SA 220

QUALITY CONTROL FOR AN AUDIT OF FINANCIAL STATEMENTS

1. Engagement Partners 6. Engagement quality control review
• The partner or other person in firm who is (SQC-I) Objective : - to implement quality
 Member of ICAI control policy at engagement level
 In full time practice A process designed to provide an evaluation, before
 Responsible for engagement & its the report is issued of the significant judgments Which provides reasonable
performance and for the report The engagement team made & conclusions assurance that?

ÉÉÉÉÉ
that is issued on behalf of firm. they reached in formulating the report.
I
 Has appropriate authority from Auditor complies Report of
legal or professional body.
im Atleast All professional
auditor
issued, is
2. Firm 7. 1Inceinzys
Inspection (SQC-1) standards, appropriate in
A sole practitioner / proprietor, partnership, inspect regulatory & legal circumstances
or any such entity of professional accountant In relation to completed engagements, requirements
as may be permitted by law. procedure designed to provides
evidence of compliance by
engagement teams with the firm’s Role of Engagement team w.r.t.
3. Network firm quality control policy & procedure. quality control & its procedure
As per ICAI – Networking amongst two
or more firms under common control,
ownership or management with the
Definition Responsibility Quality control
8. Engagement quality to implement
I
procedure

err
firm control review
or
Having an affiliation with an a (SQC-I) In case it is
• A partner, other person in the firm, And provided applicable as
accounting entity.
suitable qualified external person or a relevant info per SQC-1
team made up of such individuals with
sufficient & appropriate experience
4. Network – A & authority to objectively evaluate 
larger structure before the report is issued Is it mandatory for engagement teams
5. Relevant Ethical Requirement • The significant judgments team made to rely on the firm’s system of Q.C.?
& conclusions they reached in formu-
lating the report
Ethical requirements to which Unless information provided by the firm
the engagement team & or other parties, ETs are entitled to rely
That is That is engagement quality control 9. Monitoring (SQC1) on the firm’s system of QC in relation to:
aimed at clearly aimed reviewer are subject to
cooperation A process comprising an ongoing Competence of personnel.
at profit or consideration & evaluation of firm’s
cost sharing system of Q.C. Independence.
share Which ordinary comprise
common of COE of ICAI related to Including a periodic inspection of a Maintenance of client relationships.
ownership an audit of FS selection of completed engagements,
control designed to enable the firm to obtain RA Adherence to regulatory and legal
that its system is operating effectively requirements.

7 SA 220 & SQC-1 : QUALITY CONTROL FOR AN AUDIT OF FINANCIAL STATEMENTS

 SA 220
QUALITY CONTROL FOR AN AUDIT OF FINANCIAL STATEMENTS
SA 220
1.
Leadership
2.
Relevant
4.
Acceptance 5.
Assignment 6. 7.
1 Direction
Includes informing the members of
engagement team matters such as :
3. & continuance
Responsibility Ethical of Engagement Monitoring
Independence of client relatio-

E
for quality on performance (i) Comply with relevant ethical
Requirement nship & audit Engagement
o
Audit engagement requirement & apply professional
teams
skepticism
(ii) Responsibilities of respective
Engagement EP to conclude on compliance Team with competence An effective system partners
partner shall with independence by & capability to of quality control
(Refer to (iii) Detailed approach to the
take includes process
SQC-1) performance of engagement

É
responsibility (a) Perform
a) Obtaining relevant
engagement as per Designed to provide (iv) Problem that may arise
information from the firm /
professional standard the firm with
network firm / eng. team (v) Risk related issues
and regulatory and reasonable assurance
For overall legal requirement
quality on each To identify & evaluate circum- (vi) Objective of work to perform
audit stances and relationship that That its policies & procedure (vii) Nature of entity’s business
engagement to create threats to independence
(b) Enable an
which that auditor’s report that Relating to the system
partner is b) Evaluate information of quality control are

2
is appropriate in
assigned on identified breaches

g
the circumstances
c) Take appropriate actions
to be issued. Relevant Adequate &
Operating
Supervision
effectively
Supervision – Including matters such
as :
Engagement If matters come • Direction, 1) Tracking the progress of audit
partner (EP) remain to engagement 5A When considering the appropriate supervision & engagement
alert through parties attention competence and capabilities, engagement review 2) Consider competences, capabilities

É
partner may take into consideration such

E
matters as the team’s: • Consultation of individual members whether
The work being carryout in accordance
Observation & • Understanding & practical experience • Engagement
engagement with the planned approach
making enquires of engagements of a similar nature and quality control

E
as necessary partner in complexity . 3) Identifying matters for consultation
consultation review
• Understanding of professional stan- for consideration by more experi-
with others dards & legal requirements. • Difference of enced members
For evidence of
in the firm • Technical expertise. opinion
non compliance 4) Significant areas or observations
• Knowledge of relevant industries.
of relevant ethical
• Ability to apply professional judgment.
requirement by

E
shall determine • Understanding of the firm’s QC P&Ps.
management of the appropriate
engagement team action

STANDARDS ON AUDITING DRONE CHARTS BY CA. SARTHAK NIRAJ JAIN 8

 SA 220
QUALITY CONTROL FOR AN AUDIT OF FINANCIAL STATEMENTS

Review
Engrafting Consultation
7 Engagement quality control review
Documentation
By Auditor
Definition Objective (SQC-1)
It refers to seeking advice on • Issues identified w.r.t.

Ifta
technical, ethical or others
• It is the It consist of consideration matter from within or outside (Refer to SQC-1) compliance on ethics
responsibility of whether the firm from agencies and how they were
engagement (i) Objective of audit have resolved.
been achieved

Fx
partners to check (i) EP to take responsibility • Conclusions on
if audit as per (ii) Work has been performed for undertakin appropriate compliance with
firm’s policy in accordance with PS & LR consultation independence

Igg
procedure (iii) Significant matters raised (ii) Be satisfied that team has

gone
• Near to end for consideration requirements.
gepan
sought consultation.
of audit the (iv) Appropriate consultation (iii) Be satisfied that the nature • Conclusions reached
engagement taken where appropriate & scope of AP and conclu- regarding the
(v) SAAE obtained to support
00
partner shall sions of resulting from such acceptance and
report Complaints and Allegations against Firm QCPP / Services
throughly do a consultation are agreed continuance of client
(vi) Work perform supports

É
review with the third party relationships.
• Be satisfied that reached conclusion & (iv) Determine tha conclusions Transfer this point to

E
appropriatly documented • The nature and scope
SAAE has been resulting from such consul- SQC-1 - DC
obtained to draw (vii) Assess the need to revise – of, and conclusions
tation have been
a conclusion NTE of work performed implemented. resulting from,

É
consultations
undertaken.

The engagement Difference of opinion By EQC Reviewer

LEGEND :
partner’s review of work If differences arise within
performed includes the engagement team • Procedures for EQC

FE
review have been
With those consulted or EP = Engagement Partner performed;
Critical Significant Other areas the where applicable

É
ET = Engagement Team

E
areas of Risk engagement • EQCR has been
partner Between the PS = Professional Standard completed on or
judgment
and considers engagement partner & LR = Laws & Regulation before the date of the
important engagement quality QCR = Quality Control Review auditor’s report; and
Specifically those control reviewer
relating to difficult • The reviewer isnot
Note – EP need not
or contentions to review all audit The engagement team aware of any

É
matters shall follow unresolved matters
documentation
& appropriateness of
The firm’s policies

LE
Identified during But may do so procedures for dealing conclusions reached.
engagement with and resolving
differences of opinion

9 SA 220 : QUALITY CONTROL FOR AN AUDIT OF FINANCIAL STATEMENTS


SQC-1
4. System of Quality
2. Applicability
I
(1) Objective
Control (QC)
É
The firm should establish a system of This SQC applies to all firms.
QC designed to provide RA that firm Nature of P&P depends on The firm’s system of QC should include
& its personnel comply with standards various factors such as size & P&Ps addressing following elements:
operating characteristics etc. a Leadership responsibilities for
& regulatory req., and reports issued
quality within the firm.
are appropriate in circumstances.
b Ethical requirements.
c Acceptance and continuance
of client relationships and
3. Definition specific engagements.
Engagement documentation : The record of work performed, results d Human resources.
obtained, and conclusions the practitioner reached. The documenta- e Engagement performance.
tion for a specific engagement is assembled in an engagement file; f Monitoring.
• The QC -P&Ps should be
Engagement partner (EP) : Refer- SA- 220 documented and communicated
Engagement quality control review (EQCR) : Refer- SA- 220 to the firm’s personnel.
Engagement quality control reviewer : Refer- SA- 220
Engagement team : All personnel performing an engagement, includ-
5. Leadership Responsibilities
ing any experts contracted by the firm in connection with that engage-
ment. The term “engagement team” excludes individuals within the for Quality within the Firm
The firm’s CEO or managing
client’s IAF who provide direct assistance on an audit engagement
partners to assume ultimate
when the external auditor complies with the requirements of SA 610.
responsibility for system of QC.
Firm : Refer- SA- 220 • Firm’s leadership to emphasise
Inspection : Refer- SA- 220 on the firm’s QC P&Ps,
• They may be communicated
Listed entity : An entity whose shares, stock or debt are quoted or
by many ways & documented in
listed on a recognized stock exchange, or are traded under the regula-
internal docs
tions of a recognized stock exchange or other equivalent body.
• The firm’s business strategy is
Monitoring : Refer- SA- 220
subject to achieving quality in
Network firm : Refer- SA- 220 all the engagements that the
firm performs. Accordingly:
É
Network : Refer- SA- 220 (a) The firm assigns its
Partner : Any individual with authority to bind the firm with respect to management responsibilities;
the performance of a professional services engagement. (b) The firm’s P&Ps addressing
Personnel : Partners and staff. performance evaluation,
compensation, and
Suitably qualified external person : An individual outside the firm
promotion; and
with the capabilities & competence to act as an EP, for example a part-
(c) The firm devotes sufficient
ner or an employee (with appropriate experience) of another firm. resources for that.
SQC-1
t t
6. Ethical Requirements
T.es
• The firm should comply with relevant
ethical requirements. which include:
a Integrity;
eaInae
b Objectivity;
c Professional competence and due
care;
d Confidentiality; and
e Professional behavior
• Independence
a Communicate its independence
requirements to personnel &
others; and
b Identify and evaluate circumstances
and relationships that create threats
to independence, and to take
appropriate action to eliminate.
• Such policies and procedures (P&Ps )
should require:
a EPs to provide the firm with relevant
g
information about client
engagements;
b Promptly notify circumstances and
relationships that create a threat; and
c The accumulation & communication
of info. to appropriate personnel.
• In case of breaches of independence
requirements P&Ps should include
requirements for:
a Promptly notify the firm of breaches
of which they become aware;
b The firm to promptly communicate
identified breaches of these P&Ps to
EP & other relevant personnel
c Prompt communication to the firm if
necessary, by the EP and the other
individuals of the actions taken to
resolve the matter, so that the firm
can determine whether it should take
further action.
É
7.Acceptance & Continuance
of Client Relationships
• Firm will undertake or continue relationships
and engagements only where:
(a) Client integrity has been considered;
(b) Is competent to perform engagement
w.r.t. capability, time & resources; and
(c) Can comply with the ethical requirements.
• With regard to the integrity of a client,
matters that the firm considers include:
o The identity & business reputation of the
client’s principal owners.
o The nature of the client’s operations,
including its business practices.
o Information concerning the attitude of
the client’s principal owners.
o Indications of an inappropriate limitation
In
in the scope of work.
• The capabilities, competence, time and
resources to undertake engagement:
o Firm personnel have knowledge of
relevant industries or subject matters;
o Have experience with relevant regulatory
ItD
or reporting requirements;
o The firm has sufficient personnel with the
necessary capabilities and competence;
o Experts are available, if needed;
• Policies and procedures on withdrawal
from an engagement
o Discussing with the appropriate level of
the client’s MGT and TCWG.
o If the firm determines to withdrawal from
I
the engagement or from both discuss with
MGT alongwith reasons.
o Considering any professional, regulatory
or legal requirement.
o Documenting significant issues,
consultations, conclusions..
26
 SQC-1
8. Human Resources 11. Differences of Opinion
The firm should establish policies and procedures to reasonable assure that: Establish P&Ps for dealing with and
• Firm has sufficient personnel with the capabilities, competence, and resolving differences of opinion within the
commitment to ethical principles; and ET, with those consulted &, where applicable,
• Responsibility of engagement partner clearly defined & between the EP and the EQCR.
I
14. Retention of Engagement 15. Monitoring
Documentation (ED) • Establish P&Ps to reasonable assure that
• Establish P&Ps for the retention QC policies/ procedures are:
of ED for a period sufficient to • Relevant.
meet the needs of the firm or as • Adequate.

I
communicated to them. required by law or regulation. • Operating effectively.
• Firm’s need for retention & • Complied with in practice.
period of such retention, will Purpose of monitoring compliance with
9. Engagement Performance 12. Engagement Quality Control Review vary with a Adherence to prof. standards &
• Establish policies / procedures to reasonable assure w.r.t.: • Establish P&Ps requiring, for appropriate a the nature of the regulatory requirements;

f
• Compliance with professional standards. engagements, an ECQ Review. engagement & b Whether the QCS appropriately designed
• Compliance with laws/ regulations. Such policies and procedures should: circumstances, & effectively implemented; and
• Engagement partner issues reports that are appropriate in the
circumstances.
a Require an EQC review for all audits of
FSs of listed entities;
b Set out criteria against which all other
o
b May also depend on local law
or regulation prescribes
c Whether the firm’s quality control P&Ps
have been appropriately applied, so that
• Matters addressed include the following: Direction
e
o How engagement teams are briefed on the engagement. audits & reviews services shouldbe
c In the specific case of audit
engagements, - No shorter
reports that are issued appropriate in the
circumstances.
o Processes for complying with applicable engagement standards. evaluated to determine whether than 7 years from the date of Ongoing consideration and evaluation of

8
o Processes of engagement supervision, staff training etc. an engagement QC review should be the auditor’s report. the system of quality control include
o Methods of reviewing the work performed. performed; and d Procedures for retention of matters such as the following:
o Appropriate documentation c Require an engagement QC review for ED include: • Analysis of:
all engagements meeting the criteria o Enable the retrieval of, o New developments in professional
Supervision Review
established in and access to, the standards and regulatory and legal
• Tracking the progress a The work has been performed as per
compliance. engagement requirements;
of the engagement. standards and regulatory req.;
• Considering the b Significant matters have been raised; documentation during o Written confirmation of compliance
capabilities and c Appropriate consultations taken & 13. Engagement Documentation the retention period. with P&Ps on independence;
competence of team resulting conclusions documented; • Completion of the Assembly of Final o Provide, where o Continuing professional development,
members. d There is a need to revise the NTE of Engagement Files necessary, a record of including training; and
• Addressing significant work performed; a Establish P&Ps for ETs to complete the changes made to ED o Decisions related to acceptance and
issues & appropriately e Work performed supports conclusions assembly of final engagement files I after the engagement continuance of client relationships and
modifying the planned reached & documented; on a timely basis after the engagement files have been specific engagements.
approach appropriately. f The evidence obtained is S&A to reports have been finalized. completed. • Determination of corrective actions to be
• Identifying matters for support the report; and b In the case of an audit, for example, such o Enable authorized taken and improvements to be made
consultation or g The objectives of the EPs have been a time limit is ordinarily not more than external parties to access in the system
consideration. achieved. 60 days after the date of the auditor’s and review specific ED • Communication to appropriate firm
report. for QC or other personnel of weaknesses identified in
c Where two or more different reports are purposes. the system

I
issued in respect of the same subject • Ownership of Engagement • Follow-up by appropriate firm personnel
10. Consultation matter information of an entity, the firm’s Documentation so that necessary modifications are
Establish policies / procedures to reasonable assure w.r.t.: policies and procedures relating to time Unless otherwise specified by law or promptly made to the quality control
a Appropriate consultation (AC) takes place on difficult matters; limits for the assembly of final engagement regulation- property of the firm. The policies and procedures.
b Sufficient resources available to enable AC to take place; files address each report as if it were for a firm may, at its discretion, make
c The nature and scope of such consultations are documented; and separate engagement. portion of, or extracts from,
d Conclusions resulting from consultations are engagement documentation 16. Complaints and Allegations
documented & implemented. Refer SA-220

27 SQC-1

1. Definition
The person (s) or
organizations (s) with
responsibility for
overseeing
The strategic
directions
of entity’s obligation
relates to the
accountability
of the entity
3. Role of Communication
Effective two-way communication is
important in assisting:
(a) Auditor and TCWG in understand-
ing matters and developing a
constructive working relationship.
(b) The auditor in obtaining from
TCWG information relevant to the
Audit.
(c) TCWG in fulfilling their respon-
sibility to oversee the financial
reporting process.
19
SA 260 : COMMUNICATION WITH THOSE CHARGED
WITH GOVERNANCE
2. TCWG
The auditor shall determine the appropriate person 5. Matters to be Communicated to TCWG
within entities governance structure (A) The Auditor’s responsibilities in rela-
tion to the FS Audit :- It includes
With whom to communicate The auditor is responsible for forming and ex-
1 pressing an opinion on FS. That have been
i Communication with a sub – group of TCWG
prepared by MGT with the oversight of MGT
When auditor communicate eg. Audit committee or individual
The audit of FS does not relieve MGT or TCWG
2 of their responsibilities
Shall determine whether the auditor also need to communicate
with governing body
(B) Planned scope and
timing of the audit
When considering communicating with a sub group of TCWG –
The auditor may take into account matters such as:- Respon- The auditor shall communicate with TCWG –
sibilities of the sub-group an overview of the planned scope & timing of the audit.
Nature of matters
Legal or regulatory requirement Matters communicated may include:
Whether sub group has authority to take action in • How auditor purpose to address the significant ROMM
relation to informed communicated whether due to fraud or error or areas with higher ROMM
• The auditor’s approach to IC relevant to the audit
• The application of materiality in the context of an audit
ii When all TCWG are involved in managing the entities • Where entity has an IAF, extent to which the auditor will
use the work of IA, and how they can best work together.
• Use of auditor’s expert
Matters need not be communicate again
• Preliminary views on matters that may be KAMs
With the same person (s) in their governance role
Where the entity has an The extent to which the auditor will
internal audit function use the work of internal auditor
4. Objectives of the Auditor
Effective two-way communication is Other planning matters that it may be appropriate to discuss with TCWG
important in assisting: include:
• The views of TCWG of:
(a) To communicate clearly with TCWG o The appropriate person(s) in the entity’s .
the responsibilities of the auditor; o The allocation of responsibilities between TCWG and MGT.
(b) To obtain from TCWG information o The entity’s objectives and strategies.
relevant to the audit; o Matters TCWG consider warrant particular attention.
(c) To provide TCWG with timely signifi- o Significant communications with regulators.
cant & relevant observations; and o Other influencing matters.
(d) To promote effective 2-way com- • The attitudes, awareness, and actions of TCWG concerning
munication between the auditor (a) the entity’s ICs and (b) the detection or possibility of fraud.
• The actions of TCWG in response to developments in AS, CG practices
and TCWG.
• The responses of TCWG to previous communications with the auditor.
• The documents comprising other information - SA 720
SA 260 : COMMUNICATION WITH THOSE CHARGED WITH GOVERNANCE
 SA 260 : COMMUNICATION WITH THOSE CHARGED
WITH GOVERNANCE

(C) Significant findings (D) Auditors Independence

a) The auditor shall communicate with TCWG
The auditors view about significant qualitative
aspects of the entity’s accounting practice
I. Including accounting policy
II. Accounting estimates’ and
III. FS disclosures
b) Significant findings
If any encountered during the audit may include
such matters as:
• Significant delay in providing information
• Unnecessarily brief time to complete the audit
• Extensive unexpected effort to obtain SAAE
• Unavailability of expected information
• Restrictions imposed by MGT
• Scope limitation imposed by MGT
Supplementary matters
• Significant deficiencies in governance
structure or processes &
• Significant decisions or actions by senior man-
agement that lack appropriate authorisation
If a supplementary matter communicated,
auditor to make TCWG aware that:
(a) Identification and communication of such
matters is incidental to the purpose of the
audit,
(b) No procedures were carried out with
respect to the matter & to determine whether
other such matters exist.
In the case of listed entity auditors shall
communicate with TCWG
(i) A statement that team & network firms
complied with relevant ethical requirement
(regarding independence)
(ii) All relationship and other matter may
reasonably be thought to be bear on
independence This shall include total fees
charged for audit & non audit services
provided by firm and network firm to the
entity and components controlled by entity.
(iii) The related safeguards that have been applied
to eliminate identified threats to independence
or reduce them to an acceptable level.

c) Unless all of TCWG are involved in
managing the entity
I. Material weakness If any in the design,
implementation or operating effectiveness of
IC that have come to the auditor’s attention
and have communicated to MGT as requires
by SA-315 or SA-330
II. Significant matter discuss with MGT like
• Business condition affecting the entity
• Concerns about management’s consultation
with other accountant or related matters
• Significant events or transactions
• Discussions or correspondence
• Significant matters on which disagreement with
MGT,
III. WR the auditor is requesting
e) Other matters
• That are significant to the oversight of the
financial reporting process.
d) Circumstances that affect the form and
content of AR
• The auditor expects to modify the opinion
• Material uncertainty related to GC is reported
• KAMs are communicated
• Necessary to include an EOMs or OM para
• Auditor has concluded that there is an uncor-
rected MMs
In such circumstances, the auditor may consider it
useful to provide a draft of the auditor’s report

STANDARDS ON AUDITING DRONE CHARTS BY CA. SARTHAK NIRAJ JAIN 20

 SA 260 : COMMUNICATION WITH THOSE CHARGED
WITH GOVERNANCE

6. The Communication Process

III

Timing of communication
IV
IV
The auditor shall communicatewith TCWG Adequacy of the
on a timely basis. The appropriate timing for
communication process
communication will vary with the significance Factors affecting form
and nature of the matier, and the action ex- of communication
pected to be taken by TCWG. (i) Auditor shall evaluate whether the
two way communication adequate for
For Example: audit purpose • Whether a discussion of the
(ii) Limitation in communication with matter will be includedin
• Communications regarding planning matiers
may be made early in the audit engagement. governing body may consider the auditor’s report,e.g., Key
• Significant difficulty encountered during limitation of scope need to modify Audit Matters.
audit as soon as practicable. report or seek communication from • Whether the matter hasbeen
I • When SA 701 applies, the auditor may higher level satisfactorily resolved.
communicate preliminary views about key Evaluation of two way communication • Whether management
audit matters whendiscussing the planned for 2 way communication auditor uses ob- haspreviously communicated
Establishing the II scope and timing of the audit and may have servations. Such observations may include: the matter.
communication more frequent communications to further • The appropriateness and timeliness • The size, operating structure,
discuss such matters when communicating of actions taken. control environment, and
process Forms of about significant audit findings. • The apparent openness of TCWG. legal structure of the entity.
Shall communicate communication • Communication regarding independence • The willingness and capacity of TCWG • In the case of an audit of
with TCWG form, timing may be appropriate whenever significant to meet with auditor. special purpose F.S., whether
and expected general judgments are made about threats to in- • The apparent ability of TCWG to fully the auditor also audits the
• Always dependence and related safeguards. comprehend matters raised by the
content of communi- entity’s general purpose F.S.
cation communicate • Communication regarding findings from auditor. • Legal requirements.
• The purpose of in writing the audit, may be made as part of the con- • Difficulty in establishing with TCWG a
• The expectations of TCWG,
communications. • Orally – if the cluding discussion. mutual understanding.
• Whether the two-way communica- including arrangements made
• Form of communica- matter is not
tions. Timing of Communication – Other factors tion meets applicable L&R for periodic meetings or
very significant, requirements. communications with the
• Person(s) who will
communicate regard- already • The size, operating structure, control envi- auditor.
ing particular matters. resolved ronment etc of entity being audited. 2-way communication if inadequate and • The amount of ongoing
• Auditor’s expectation • Any legal obligation to communicate certain the situation cannot be resolved, the contact and dialogue the
require auditor may take such actions as:
that it will be two-way. matters on time. auditor has with TCWG.
immediate • The expectations of TCWG. • Modifying the auditor’s opinion
• Process for taking • Whether there have been
action and reporing communication, • The time at which the auditor identifies cer- • Obtaining legal advice
• Communicating with third parties or a significant changes in the
back on matters is highly tain matters in time for preventive action to
higher authority membership of a governing
communicated by sensitive etc. be taken, but communication of the matter
Auditors & TCWG • Withdrawing from the engagement body
may enable remedial action to be taken.

21 SA 260 : COMMUNICATION WITH THOSE CHARGED WITH GOVERNANCE

 SA 265 : COMMUNICATING DEFICIENCIES IN INTERNAL CONTROL
TO THOSE CHARGED WITH GOVERNANCE AND MANAGEMENT

Communication of E. Level of details in

Deficiencies in IC to
A. Definition
A TCWG and MGMT E communication -
Determining Factors
Deficiency in IC Significant Deficiency in IC
• The nature of the entity
a) Inability of IC to pre- A deficiency or combination • The size and complexity of the entity
vent,detect & correct of deficiency in IC that
• Nature of significant deficiencies
misstatement; and
b) Absence of control
necessary to prevent,
In the auditor’s
judgment is of
B D • Entity’s governance composition
• Legal or regulatory requirements
detect & correct sufficient importance
misstatement to merit the
attention of TCWG C D. Indicators of deficiencies
B. Reporting when deficiency in C. Significant Deficiencies in IC 1 Evidence of ineffective aspects of control
environment
IC identified Entity’s risk assessment process absent /
Factors determining whether deficiency is significant 2 ineffective
1. If the auditor – identified one or more deficiencies in IC auditor shall
Likelihood of deficiencies Susceptibility to loss or Ineffective response to identified significant
determine whether individually or in combination they consti-
leading to MM in FS in fraud of the related
3 risk
tute significant deficiencies
future asset or liability
4 Corrections of prior period misstatement
2. Communication in writing on timely basis arising due to fraud or error
3. Auditor shall also communicate to MGT at an appropriate level of his Subjectivity & complexity FS amounts exposed to
responsibility on a timely basis and : of determining estimated deficiencies 5 MGT’s inability to oversee FS preparation
Unless inappropriate amounts
In writing-significant deficiencies Misstatement detected by auditor’s proce-
in auditors PJ Importance of control 6 dures were not prevented or detected and
Other deficiencies- In writing or orally in circumstance corrected by entity’s IC
Volume of activity
4. Content of communication To the financial Management failure to implement appropri-
(a) Description of deficiencies reporting process
7 ate remedial action.
That has occurred or
(b) Explanation of their potential effect could occurred
(c) Sufficient info to explain For Example
• That purpose of the audit is to express an opinion
• IC is evaluated to design further AP
• Deficiencies reported are only as noticed and we have not General monitoring Control over The prevention &
applied AP to identifiy & report all deficiencies of ICs. control detection of fraud

Selection & Significant Transaction outside

Application of significant related party is the entity’s normal
LEGEND : PJ = Professional Judgment accounting policy transaction course of business

STANDARDS ON AUDITING DRONE CHARTS BY CA. SARTHAK NIRAJ JAIN 22