount or amounts set by the auditor
at less than materailty for the financial
statements as a whole to reduce to an
appropriately low level the probability
that the aggregate of uncorrected and
undetected misstatements exceeds
materiality for the financial statements
as a whole.
1. Materiality for the financial statements as a whole
may need to be revised as a result of a change in
circumstances that occurred during the audit, new
information, or a change in the auditor’s understanding
of the entity and its operations as a result of performing
further audit procedures.
2. If the auditor concludes that a lower materiality for
the financial statements as a whole than that initially
determined is appropriate, the auditor shall determine
whether it is necessary to revise performance
materiality, and whether the nature, timing and extent
of the further audit procedures remain appropriate.
Documentation of:
1. Materiality for the financial statements as a whole.
2. The materiality level or levels for particular classes of
transactions, account balances or disclosures.
3. Performance materiality.
4. Any revision as the audit progressed.

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SA 330

"The Auditor's Responses to Assessed Risks"

Scope of the SA Requirements Test of Substantive Other important

& Objective of of SA controls procedures points
the Auditor

Scope Overall Responses: The A) The auditor shall design 1. Irrespective of the assessed
This SA deals auditor shall design & & perform test of controls ROMM, auditor shall
with the auditor’s implement overall responses when: perform substantive
responsibility to address the assessed 1. the auditor expects that procedures.
to design and ROMM at the financial the controls are operating 2. Auditor shall consider
implement statement level. effectively or whether external
responses to 2. Substantive procedures confirmation are to be
ROMM identified alone cannot provide performed as Substantive
& assessed by sufficient appropriate audit audit procedures.
the auditor in Audit Procedures for evidence at the assertion 3. Auditor shall perform
accordance Assessed ROMM at level. substantive procedures
with SA 315 Assertion Level: related to financial
B) The auditor shall perform
in a financial The auditor shall design statement closing process
other audit procedures along
statement audit. & perform further audit and those responsive to
with inquiry & determine
procedures whose nature, significant risks.
whether the controls to be
timing & extent are based 4. When substantive
tested depend upon indirect
on & are responsive to the procedures are performed
controls.
Objective assessed ROMM at the at an interim date, the
assertion level. C) The auditor shall test auditor shall cover the
To obtain
controls for a particular time remianing period also.
sufficient &
or throughout the period. 5. If misstatements that the
appropriate audit
evidence about D) The auditor may use audit auditor did not expect
In designing Further Audit
the assessed evidence obtained in previous when assessing ROMM
Procedures, the auditor
ROMM, through audits after considering are detected at an interim
shall:
designing & continuing relevance. date, the auditor shall
a) Consider the reasons
implementing for the assessment given E) The auditor shall test the evaluate whether the
appropriate to the ROMM at the controls for significant risk in related assessment of risk
responses to assertion level for each current period. & planned substantive
those risks. class of transactions, procedures covering the
F) When deviations from
account balance and remaining period need to be
controls are detected, the
disclosure. modified.
auditor shall make specific
b) Obtain more persuasive inquires to understand these
audit evidence because matters & their potential
of a higher assessment of consequences.
risk.

Definition
Substantive Procedure: 1. The auditor shall perform audit procedures to evaluate
An audit procedure designed to detect material the adequacy of presentation & disclosures made in the
misstatements at the assertion level. It comprises of: financial statements.
1. Test of details (of classes of transactions, account 2. The auditor shall evaluate the sufficiency &
balances, & disclosures), & appropriateness of audit evidence.
2. Substantive analytical procedures. 3. The auditor shall document:
a) the overall responses and the nature , timing, extent
of further audit procedures performed.
Test of Controls:
b) the linkage of those procedures with assessed risks
An audit procedure designed to evaluate operating at the assertion level.
effectiveness of controls in preventing, or detecting and c) the results of audit procedures.
correcting, material misstatements at the assertion level.

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SA 402

"Audit Considerations Relating to an Entity Using a Service Organisation"

Scope of Objective of the Types of Reports & their Requirements Reporting by the
the SA Auditor use by user auditor of the SA user auditor

This SA deals The objective of the user A) Type 1 Report The auditor shall obtain
with the auditor’s auditor, when the user entity Report on the description & an understandng of the
responsibility to uses the services of service design of controls at a service services provided by a
obtain sufficient organisation are: organisation. service organisation,
appropriate audit including internal control
evidence when a B) Type 2 Report that relate to the services
user entity uses Report on the description, provided by the service
the services of one To obtain an understanding design & operating orgainsation.
or more service of the nature & significance effectiveness of controls at a
organisations. of the service provided by the service organisation.
service organisation & their C) In determining the
effect on the user entity's sufficiency & appropriateness If the auditor is unable
internal control, sufficient of audit evidence provided by to obatin sufficient
to identify & assess the Type 1 & Type 2 report, the understanding from the user
ROMM. user auditor shall be satisfied entity, the user auditor shall
as to: obtain that understanding
(i) The service auditor's by:
professional competence. a) Obtaining Type1 or
To design & perform audit (ii) The adequacy of standards Type 2 report.
procedures responsive to under which the Type 1 or b) Contacting service
those risks. Type 2 report was issued. organisation through
D) When the user auditor user entity.
plans to use Type 2 report c) Visiting the service
as audit evidence, the user organisation &
auditor shall determine performing procedures.
whether the service auditor's d) Using another auditor to
report provides sufficient & perform the procedures.
appropriate audit evidence
about the effectiveness of the
Definition controls to support theuser
auditor's risk assessment.
Service auditor: An auditor who, at
the request of the service organisation,
provides an assurance report on the
controls of a service organisation.
Service Organisation: A third party
1. If the user auditor is unable to obtain sufficient
organisation that provides services
appropriate audit evidence regarding the services
to user entities that are part of those
provided by the service organisation, the user auditor
entities' information system relevant
shall modify his audit opinion.
to financial reporting.
2. The user auditor shall not refer to the work of the
User Auditor: An auditor who audits service auditor in the user's auditor report containing
& reports on the financial statements unmodified opinion.
of a user entity. 3. If user auditor makes reference of the work of the
User Entity: An entity that uses service auditor in user auditor's report with modified
a service organisation and whose opinion, the user's auditor report shall also indicate
financial statements are being that such reference does not diminish the user auditor's
audited. responsibility for that opinion.

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SA 450

"Evaluation of Misstatements Identified during the Audit"

Scope of Objective of the Requirements Evaluating the effect of Other important

the SA Auditor of the SA Uncorrected misstatements points to be
considered

This SA deals The objective of the Auditor 1. The auditor shall accumulate The auditor shall first
with the auditor’s is to evaluate: misstatements identified during reassess the materiality
responsibility audit other than those clearly determined in accordance
to evaluate the trivial. with SA 320.
effect of identified 2. The auditor shall determine
misstatements whether the overall audit
on the audit and 1. The effect of identified strategy or audit plan need to
of uncorrected The auditor shall
misstatements on audit be revised.
misstatement s , determine whether
and 3. If at auditor's request,
if any, on u n c o r r e c t e d
the financial management has examined misstatements are
statements. or corrected any misstatement material, individually or in
that was detected, the auditor aggregate by considering:
2. The effect of uncorrected shall perform additional
misstatement, if any, on a) The size & nature of
audit procedure to determine misstatements.
the financial statements. whether misstatement remains.
b) The effect of
4. The auditor shall communicate u n c o r r e c t e d
all accumulated misstatements misstatements of prior
on timely basis at appropriate periods.
level of management with a
request to correct them.
5. If management refuses to
correct them, auditor shall
consider managment's
reasons for refusal and shall
evaluate whether the financial
statements as a whole are free
from material misstatement.
Definition
Misstatement: A difference
Communication with TCWG:
between the amounts,
The auditor shall communicate with TCWG
classification, presentation or
a) uncorrected misstatements & their effects and request that
disclosure of a reported financial
uncorrected misstatements be corrected.
statement item and the amount,
b) the effect of uncorrected misstatements related to prior periods.
classification, presentation or
disclosure that is required for the
item to be in accordance with the
applicable FRF. Written Representation:
The auditor shall request a written representation from managment/
Misstatements can arise from
TCWG whether they believe the effects of uncorrected misstatements
error or fraud.
are immaterial, individually or in aggregate, to the financial statements
as a whole.
Uncorrected Misstatements:
Misstatements that the auditor has
accumulated during the audit and
Documentation:
that have not been corrected.
1. The amount below which misstatements would be regarded as
clearly trivial.
2. All misstatements accumulated during the audit & whether they
have been corrected.
3. The auditor's conclusion as to whether the uncorrected
misstatements are material and the basis of that conclusion.

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SA 500 - 599: Audit Evidence

SA 500 - "Audit Evidence"

Scope of Objective of Information to be used Audit procedures to Inconsistency in or

the SA the auditor as audit evidence obtain audit evidence doubts over reliability
of audit evidence

This SA deals with the To design and The auditor shall consider the relevance Audit evidence to
auditor's responsibility perform audit and reliability of the information to be draw reasonable The auditor shall
to design and perform procedures in used as audit evidence. conclusions on determine what
audit procedures to obtain such a way as to which to base the modifications
sufficient and appropriate enable the auditor When information from management auditor's opinion or additions to
audit evidence to be to obtain sufficient expert is used, the auditor shall is obtained by audit procedures
able to draw reasonable appropriate audit evaluate the competence, objectivity performing: are necessary
conclusions on which to evidence to be able of the expert, appropriateness of the 1. R i s k to resolve the
expert's work. Assessment matter and
base the auditor's opinion. to draw reasonable
conclusions on procedures shall consider
This SA is applicable to When using information produced by
which to base 2. Further audit the effect of the
all the audit evidence the entity, the auditor shall evaluate
auditor's opinion. procedures matter, if any, on
obtained during the the reliability, completeness, accuracy
comprising of : other aspects of
course of audit. of the information.
Test of the audit.
controls and
Definition Substantive
procedures
Audit Evidence: Information used by the auditor in arriving at the conclusions on which
the auditor's opinion is based. It includes both information contained in the accounting
records underlying the financial statements and other information.
Appropriateness: It is the measure of quality of audit evidence.
Sufficieny: It is the measure of quantity of audit evidence.

SA 501 - "Audit Evidence- Specific Considerations for Selected Items"

Scope of Objective of Inventory Litigations & Segment

the SA the auditor Claims Information

This SA deals with specific
considerations by the
auditor in obtaining
sufficient appropriate audit
evidence with respect
to inventory, litigation
and claims and segment
information in an audit of
financial statements.
To obtain sufficient and
appropriate audit evidence
regarding:
1. Existence and condition
of inventory
2. Completness of litigation
and claims involving the
entity.
3. Presentation and
disclosure of segment
information in accordance
with applicable FRF.
a) If inventory is material, obtain evidence a) Auditor to perform audit Auditor to obtain
for existence and condition of inventory procedures to identify audit evidence
by: litigation and claims by: reg ard i ng
1.Attendance at physical inventory 1.Inquiry of management. presentation
counting. 2.Reviewing minutes of and disclosure
2.Performing audit procedures over the meetings. of segment
entity's final inventory records. information in
3.Reviewing legal expense
b) If inventory counting conducted at date accordance with
accounts.
other than the date of financial statements, applicable FRF
perform additional procedures with b) If auditor assesses risk of
by:
respect to inventory between count date material misstatement, seek
and date of financial statements. direct communication with 1. Understanding
c) If auditor is unable to attend the physical entity's external legal counsel. the methods
inventory counting due to unforeseen used by the
c) If auditor is unable to
circumstances, auditor to make/ observe management
communicate with the
some physical count on alternate date and in determining
external legal counsel, modify s e g m e n t
perform audit procedures on intervening
transactions. the opinion as per SA 705. information
d) If attendance at inventory count is d) Obtain Written 2. P e r f o r m i n g
impracticable, auditor to perform Representation that all analytical
alternate procedures. If it is not possible known actual or possible procedures.
to do so, modify the opinion. litigation and claims have
e) When inventory is under custody of third been disclosed to the auditor
party, request confirmation from third and appropriately accounted
party and perform inspection and other for as per applicable FRF.
procedures.

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SA 505 - "External Confirmations"

Management's refusal to Results of the External

Scope of the SA External Confirmation procedures
allow the auditor to send
& Objective of Confirmation
a confirmation request
the auditor Procedures
A) Reliability of responses to confirmation requests:
If auditor has doubt about reliability of response,
Scope 1. D e t e r m i n i n g 1. Inquire as to management’s
auditor to obtain further audit evidence. If auditor
This SA deals the information reasons for the refusal, and determines response is not reliable, auditor to evaluate
with auditor's to be seek audit evidence as to their the implications on the assessment of risk of material
use of external confirmed/ validity and reasonableness misstatement.
confirmation requested. 2. Evaluate the implications B) Non Response: Auditor shall perform alternative
procedures to 2. Selecting the of management’s refusal on audit procedures.
obtain audit appropriate the auditor’s assessment of C) When a response to positive confirmation is
evidence. confirming the relevant risks of material necessary and the same is not received: Determine
party. misstatement, including the implications on the audit and the auditors opinion.
the risk of fraud, and on the D) Exception: Auditor shall investigate exceptions
3. Designing the
Objective nature, timing and extent of to determine whether or not they are indicative of
conf ir mation
To design other audit procedures; and misstatement.
requests.
and perform 3. Perform alternative audit E) Negative Confirmation: Auditor to use negative
4. Sending the
e x t e r n a l procedures designed to confirmation as sole substantive audit procedure when:
requests,
confirmation obtain relevant and reliable 1. Assessed Risk of Material misstatement is low and
including
procedures to audit evidence. relevant controls are effective.
follow-up
obtain relevant 2. The population comprise of large number of small,
requests. If management's refusal
and reliable homogeneous transactions.
audit evidence. is unreasonable, then
communicate with TCWG and 3. A very low exception rate is expected.
consider the implications on 4.The auditor is not aware of circumstances that would
audit and auditor's opinion. cause recipients of negative confirmation requests to
disregard such requests.

SA 510 - "Initial Audit Engagements- Opening Balances"

Scope of the SA Audit Procedures Audit Conclusion

This SA deals with and reporting
auditor's responsibilities
relating to opening
balances when Opening Balances: Consistency Relevant Opening Balances:
conducting an initial The auditor shall: of Accounting Information
1. If auditor is unable to obtain
audit engagement. 1. Read the most recent Policies: in the
audit evidence regarding opening
financial statements Obtain audit Predecessor's
balances- Qualified/ disclaimer of
and predecessor's evidence as to Auditor's
Objective of the opinion.
auditor's report. whether the Report :
auditor 2.If auditor concludes opening
2. Determine whether accounting I f
To obtain sufficient balances contain misstatement,
prior period's policies are modification
appropriate audit not properly presented/ disclosed-
evidence about: closing balance consistently in predecessor
Qualified/ Adverse Opinion.
has been correctly applied and auditor's
1. Whether opening
brought forward. in case of r e p o r t ,
balances contain Consistency of Accounting
misstatements 3. Determine whether any changes, evaluate the
the opening balances w h e t h e r effect of the Policies:
that materially
affect the current reflect appropriate p r o p e r l y matter giving If auditor concludes that accounting
period's financial accounting policies. accounted for, rise to such policies are not consistently applied
statements. 4. Perform audit presented and modification in relation to opening balances or
2. W h e t h e r procedures on disclosed. with respect changes are not properly accounted
appropriate opening balances. to current for- Qualified/ Adverse Opinion.
accounting 5. If current period period's
policies are financial statements financial Modification to the opinion in the
consistently are misstated due statements. predecessor's auditor's report:
applied and any to misstatement in
opening balances, If the modification is relevant and
change thereto
communicate with material to the current period's
has been properly
management or financial statements, auditor shall
accounted for,
presented and TCWG. modify the current period audit
disclosed. report.

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SA 520

"Analytical Procedures"

Scope of the SA & Substantive Analytical procedures that Investigating results of

Objective of the auditor
Scope
This SA deals with auditor's use of
analytical procedures as substantive
procedures and as procedures near
the end of audit that assist the auditor
when forming an overall conclusion
on the financial statements.
Objective
1. To obtain relevant & reliable audit
evidence when using substantive
analytical procedures.
2. To design and perform analytical
procedures near the end of audit.
Analytical Procedures
While designing and
performing substantive
analytical procedures,
the auditor shall:
1. Determine suitability of
analytical procedure for
given assertions.
2. Evaluate reliability of
Data.
3. Develop an expectation
of recorded amounts.
4. Determine the amount
of acceptable difference.
assist when forming an
overall conclusion
The auditor shall design
and perform analytical
procedures near the end
of the audit that assist the
auditor when forming
an overall conclusion as
to whether the financial
statements are consistent
with the auditor's
understanding of the entity.
analytical procedures
If auditor finds fluctuations
or relationship that are
inconsistent with other
relevant information
auditor shall investigate
such differences by:
1. Inquiring of management
and obtaining appropriate
audit evidence relevant to
management's responses
and
2. Performing other audit
procedures as necessary
in the circumstances.

Definition
Analytical Procedures means evaluations of financial information through
analysis of plausible relationships among both financial and non-financial data.
Analytical procedures also encompass such investigation as is necessary of
identified fluctuations or relationships that are inconsistent with other relevant
information or that differ from expected values by a significant amount.

SA 530

"Audit Sampling"

Scope of the SA & Sample design, size and Performing Other points of
Objective of the auditor selection of items for testing Audit Procedures consideration

Scope 1. While designing audit 1. The auditor shall perform 1. The auditor shall investigate
This SA applies when the sample, the auditor shall appropriate audit the nature and cause of
auditor has decided to use consider the purpose of procedure on each item deviation or misstatement
audit sampling in performing the audit procedure and selected. identified and evaluate its
audit procedures. It deals the characteristics of the 2. If audit procedure is not possible effect.
with auditor's use of statistical population. applicable on the selelcted 2. When a deviation/
and non statistical sampling. 2. The auditor shall determine item, apply the procedure misstatement is considered
sample size sufficient to on a replacement item. as anomaly, the auditor shall
reduce sampling risk to an 3. If the auditor is unable to perform audit procedures to
Objective acceptably low level. apply the designed audit obtain high degree of certainty
To provide a reasonable 3. The auditor shall select procedure to a selected that it is not representative of
basis for the auditor to items for the sample such item, treat that item as the population.
draw conclusions about the that each sampling unit in a deviation from the 3. For test of details, the auditor
population from which the the population has a chance prescribed control, in case shall project misstatements
sample is selected. of selection. of tests of controls, or a found in the sample to the
misstatement, in the case population.
of tests of details. 4. The auditor shall evaluate
Definition the results of the sample
Audit Sampling: and whether the use
of audit sampling has
The application of audit procedures to less than 100% of provided a reasonable basis
items within a population of audit relevance such that all for conclusion about the
the sampling units have a chance of selection in order to population tested.
provide the auditor with a reasonable basis on which to
draw conclusions about the entire population.

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SA 540-Auditing Accounting Estimates, Including Fair Value

Accounting Estimates and Related Disclosures

Scope : Auditor's Responsibility regarding use

of accounting estimates by management

Management's Auditor's Responsibility/ Audit Reporting

Responsibility- Audit Procedure

Follow an unbiased Perform risk assessment

Adequate disclosure of If significant
approach in preparing for procedure and related
material matter, such as risk exist even
accounting estimates activites
after adequate
Responsibility- disclosure the
auditor may
conclude that
the assumptions and the disclosure
Identify and assess the risk
method of estimates used of estimation
To make appropriate of material misstatements
disclosure in FS about the uncertainty
assertion and estimates is inadequate
made. in light of the
basis of selection of
circumstances and
Response to the estimates
facts involved.
assessed risk of material
misstatements

any change in the method

of estimates as compared
Evaluate the to prior period
reasonableness of
accounting estimates

the source and implication

of estimation uncertainty

Important Definitions:

Accounting estimate – An approximation of a monetary amount in the absence of a precise means of measurement. This term is used
for an amount measured at fair value where there is estimation uncertainty, as well as for other amounts that require estimation. Where
this SA addresses only accounting estimates involving measurement at fair value, the term “fair value accounting estimates” is used.

Auditor’s point estimate or auditor’s range – The amount, or range of amounts, respectively, derived from audit evidence for use in
evaluating management’s point estimate

Management bias – A lack of neutrality by management in the preparation and presentation of information.

Management’s point estimate – The amount selected by management for recognition or disclosure in the financial statements as an
accounting estimate.

Estimation uncertainty – The susceptibility of an accounting estimate and related disclosures to an inherent lack of precision in its
measurement.

Outcome of an accounting estimate –The actual monetary amount which results from the resolution of the underlying transaction(s),
event(s) or condition(s) addressed by the accounting estimate.

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SA 550

"Related Parties"

Scope of Objectives of Requirements Identification of Identified significant Other

the SA the auditor of the SA previously unidentified related party transactions important
or undisclosed related outside the entity's normal points
part transactions. course of business
This SA deals with the auditor's
responsibilities regarding
related party relationships and
transactions. It expands on how
SA 315, SA 330, SA 240 are to be 1. Auditor shall determine The auditor shall obtain Written
applied in relation to related party whether the underlying Representation that:
relationships and transactions. circumstances confirm the a) all the related parties and related party
existence of such transactions. transactions have been disclosed to
2. Communicate within the the auditor and
team. b) all such transactions have been
A. To obtain an understanding of the
related party transactions to: 3. Request managment to properly accounted for and disclosed.
identify all transactions with
1. recognize fraud risk factors arising from
such transactions. newly identified related Communication with TCWG
parties. The auditor shall communicate with
2. conclude whether financial statements, in so
4. Perform more substantive TCWG significant matters arising
far as they are affected by such transactions
procedures. during the audit in connection with the
a) achieve a true and fair presentation. entity's related parties.
5. Reconsider risks with respect
b) are not misleading.
to other related parties.
Documentation:
6. If non disclosure by the
B. To obtain audit evidence as to whether The auditor shall include in audit
management appears
the related party transactions are documentation names of the related
intentional, evaluate the
properly identified, accounted for, and parties and the nature of the related
implications for the audit.
disclosed in the financial statements. party transactions.

1. Risk Assessment procedures and related activities. 1. Inspect the underlying contracts and
2. Understanding the Entity's related party relationships and evaluate:
transactions. a) the business rationale of the transactions.
3. Maintaining alertness for related party information when b) whether the terms of transactions are
reviewing records or documents. consistent with managment's explanations.
4. Sharing related party information with the Engagement team. c) whether such transactions have been
5. Identification and assessment of the risk of material properly accounted for.
misstatement associated with related party transactions and 2. Obtain audit evidence that the transactions
relationships.
have been appropriately authorised and
6. Responses to the Risks of Material Misstatement associated approved.
with related party relationships and transactions.

Definition
Related party- A party that is either:
i) a related party as defined in applicable FRF.
ii) where applicable FRF establishes minimal or no related party requirements:
a) A person or other entity that has control or significant influence, directly or
indirectly through one or more intermediaries, over the reporting entity,
b) Another entity over which the reporting entity has control or significant
influence, directly or indirectly through one or more intermediaries; or
c) Another entity that is under common control with the reporting entity
through having:
• common controlling ownership,
• owners who are close family members, or
• common key management.

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SA 560

"Subsequent Events"

Scope of Objectives of Events occuring Facts which become Facts that

the SA the auditor between the date known to the auditor after become known
of the Financial the date of the auditor's to the auditor
Statements and date report but before the date after the financial
of the auditor's report the financial statements statements have
are issued been issued

This SA deals Obtain sufficient appropriate 1. The auditor shall 1. Discuss the matter with
with auditor's audit evidence about whether perform audit management or TCWG.
responsibilities events occuring between the procedures to ensure 2. Determine whether the financial
relating to date of the financial statements that all such events statements need amendment.
subsequent and the date of the auditor's have been identified. 3. Inquire how management intends
events in report that require adjustment
an audit of to address the matter in the
of, or disclosure in, the financial financial statements.
financial statements are appropriately
statements. reflected in those financial
statements. 2. The auditor shall
consider the auditor's If manangement amends the
risk assessment in financial statements, auditor
determining the nature should extend the audit
and extent of such procedures and
Respond appropriately to the
procedures. 1. Either amend the audit report
facts that become known to
the auditor after the date of the to include an additional date
auditor's report, that, had they restricted to the amendment .
been known to the auditor at 2. Or provide a new/ amended
that date, may have caused the 3. If such event is report including a statement in
auditor to amend the auditor's identified, determine EOM/ OM para.
report. whether such event is
appropriately reflected
in financial statements.
If managment doesn't amend the
financial statements :
1. If audit report not yet provided
to the managment, modify the
4. Obtain Written
Definition opinion.
Representation that all
such events have been 2. If audit report has already been
Subsequent Events: provided to the management,
adjusted or disclosed.
Events occuring between the date of notify TCWG not to issue it to
the financial statements and the date third parties. If still issued then
of the auditor's report, and facts that take appropriate action to prevent
become known to the auditor after the reliance on the auditor's report.
date of the auditor's report.

1. Discuss the matter with management or TCWG.

2. Determine whether the financial statements need amendment.
3. Inquire how management intends to address the matter in the
financial statements.

Review if management has taken steps to inform about the

situation to everyone in receipt of the previously issued
financial statements.
1. If steps taken, issue new / amended report with EOM/ OM
para.
2. If steps not taken, then take appropriate steps to prevent
reliance on the auditor's report.

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SA 570

"Going Concern"

Scope of Responsibilities Responsibilities When conditions Implications Other Important

the SA of the of the auditor or events are on the auditor's Points to be
management identified report considered

This SA deals 1. To obtain sufficient and Use of Going The auditor shall
with the auditor's appropriate audit evidence Concern Basis communicate with
responsibilities and conclude on the of Accounting is TCWG, events
in the audit appropriateness of the inappropriate The or conditions
of financial management's use of going auditor shall express identified that may
statements concern. an adverse opinion. cast significant
relating to going 2. To assess whether a material doubt on the entity's
concern and the uncertainty exists about the ability to continue
implications on the entity's ability to continue as a as a going concern.
auditor's report. going concern. Use of Going Concern
3. However, auditor cannot be basis of accounting
expected to guarantee the is appropriate but a If there is delay
entity's ability to continue as a material uncertainty in the approval
going concern. exists and: of the financial
Adequate disclosure statements and the
1. To make specific of material auditor believes that
assessment of the 1. Requesting managment to make its uncertanity is made such delay can be
entity's ability to asessment relating to entity's ability to in the financial related to events or
continue as a going continue as a going concern. s t a t e m e n t s - conditions relating
concern. 2. Evaluating management's plan of future Unmodified Opinion to going concern
actions. and a separate section assessment, the
3. Analysing the cash flow forecast of the "Material Uncertainty auditor shall
2. To make appropriate entity. related to going perform additional
disclosures in 4. Considering the additional facts or concern". procedures as well
connection with information available. as consider the
going concern in the 5. Requesting Written Representation from effect on auditor's
financial statements. management regarding the plans of future conclusion.
actions and the feasibility of these plans. Use of Going Concern
basis of accounting
is appropriate but a
material uncertainty
exists and:
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Management unwilling
to make or extend its
assessment- Auditor
shall consider the
implications for the
auditor's report.

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SA 580

"Written
Representations"

Scope of Objectives of Written Representation Date & Periods covered by Important points
the SA the auditor as Audit Evidence Written Representation to be considered

Doubts as to reliability of
This SA deals 1. To obtain written Although Written Written Representations:
with the auditor's representation from the Representations If written representations
responsibility to management or TCWG that provide necessary are inconsistent with other
obtain written they believe that they have audit evidence, audit evidence, auditor shall
representation from fulfilled their responsibility they do not provide perform audit procedures
management and, for the preparation of the sufficient appropriate to resolve the matter.
where appropriate, financial statements and audit evidence on If the auditor concludes that
those charged with for the completness of the their own. the written representation
governance. information provided to the are not reliable, the auditor
auditor. shall take appropriate
action in accordance with
The date of Written SA 705.
Representation shall be
as near as practicable to,
2. To support other audit but not after, the date of Requested Written
evidence relevant to the the auditor's report on Representation not
financial statements or the financial statements. provided:
specific assertions in the
Written Representation Auditor shall discuss
financial statements by means
shall be for all financial with the management,
of written representations.
statements and periods re-evaluate the integrity
referred to in the auditor's of management, take
report. appropriate actions
including the impact on
3. To respond appropriately audit report as per SA 705.
to written representation
provided by managment/
TCWG.

Definition

Written Representation:
A written statement by management
provided to the auditor to confirm certain
matters or to support other audit evidence.
Do not include financial statements, the
assertions therein, or supporting books or
records.

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6$8VLQJ:RUNRI2WKHUV
SA 600 - USING THE WORK OF ANOTHER AUDITOR
"Principal Auditor" (P.A.) Principal auditor to review – written summary of other
auditor’s procedures

The Nature, timing Nature, This

responsible for when that financial information principal and extent of timing and knowledge
reporting on the includes the financial auditor procedures extent of may have
financial information information of one or more may also depend on procedures been
of an entity components audited by another wish to circumstances depend on enhanced
auditor. visit the of engagement principal from the
other & Materiality auditor's review of
auditor. aspect knowledge the previous
"Other auditor" of the audit work
professional of the other
competence auditor.
of the other
responsible for which is included in the auditor.
reporting on the financial information
financial information of audited by the principal
auditor.
The principal auditor should consider the significant
a component findings of the other auditor.

principal auditor
When the uses the work to determine how The principal auditor He may also decide
principal of another the work of the may consider it as to application of
auditor auditor, other auditor will appropriate to discuss supplementary that
affect the audit. with the other auditor supplemental tests
and the management of the records or the
of the component, the financial statements of
I. Consideration by an auditor before acceptance as audit findings or other the component are if
Principal Auditor: matters affecting the necessary. Such tests
financial information may, depending upon
(a) the materiality of the portion of the financial of the components. the circumstances,
information be performed by the
principal auditor or
(b) degree of knowledge regarding the business of the the other auditor.
components;

(c) the risk of material misstatements in the financial

information of the components audited by the other auditor;
and
(d) the performance of additional procedures as set out
in this SA regarding the components audited by other
auditor resulting in the principal auditor having significant
participation in such audit.
Where the other auditor’s report is other than unmodified, the
principal auditor should also document how he has dealt with
the qualifications or adverse remarks contained in the other
auditor’s report in framing his own report.
III. Co-ordination Between Auditors

II. Procedures to be followed by P.A.

Sufficient liaison The other auditor
Procedures to be performed by PA while using the work between the principal should co-ordinate
of other auditor auditor and the other with the principal
auditor. auditor.
(a) advise the other auditor (b) advise the other
regarding use of his (other auditor of the significant
auditor) work and report and accounting, auditing and the principal auditor
reporting requirements and
The principal auditor
make sufficient arrangements
obtain representation as to may require the other should advise the other
for co-ordination at the planning
stage of the audit. compliance with them. auditor to answer a auditor of any matters
detailed questionnaire having an important
bearing on the other
auditor’s work.
The principal areas requiring procedures for the
auditor would special identification of
inform the consideration, inter-component The other auditor
other auditor transactions should respond to
of matters such that may require such questionnaire on
as : disclosure and a timely basis.

the time-table for

completion of audit;

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IV Reporting Considerations

1. Principal auditor to express a qualified opinion or 2. If the other auditor issues a Modified Report
disclaimer of opinion in case of a limitation on the scope
of audit.

When the principal auditor concludes, based on his procedures,
that the work of the other auditor cannot be used and the
principal auditor has not been able to perform sufficient
additional procedures regarding the financial information
of the component audited by the other auditor, the principal
auditor should express a qualified opinion or disclaimer of
opinion because there is a limitation on the scope of audit.
In all circumstances, if the other auditor issues, or intends to
issue, a modified auditor's report, the principal auditor should
consider whether the subject of the modification is of such
nature and significance, in relation to the financial information
of the entity on which the principal auditor is reporting that it
requires a modification of the principal auditor's report.

V. Division of Responsibility
When the principal auditor has to base his opinion on the financial information of the entity as a whole relying upon the statements
and reports of the other auditors, his report should state clearly the division of responsibility for the financial information of the
entity by indicating the extent to which the financial information of components audited by the other auditors have been included
in the financial information of the entity, e.g., the number of divisions/branches/subsidiaries or other components audited by other
auditors. However, if the Principal Auditor notices any material discrepancies the same has to be brought to the knowledge of other
Auditor. This should be incorporated in the Audit Report.

© ICAI BOS(A) 29
SARANSH
Scope of External auditor's
responsibility for
the SA the Audit
This SA deals with external
auditor's responsibilities if
using the work of internal
auditors. This includes:
a) using the work of internal audit
function in obtaining audit
evidence.
b) using the internal auditors to
provide direct assistance under
the direction, supervision and
review of external auditor.
The External Auditor has the
sole responsibility for the audit
opinion expressed, and that
responsibility is not reduced by the
external auditor's use of the work
of the internal audit function or
internal auditors to provide direct
assistance on the engagement.
1. To determine whether the work of the
internal audit function or direct assistance
from internal auditors can be used, and if
so, in which areas and to what extent; and
having made that determination:
2. If using the work of the internal audit
function, to determine whether that work is
adequate for the purposes of audit; and
3. If using internal auditors to provide direct
assistance, to appropriately direct, supervise
and review their work.
© ICAI BOS(A)
Auditing
SA 610
"Using the Work of Internal Auditors"
Objectives of Using the work of Using Internal When using the
the External the Internal Audit Auditors to provide work or direct
Auditor Function direct assistance assistance
External auditor shall determine
whether the work of the Internal Using the work of Internal Audit
Audit function can be used for the Function
audit by evaluating:
The External Auditor shall:
a) the objectivity of the Internal
a) discuss the planned use of the Internal
auditors.
Audit function.
b) level of competence of the internal
b) read the report of the Internal Audit
audit function.
function.
c) approach of Internal Audit function
c) perform sufficient audit procedures to
including quality control.
evaluate the internal audit function.
External auditor shall determine
the nature and extent of work of
Internal Audit function that can be
used by:
a) considering the nature and scope
of work of Internal Audit function Using the Internal Auditors to provide
and its relevance to the external Direct Assistance:
auditor's overall audit strategy and The External Auditor shall:
plan. a) obtain written agreement from the
entity.
b) making all significant judgements
and preventing undue use of the b) obtain written agreement from the
internal audit function. internal auditors.
c) being sufficiently involved in the c) direct, supervise and review the work
audit. performed by the Internal Auditors.
d) communicating to TCWG, as to
how they have planned to use the
work of the internal audit function.
The external auditor shall document
the above.
External auditor shall determine whether Internal Auditors
can be used to provide Direct Assistance by evaluating:
a) the existence and significance of threats to objectivity and
b) the level of competence of the internal auditors.
External auditors shall determine the nature and extent of work
that can be assigned to Internal Auditors providing Direct
Assistance by considering:
a) the amount of judgement involved.
b) the assessed risk of material misstatements.
c) the evaluation as mentioned above.
The external auditor shall be sufficiently involved in the audit
and shall communicate to TCWG, the nature and extent of the
planned use of internal auditors to provide direct assistance.
The external auditor shall document the above.
30
SARANSH Auditing

SA 620

"Using the Work of an Auditor's Expert"

Scope of The auditor's Reference to the

Objectives of Requirements
responsibility for Auditor's Expert in
the SA the auditor of the SA
the audit opinion the Auditor's Report

This SA deals with auditor's 1. To determine whether to use the

responsibilities regarding work of an auditor's expert; and The auditor shall not refer to the work
the use of an individual or
of an auditor's expert in the auditor's
organisation's work in a
report containing an unmodified
field of expertise other than
2. If using the work of an auditor's opinion unless required by law or
accounting or auditing,
expert, to determine whether that regulation to do so.
when that work is used
to assist the auditor in work is adequate for the auditor's If the auditor makes a reference
obtaining sufficient and purposes. in the auditor's report for better
appropriate audit evidence. understanding of a modification to the
auditor's opinion, he shall indicate that
such reference does not reduce auditor's
responsibility for that opinion.

The auditor has sole responsibility for the audit

opinion expressed, and that responsibility is
not reduced by the auditor's use of the work of
an auditor's expert. 1. Determining the need for an auditor's expert.
If the auditor concludes that the work of
auditor's expert is adequate for his purposes,
he may accept the expert's findings or
conclusions in the expert's field as appropriate 2. Determining nature, timing and extent of
audit evidence. audit procedures.

3. Evaluating the competence, capabilities and

objectivity of the Auditor's expert
Definition

Auditor's Expert:
An individual or organisation possessing 4. Obtaining an Understanding of the field of
expertise in a filed other than accounting expertise of the Auditor's expert
or auditing, whose work in that field is
used by the auditor to assist the auditor in
obtaining sufficient and appropriate audit
evidence. 5. Agreeing with the Auditor's expert in
writing.

Management's Expert:
An individual or organisation possessing
expertise in the field other than accounting 6. Evaluating the adequacy of the Auditor's
or auditing, whose work in that field is Expert work.
used by the entity to assist the entity in
preparing the financial statements.

© ICAI BOS(A) 31
SARANSH Auditing

6$$XGLW&RQFOXVLRQVDQG5HSRUWLQJ
SA 700

"Forming an Opinion and Reporting on Financial Statements"

Scope of Objectives of Unmodified Auditor's Supplementary

the SA the Auditor Opinion Report Information

Deals with To form Opinion t
5JUMF Whether supplementary information is

auditor's an opinion expressed by t
"EESFTTFF integral part of financial statements.
responsibility on the the auditor t
"VEJUPShT 0QJOJPO
to form an financial when he t
#BTJT GPS 0QJOJPO
opinion on statements. If yes, then If no, then auditor will evaluate
concludes t
(PJOH $PODFSO supplementary whether supplementary
the financial that the t
,FZ "VEJU .BUUFST
statements. information will information is presented in
financial Responsibilities for the be covered by the way that differentiates it from
To express statements Financial Statements
clearly that auditor’s opinion. financial statements.
Deals with are prepared t
"VEJUPShT 3FTQPOTJCJMJUJFT
opinion in all material t
-PDBUJPO PG %FTDSJQUJPO PG
the form through If not differentiated, then ask the management
and content respects in Auditor's Responsibility
a written a cco r d a n ce t
0UIFS 3FQPSUJOH to change the way of presentation.
of auditor's report.
report. with the Responsibilities
applicable t
4JHOBUVSF
If management If management refuses, auditor will
FRF. t
1MBDF PG 4JHOBUVSF
changes then explain in the auditor’s report that such
t
%BUF PG "VEJUPShT 3FQPSU
OK. information has not been audited.

SA 701

"Communicating Key Audit Matters in

the Independent Auditor's Report"

Scope of the Purpose of Objectives of Determining Communicating Other important

SA Communicating the Auditor Key Audit Key Audit points to be
Key Audit Matters Matters Matters considered

Deals with To enhance the To determine Auditor The auditor Communicating key audit matters in
the auditor’s communicative key audit shall take in shall describe the auditor’s report is not:
responsibility value of the m a t t e r s account: each key
to communi- auditor’s report and, having audit matter,
cate key audit by providing formed an using an (a) A substitute for disclosures
matters in g r e a t e r opinion on 1. Areas appropriate in the financial statements that
the auditor’s transparenc y the financial of higher subheading , the applicable financial reporting
report. about the st atement s , assessed in a separate framework requires manage-ment to
audit that was communicate risks of section of make, or that are otherwise necessary
performed. those matters material mis- the auditor’s to achieve fair presentation;
Intended to by describing statement. report under
address both them in the the heading
the auditor’s To assist au d i to r ’s “Key Audit
judgment as the users in report. Matters”. (b) A substitute for the auditor
2. Significant expressing a modified opinion when
to what to understanding auditor's
communicate those matters required by the circumstances
judgment. of a specific audit engagement in
in the that, in the
au d i to r ’s auditor ’s accordance with SA 705 (Revised);
report and professional
the form judgment, 3. The effect
and content were of most on the audit (c) A substitute for reporting in
of such s i g n i fi c a n c e of significant accordance with SA 570 when a
communi- in the audit of events or material uncertainty exists relating
cation. the financial transactions to events or conditions that may cast
statements of during the significant doubt on an entity’s ability
the current period. to continue as a going concern; or
period.

(d) A separate opinion on individual

matters.

© ICAI BOS(A) 32
SARANSH Auditing

SA 705

"Modifications to the Opinion in the

Independent Auditor's Report"

Scope of the Types of Modified Objective of Circumstances when Management Other important
SA Opinions the auditor a modification to imposed points to be
the auditor's opinion limitation considered
is required

Deals with Qualified To express The auditor Request the management 1. The auditor
how the Opinion: clearly an concludes to remove the limitation. shall use the
form and The auditor, appropriately that, based heading "Qualified
content of h a v i n g modified on the audit Opinion", "Adverse
the auditor’s obtained opinion on evidence Opinion", "Disclai-
report is sufficient and the financial obtained, If management refuses mer of Opinion"
affected when appropriate statements. the financial to remove the limitation, for the Opinion
audit evidence, statements communicate with TCWG section.
the auditor
expresses concludes that as a whole and perform alternate
a modified misstatements are not free procedures.
opinion. are material, from material 2. The auditor
but not misstatement. shall amend the
pervasive. heading "Basis for
Deals with Still unable to obtain opinion" to "Basis
the auditor’s The auditor sufficient and appropriate for Qualified/
is unable audit evidence. Adverse/ Disclai-
responsibility A d v e r s e
to obtain mer of Opinion".
to issue an Opinion:
appropriate The auditor, sufficient and
report in h a v i n g appropriate
circumstances obtained audit evidence Possible Possible
when, in sufficient and to conclude effects effects both
forming an appropriate that the material but material and
opinion in audit evidence, financial not pervasive. pervasive.
accordance concludes that statements
with SA 700, misstatements, as a whole
the auditor individually or are free from
concludes that in aggregate are material Qualified Withdraw from
a modification both material misstatement. Opinion. the engagement
to the auditor’s and pervasive. or disclaimer of
opinion on opinion.
the financial
statements is Disclaimer of
necessary. opinion:
When the
a u d i t o r
is unable
to obtain
sufficient and
appropriate
audit evidence
and he
concludes that
the possible
effects on
the financial
statements of
undetected
misstatements
could be both
material and
pervasive.

© ICAI BOS(A) 33
SARANSH Auditing

SA 706

Emphasis of Matter Paragraphs and Other Matter

Paragraphs in the Independent Auditor’s Report

Scope Objectives Definitions

Requirements

This SA deals The objective E m p h a s i s Emphasis of Matter Other Matter Communication

with additional of the auditor, of Matter Paragraphs in the Paragraphs in with Those
communication having formed paragraph : Auditor’s Report the Auditor’s Charged with
in the auditor’s an opinion on A paragraph Report Governance
report when the financial included in the
the auditor statements, is auditor’s report
to draw users’ that refers
considers it
attention, when to a matter
necessary to If the auditor When the If the auditor The auditor
in the auditor’s appropriately
draw users’ presented or considers it auditor includes considers it shall
judgment it is
attention to disclosed in necessary to an Emphasis necessary to include the
necessary to do
a matter or so, by way of the financial draw users’ of Matter communicate paragraph
matters. clear additional statements that, attention paragraph in the a matter other within a
communication in the auditor’s to a matter auditor’s report, than those that separate
in the auditor’s judgment, presented or the auditor shall: are presented section with
report, to: is of such disclosed in or disclosed in the heading
(a)presented importance that the financial the financial “Other
or disclosed in it is fundamental statements that, (a) Include the statements that, Matter,”
the financial to users in the auditor’s paragraph within in the auditor’s or other
A matter, understanding judgment, a separate section judgment, is appropriate
statements
a l t h o u g h of the financial is of such of the auditor’s relevant to users’ heading.
that are of such
appropriately statements. importance report with an understanding
importance that it is appropriate of the audit,
that they are presented or
disclosed in fundamental heading that the auditor’s
fundamental to users’ includes the term responsibilities
the financial Other Matter
to users’ understanding “Emphasis of or the auditor’s If the auditor
statements, paragraph:
understanding that is of such of the financial Matter”; report, the expects to
of the financial A paragraph include an
importance that included in the statements, auditor shall
statements; or it is fundamental the auditor include an Emphasis of
auditor’s report (b) Include in Matter or an
to users’ that refers to shall include Other Matter
understanding an Emphasis the paragraph a paragraph in the Other Matter
a matter other clear reference to paragraph in
of the financial than those of Matter auditor’s report,
(b) other than statements; or paragraph in the matter being provided: the auditor’s
presented or emphasized and report, the
those presented disclosed in the auditor’s
or disclosed in the financial report provided: to where relevant auditor shall
disclosures that (a)This is not communicate
the financial As appropriate, statements that, fully describe prohibited with those
statements that any other in the auditor’s The auditor the matter can by law or charged with
are relevant matter that is judgment, is would not be be found in governance
to users’ relevant to users’ relevant to users’ required to regulation; and
the financial regarding this
understanding understanding understanding modify the statements. expectation and
of the audit, of the audit, of the audit, opinion in The paragraph the wording of
the auditor’s the auditor’s accordance with (b)When SA
the auditor’s shall refer only 701 applies, the this paragraph.
responsibilities responsibilities responsibilities SA 705 (Revised) to information
or the auditor’s or the auditor’s as a result of the matter has not
or the auditor’s presented or been determined
report. report. report. matter; and disclosed in to be a key audit
the financial matter to be
When SA 701 statements; and communicated
applies, the in the auditor’s
matter has not report.
(c) Indicate that
been determined
the auditor’s
to be a key audit
opinion is
matter to be
not modified
communicated
in respect of
in the auditor’s
the matter
report.
emphasized.

© ICAI BOS(A) 34
SARANSH Auditing

SA 710

"Comparative Information—Corresponding Figures & Comparative Financial Statements"

Scope of the Objectives of the Definitions Audit Reporting Audit Audit Reporting
SA Auditor differences between Procedure
the Approaches are:

Deals with To obtain Comparative information: The For Assess the 1. With 2. With
auditor's sufficient amounts and disclosures included correspon- consistency Reference to Reference to
responsibilities appropriate in the financial statements in ding figures, of accounting corresponding comparative
regarding audit evidence respect of one or more prior the auditor’s policies used. figures, figures
comparative about periods in accordance with the opinion on auditor
applicable financial reporting a) the auditor's
information whether the the financial opinion opinion shall
in an audit comparative framework. statements Check should refer refer to each
of financial information refers to Comparative in his opinion period for which
statements. included in Corresponding figures: the current figures with only when FS are presented
the financial Comparative information where period only; amount and a) if previous and on which
statements amounts and other disclosures whereas disclosure in AR is audit opinion is
has been for the prior period are included prior period. other than expressed.
When the presented, in as an integral part of the current For compa-
financial unqualified. b) difference
all material period financial statements, and rative
statements respects, in are intended to be read only in financial Determine that b) Prior period in opinion on
of the prior accordance relation to the amounts and other statements, FS Contains misstatement previously issued
period with the disclosures relating to the current the auditor’s appropraitely not addressed. FS.
have been requirements period (referred to as “current opinion refers classified c) if prior c) if previous FS
audited by a for period figures”). The level of detail to each period comparative period FS audited by some
predecessor comparative presented in the corresponding for which information. unaudited. other auditor,
auditor or information in amounts and disclosures is financial mention the
were not the applicable dictated primarily by its relevance statements are same in AR.
audited, the financial to the current period figures. presented. Evaluate
requirements d) If prior period
reporting the impact FS unaudited,
and guidance framework; of possible
in SA 510 Comparative financial statements: mention the
and Comparative information where amounts misstatement same in the AR.
regarding in comparative
opening and other disclosures for the prior period are
To report in included for comparison with the financial information
balances also accordance on FS.
apply. statements of the current period but, if audited,
with the are referred to in the auditor’s opinion. The level
auditor’s of information included in those comparative
reporting financial statements is comparable with that of Obtain Written
responsibilities. the financial statements of the current period. representation.

SA 720

"The Auditor's Responsibilities Relating to Other Information"

Scope of the SA Objective of the Auditor Definitions Requirements of the SA

Deals with t
5P DPOTJEFS XIFUIFS UIFSF Other Information: Financial or non 1. Obtaining the Other Information.
auditor's is material inconsistency Financial information (other than financial
r e s p o n - between other information statements and the auditor's report 2. Reading and considering the other
sibilities and financial statements. thereon) included in an entity's annual information.
relating t
5P DPOTJEFS XIFUIFS UIFSF report.
to other is material inconsistency 3. Responding when a material
information, between other information Inconsistency appears to exist or
Annual Report: A document, or other information appears to be
whether and auditor's knowledge combination of documents, prepared materially misstated.
financial or obtained in the audit. typically on an annual basis by management
non financial,
t
5P SFTQPOE BQQSPQSJBUFMZ or those charged with governance in
included 4. Responding when the auditor
when auditor identifies accordance with law, regulation or custom,
in entity's concludes that a material
material inconsistencies or the purpose of which is to provide owners
a n n u a l misstatement of the other
other information appears (or similar stakeholders) with information
report. information exists.
to be materially misstated. on the entity’s operations and the entity’s
financial results and financial position
as set out in the financial statements. An 5. Responding when a material
This SA does misstatement in the financial
To report in accordance annual report contains or accompanies the
not apply to : statements exists or auditor's
with this SA. financial statements and the auditor’s report
thereon and usually includes information understanding of the entity and its
about the entity’s developments, its future environment needs to be updated.
Preliminary Securities offering
announcements documents , outlook and risks and uncertainties, a
statement by the entity’s governing body, 6. Reporting and
of financial i n c l u d i n g
and reports covering governance matters. Documentation.
information or prospectuses.

© ICAI BOS(A) 35
SARANSHLast Mile Referencer for

AUDITING

The Institute of Chartered

Accountants of India
(Setup by an Act of Parliament)

Board of Studies (Academic)

ICAI Bhawan, A-29, Sector-62, Noida 201 309
Phone: 0120 - 3045930

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