Standards on Auditing

Summary Charts
S. Pg.no S. Pg.no
Particulars Particulars
no . no .
1 SA 200 4 16 SA 550 53
2 SA 210 8 17 SA 560 55
3 SA 220 11 18 SA 570 58
4 SA 230 13 19 SA 580 61
5 SA 240 17 20 SA 610 63
6 SA 250 22 21 SA 700 66
7 SA 299 25 22 SA 701 70
8 SA 300 28 23 SA 705 72
9 SA 315 30 24 SA 706 75
10 SA 320 36 25 SA 710 77
11 SA 500 37
12 SA 501 39
13 SA 510 43
14 SA 520 45
15 SA 530 48
2
 SA 200 - Overall Objectives Of The Independent Auditor And Conduct Of An Audit In
Accordance With Standards On Auditing

1.Objectives 2. Conduct of audit in 3. Ethical Requirements

accordance with SA 200 of an auditor

i. To Obtain Reasonable
assurance i. Comply relevant requirement
i. Integrity
ii. To Ensure that FS of SA only – Entire SA not
ii. Objectivity
free from MMs needed
iii. Professional
whether due to fraud ii. All SAs relevant to audit –
Competence and Due
or error identify the Circumstances
Care
iii. To report on the FS iii. Determine any additional
iv. Confidentiality
iv. To communicate as audit procedure is required
v. Professional Behaviour
required by SA’ by the SA
vi. Independence
iv. Use objective of SA to
achieve overall objective

4
 SA 200 - Overall Objectives Of The Independent Auditor And Conduct Of An Audit In
Accordance With Standards On Auditing

4.Misstaments (MS) 5.Professional Judgement 6. Independence of an

Auditor

i. MS = Required APCD – i. Application of i. Auditor not to perform as per

Reported APCD • Knowledge the commands of the
i. A = Amounts • Experience appointing authority
ii. P = Presentation • Training In context ii. Independence of Mind
iii. C = Classification provided by auditing , • State of mind to allow
iv. D = Disclosures accounting and ethical provision of an opinion
ii. MS can arise due to standards in making without being affected
fraud or error informed decisions by any influence
ii. E.g. Determining iii. Independence in appearance
• sample size • Avoidance of facts
• materiality level • Third party would
• Audit Risk reasonably conclude
• NTE of Audit • Objectivity has been
Procedures Compromised

4
 SA 200 - Overall Objectives Of The Independent Auditor And Conduct Of An Audit In
Accordance With Standards On Auditing

7. Professional skepticism 8. Sufficient and Appropriate Audit

Evidence (SAAE)

i. Professional skepticism is an attitude

includes a questioning mind, being alert to
condition which indicate possible
misstatement due to error or fraud, and a
critical assessment of audit evidence
obtained
ii. It reduce the Risk of
• Overlook Unusual Circumstances
• Over generalizing when drawing
conclusions from audit observations
• Using inappropriate assumptions in
determining NTE of audit procedures
i. Sufficiency is the measure of quantity of
audit evidence
ii. Appropriateness is the measure of quality
of audit evidence
• its relevance and reliability in
providing support for conclusions to
be drawn.
iii. Higher Risk= more evidence needed
iv. Higher quality = less evidence needed
v. More Detailed in SA 500

5
 SA 200 - Overall Objectives Of The Independent Auditor And Conduct Of An Audit In
Accordance With Standards On Auditing

9. Aspects to be Covered in Audit 10.Advanatges of Audit

i. Verify
i. Safeguard the Financial interest of the person
• Authenticity and Validity of transactions
who is not associated with the management
• Tittle , existence and value of the Assets
ii. Act as Moral Check on employees
• Liabilities
iii. Helpful In
ii. Comparison of items of FS with underlying
• settling Liability for taxes
records
• settling Trade disputes
iii. Examination of system of accounting and
• Settlement of Accounts
internal Control
• Detection of wastages and losses
iv. Check the results shown by P&L
iv. Govt. Required audited and certified statements
v. Report to the Appropriate Authority

6
SA 200 - Overall Objectives Of The Independent Auditor And Conduct Of An Audit In
Accordance With Standards On Auditing

11. Scope of Audit 12.Inherent Limitations of Audit

i. Audit covers the aspect of

Accounting and Finance of the
entity
ii. Ensure Relevant info. Properly
disclosed in FS
iii. Auditor not to perform duties
which falls outside the scope of
his competence
iv. Constraints the scope of audit
that impair the auditor’s ability
to express modified opinion set
out in his report
i. The Nature of Financial Reporting – Judgement by
Mgmt.
ii. The Nature of Audit Procedure
• Practical and legal limitation
• Fraud involve organised schemes
• Mgmt. may not provide complete info
iii. Timeliness of Financial Reporting – balance between
benefit and Cost
iv. Others
• Fraud – collusion with Senior Mgmt.
• Related party transactions
• Non-Compliance of laws and regulations
• Doubt about Going Concern

7
 SA 210 - Agreeing The Terms Of Audit Engagements
1. Objectives
i. Establishing whether the
preconditions for an audit
are present
ii. Confirming - a common
understanding between
the auditor and Mgmt.
/TCWG about the terms
of the audit engagement
2.Preconditions for an 3.Steps to ensure
Audit Preconditions for an
Audit
i. The use by Mgmt. of
i. Determine whether the
an AFRFW in the
FRF acceptable or not
preparation of FS
ii. Written agreement of
and
Mgmt. Responsibility
ii. The agreement of
• In preparation of FS
management to the
• Designing of IC to
premise on which an
prevent MMs in FS
audit is conducted
• Access to auditor
» Info. , Records
» Additional info.
Requested by
auditor
» To persons within
the entity
8
 SA 210 - Agreeing The Terms Of Audit Engagements

4. General Contents of 5. Limitation on Scope prior to 6. Recurring Audit – revised

Audit Engagement letter Audit engagement acceptance terms of engagement

i. Scope and Objective of the i. If Mgmt. Impose a limitation

audit i. Entity misunderstood the
on the scope of auditor’s work objective and scope
ii. Responsibilities of Auditor , then auditor shall evaluate
iii. Responsibilities of Mgmt. ii. Revised / special Terms
the possible effect of such iii. Change in Senior Mgmt.
iv. Identified AFRFW changes
v. Expected Form and Content iv. Significant change in ownership
ii. If Such limitation leads to v. Change in legal framework
of the Reports disclaiming an opinion then
vi. Fee and Billing vi. Change in FRF
auditor shall not accept such vii. Change in reporting
arrangements limited engagement unless requirements
required by law or regulations viii. Change in nature and size of the
entity

9
 SA 210 - Agreeing The Terms Of Audit Engagements

7. Acceptance of Change 7A. Acceptance of Change in terms

in terms
Mgmt. Request change in terms

i. Entity may request Auditor to Will new terms convey low level of Assurance ?
change terms
• A change in Circumstances Yes No
• A misunderstanding the nature Is there a reasonable Yes Auditor should use professional
of an audit Justification in doing Judgement and accept new terms
• A restriction on the scope of so ? and record new engagement letter
engagement imposed by the No
mgmt. Whether Mgmt. permit
Yes Continue engagement as
Auditor to continue
per original terms
original Engagement ?
No
Withdraw from engagement and determine
professional and legal obligations for
reporting

10
 SA 220 - Quality Control For An Audit Of Financial Statements

1. Objectives 2. Engagement Quality Control 3. EQCR’s

Reviewer (EQCR) Responsibilities

To implement quality control

EQCR is a partner or a
procedures at the engagement i. Discuss significant matters with the
suitably qualified external
level & it provide the Engagement Partner
person with sufficient and
reasonable assurance about ii. Review FS and the proposed
appropriate experience to
● The audit complies auditor’s report
objectively evaluate
with professional iii. Review the audit documentation
i. The significant
standards, legal and relating to significant judgments
judgments made by the
regulatory made by the engagement team
engagement team
requirements iv. Evaluate conclusions reached in
ii. The conclusions reach in
● The auditor’s report formulating the auditor’s report and
formulating the report,
issued is appropriate in determining whether proposed
before the report is
the circumstances auditor’s report is appropriate
issued

11
 SA 220 - Quality Control For An Audit Of Financial Statements

4. EQCR’s Additional Responsibilities 5. Engagement partner’s Responsibilities

in relation to EQCR

i. The EQCR shall evaluate of the firm’s

i. Determine that EQCR has been appointed
independence in relation to the audit
ii. Discuss significant matters arising during the audit and
engagement.
Engagement Quality Control Review with the EQCR
ii. He shall consider whether appropriate
iii. Not date the auditor’s report until the Engagement
consultation has taken place on difficult
Quality Control Review is completed
matters.
iii. He shall determine whether audit
documentation selected for review reflects
the work performed and supports the
conclusions reached

12
 SA 230 -Audit Documentation

1. Meaning 2. Objectives 3.Purpose of Audit Documentation

i. Audit documentation is the i. The Preparation of Audit i. It Assist/ Enables

record of Documentation provides • Planning and perform
• audit procedures • A sufficient and appropriate • Direction , supervision
performed record of the basis for and Review
• audit evidence obtained auditor’s report • Fix Accountability
• Audit conclusions • An Evidence that the audit • Record for Future
reached. was planned and performed Audit
ii. It is also called “working in accordance with SAs, legal • Quality Review
papers” and regulatory requirements • External Inspections

13
 SA 230 -Audit Documentation

4. Factors Determining the form, content 5. Audit File 6. Assembly of Final

and Extent of Audit Documentation Audit File

i. Folders or Storage media in

i. Assembly of Final
i. Matters that give rise to Physical or electronic form
Audit File is an
significant risk of Records of Audit
ADMINISTRATIVE
ii. Significance of Audit Documentation
PROCESS and does
Evidence not involve
iii. Identified RMMs performance of new
iv. Conclusion not readily Aps or Drawing New
determinable Conclusion
v. Exceptions ii. It shall be
vi. Audit Methodology assembled within 60
vii. Nature of Audit Procedures days from the date
of Auditor’s Report

14
 SA 230 -Audit Documentation

7. Changes in Audit 8. Retention Period 9.Documenetaion of Significant matters

Documentation During Final
Assembly
i. 7 years from the date of
i. Requires Analysis of facts and
Auditor’s Report
i. Deleting Superseded circumstances
ii. No Documentation shall be
Documents ● Matters that gives rise to
deleted before the end of
ii. Sorting , Collating and Cross Significant Risk
its retention period
reference of working papers ● Results of Aps
iii. Signing of Completion Check ● Difficulty in Applying Aps
lists ● Modification of AR
iv. Documenting Audit Evidence
that Auditor has obtained ,
discussed and agreed with
relevant matters

15
 SA 230 -Audit Documentation

10.Documenetaion of Exercise of 11.Completion Memorandum 12.Ownership of Audit

Professional Judgement Documentation
i. Summary of
i. Explain the Auditor’s • Significant matters addressed i. Property of Auditor
Conclusions improve the • How they were addressed ii. He may provide
quality of judgement helps in ii. It helps auditor in extracts to his client a
reviewing documentation • Effective and Efficient review of his own discretion
• Rationale for the audit Documentation
auditor’s Conclusion on • Assists Auditor’s Consideration
Consideration of Various of Significant Risk
Factors • To consider whether any
• Basis and objective of the Standard has
Reasonableness of been achieved or not
auditor’s Conclusion
• Authentication of
Documentation

16
SA 240 -The Auditor’s Responsibilities Relating Fraud In An Audit Of Financial Statements

1. Meaning of Fraud 2. Objectives 3. Characteristics

i. It is an intentional act i. To identify and Assess the Fraud is Intentional MS of

ii. by one or more individuals ROMMs due to Fraud • Fraudulent Financial Reporting –
among ii. To Obtain SAAE about the Intentional MS including
• management assessed ROMMs due to omissions to deceive FS users
• TCWG fraud • Misappropriation of Assets –
• employees or iii. To deal Appropriately with Theft of Assets
• third parties, identified fraud
iii. involving the use of
deception
iv. to obtain an unjust or illegal
advantage

17
SA 240 -The Auditor’s Responsibilities Relating Fraud In An Audit Of Financial Statements

5. Factors induce 6.Misapprpriation of

4.Fraudulent Financial
mgmt./employees to commit Assets
Reporting
fraud

i. Theft of entity’s Assets , perpetrated

i. Manipulation , i. Financial Obligation / by Employees also Mgmt.
falsification and Pressure ii. Misappropriation of goods
alteration of accounting ii. Mgmt.'s unrealistic Goals • more difficult to detect
records iii. Dissatisfied employees • Periodic physical Verification
ii. Misrepresentation / iv. Name game (mgmt. using • Rules and Procedures
Intentional Omission power of authority by • External Security
iii. Intentional asking something illegal) iii. Defalcation of cash
Misapplication of v. Opportunity to Commit • Inflating cash payment
accounting principles fraud i. Inflated Vouchers & Dummy
iv. Management Override workers
Controls • Suppressing Cash Receipts
i. Teeming and lading
ii. Fictitious discounts , sales
• Casting Wrong totals in cash book
18
SA 240 -The Auditor’s Responsibilities Relating Fraud In An Audit Of Financial Statements

7. Fraud Risk Factors 8. Incentives or pressures , opportunities and attitude of

fraudulent Financial Reporting
i. It means Events or
Conditions indicating
incentive , pressure , i. Incentives / Pressures ii. Opportunities iii. Attitude
opportunity to • Operation loss • RPTs • History of
commit fraud • Recurring negative • Complex violation of laws
ii. Fraud Risk Factors cash flow transactions • Increase in
• Fraudulent • Decline Customer • Dominant position earning trends
Financial trend in marketing • Mgmt. fails to
Reporting • High Competition • Components of tax remedy
• Misappropriation • New regulations heavens deficiencies
of Assets • Strained relations
with auditors
• No line between
personal and
business
transactions

19
 SA 240 -The Auditor’s Responsibilities Relating Fraud In An Audit Of Financial Statements

8A. Incentives or pressures , opportunities and attitude of 9. Circumstances Relating

Misappropriation of Assets Possibility of fraud

i. Discrepancies in Accounting
i. Incentives / ii. Opportunities iii. Attitude
Records
Pressures • Huge cash • Tolerance of
ii. Conflicting or Missing Evidence
• Personal in hand minor theft
iii. Problematic relation between
Financial • Inventory • Changed
Mgmt. and Auditor
Obligations small size lifestyle
iv. Others
• Adverse and high • Displeasure
• Auditor not permit to meet
employee value among
TCWG
relationship • Inadequate employees
• A/c Policy differ from
IC • Disregard for
industry norms
• FA – small IC
• Frequent changes In A/c
size and Estimate
high value

20
SA 240 -The Auditor’s Responsibilities Relating Fraud In An Audit Of Financial Statements

10.Others – Detection of Fraud 11.Audit Procedures for Fraud reporting

i. Mgmt. Primarily responsible for detection of i. Circumstances indicating MS in FS existing due

error and fraud to fraud  Perform APs to determine whether
ii. Auditor’s Responsibility is obtaining it results MMs  if it yes communicated to
reasonable assurance that the FS free from TCWG , Mgmt., Regulatory authority
MMs due to fraud or error
iii. Non detection of ROMMs due to fraud > ii. Auditor identified MS  consider it is
indicating the fraud  if yes 1. Consider the
Non detection of ROMMs due to Error
implications on other aspects of audit and
iv. Non detection of ROMMs due to Mgmt.’s
consider the reliability of mgmt.’s
fraud > Non detection of ROMMs due to representation letter  Communicated to
Employee Fraud (Mgmt. override of TCWG , MGMT and regulatory authority if
controls) required

iii. Reporting Sec 143(12) of Co. Act 2013

21
 SA 250 -Consideration Of Laws And Regulations In An Audit Of Financial Statements
1.Objectives
i. To obtain SAAE regarding
compliance with provision of
law or regulations
• Affects Going concern
• Results Ms in FS
• Attracts heavy penalty
2.Mgmt’s Responsibilities regarding 3.Auditor’s Responsibilities regarding
law and regulations law and regulations
i. Primary Responsibility i. Type 1
i. Prevention of non • Those L & R which have direct
compliance impact on determination of
ii. Detection of non amount and disclosure auditor
compliance has to obtain SAAE
ii. Type 2
• Those L & R which do not have
direct impact on determination
of amount and disclosure, but
compliance is required
• To avoid penalties
• To continue the business (
perform limited AP => inquiry
with TCWG, In-house legal
counsel )
22
SA 250 -Consideration Of Laws And Regulations In An Audit Of Financial Statements
4. Non – Compliance
i. An act of omission / commission
• Done intentionally / unintentionally
• Which is contrary to prevailing laws
and regulations
• Such acts include transactions
entered into by or in the name of an
entity or on its behalf by TCWG ,
MGMT .
ii. Non – compliance does not include
personal misconduct by TCWG , mgmt. ,
employees which is unrelated to the
entity
5. Indicators of Non – Compliance
i. Investigation by authorities
ii. Loan to related parties
iii. Payment in cash
iv. Payment to govt. employees
v. Unusual payment of legal fee
vi. Transactions with companies have tax
heavens
vii. Unauthorized transactions
23
SA 250 -Consideration Of Laws And Regulations In An Audit Of Financial Statements

6. Reporting Requirements

i. Reporting with TCWG

• Auditor shall communicate the non – compliance of laws and regulations
• If MGMT / TCWG themselves are involved – report to next high level authority
• If no high level authority exists – obtain legal advice
ii. Reporting through audit report
• Auditor obtain SAAE that there in non – compliance with L &R
• Adequate Disclosure given in FS – Unmodified opinion
• No Adequate Disclosure given in FS – Modified Opinion
• Auditor unable to obtain SAAE that there in non – compliance with L &R
• Possible effect of undetected MS – Modified Opinion

24
 SA 299 - Joint Audit Of Financial Statements

1. Meaning 2. Objectives 3. Scope of Joint Audit

Pooling resources i. To lay down broad principles i. The practice of appointing more than one
and expertise of for joint auditors in auditor to conduct the audit of large
more than one conducting joint audit entities due to requirements of laws or
auditor or firm to ii. To provide a uniform regulations.
provide an expert approach to the process of ii. Such auditors are known as joint auditors. .
service In a limited joint audit iii. SA 299 lays down the principles for the
period of time iii. To identify the distinct effective conduct of Joint Audit.
areas of work and coverage iv. This standard does NOT deal with the
by each joint auditor relationship between a principal auditor who
iv. To identify individual is appointed to report on the FS of an entity
responsibility and joint and another auditor who is to report on the
responsibility of the joint FS of the component.
auditors

25
 SA 299 - Joint Audit Of Financial Statements
4. Development of Joint Audit plan
i. Identify division of audit areas & defines the scope
of work of each joint auditor
ii. Based on reporting objective - plan the timing of the
audit and nature of communications required
iii. Communicate to all - the factors that are significant in
directing the engagement team’s efforts
iv. Consider the results of preliminary engagement
activities
v. Ascertain the nature, timing and extent of resources
necessary to perform the engagement
5. Responsibilities of Joint Auditor
i. All Joint Auditor are Joint and Severally liable
for
● The audit work which is not divided is
carried out by all of them
● In Audit planning all joint auditors take
decisions for common area
● Examine the FS comply with the relevant
statutes
● To confirm that Presentation and
disclosure of FS as per AFRFW
● Ensuring audit report complies with
relevant statues, applicable SAs
26
 SA 299 - Joint Audit Of Financial Statements
6. Allocation of work among joint auditors
i. Work is divided between the joint
auditors by mutual discussion
ii. When work is not able to divided – it
shall be performed by all joint auditors
iii. Division of work may be with
references to items of assets,
liabilities, income or expenditure.
iv. The documentation of allocation of work
helps in avoiding any dispute or
confusion between joint auditors
7. Reporting Under Joint audit
i. Joint Auditors agree on a common opinion
• Issue Common Audit Report
ii. Disagreement with regard to the opinion or any other
matter
• Not bound by the view of majority of auditors
• Express opinion in a separate audit report
• If separate audit reports are issued, the audit
report issued by joint auditors should make a
reference to separate audit report issued by any
joint auditor
• Make reference to the audit report issued by the
other joint auditor in Other Matter Paragraph
27
 SA 300 - Planning In An Audit Of Financial Statements

1. Objective 2. Preliminary Engagement 3. Planning Activities 4. Benefits of audit

activities Planning Activities
The Objective of an
The auditor shall
auditor is to plan i. Performing procedures i. To devote appropriate
establish an overall
the audit so that it required by SA 220 related to attention to important
audit strategy that
will be performed in Quality Control areas of the audit
sets the scope,
an effective manner ii. Evaluating compliance with ii. Identify and resolve
timing, direction of
ethical requirements including the audit and guides potential problems on a
independence as per SA 220 the development of timely basis
iii. Establishing an understanding the audit plan iii. Properly organize and
of the terms of the manage the audit
engagement as per SA 210 engagement
iv. Assisting in selection of
engagement team members
v. Facilitating the direction
and supervision of
engagement team members

28
 SA 300 - Planning In An Audit Of Financial Statements

4. Establishing Overall 5. Inclusion of 6.Documentation as

Audit Strategy Audit Plan per SA 300

i. Identify the Characteristics i. The nature, timing and i. The overall audit
and Scope of the engagement extent of planned risk strategy
ii. Reporting objectives of the assessment procedures as ii. The audit plan
engagement per SA 315 iii. Any significant changes
iii. Consider the significant ii. The nature, timing and made to the overall audit
factors directing the team’s extent of planned strategy or audit plan,
efforts further audit procedures and the reasons for such
iv. Determine the NTE of as per SA 330 changes
Resources iii. Other planned audit
v. Consider the Results of procedures that are
preliminary engagement required to be carried
activities out as per other SAs

29
 SA 315 - Identifying & Assessment Of Risk Of Material Misstatements Through Understanding
Entity & Its Environment

1.Audit Risk 2. Objective 2A. Objective 3. Assertions

i. Risk that auditor i. To identify and Assess i. To identify Risks Representation by

gives the ROMMs whether ii. Assess whether risks Mgmt., explicit or
inappropriate due to fraud or error at pervasively affect FS otherwise that are
opinion when the the FS and Assertion iii. Relate identified risks embodied in the FS ,as
FS are materially level what can go wrong used by the auditor to
Misstate ii. Through understanding iv. Consider likelihood of consider the different
ii. Audit Risk = the entity and its MS: whether results types of potential
RMM X Detection environment including in MMs misstatements that may
Risk entity’s IC occur
iii. RMM = Inherent iii. Thereby providing a
Risk X Control basis for designing and
Risk implementing responses
to Assessed ROMMs

30
SA 315 - Identifying & Assessment Of Risk Of Material Misstatements Through Understanding
Entity & Its Environment

4.Risk of Material Misstatement 5. Detection Risk 6.Techniques to Perform Risk

Assessment Procedure

i. MMs prior to audit i. Audit

ii. Inherent Risk = procedures i. Inquires of management and
Amounts , presentation performed is others
, classification , failed to • TCWG
Disclosure misstated detect • Employees
before considering Misstatements • In-House legal Counsel
related Controls ii. Analytical Procedures
iii. Control Risk = IC i. Financial and non
unable to prevent MMs financial information
on timely basis iii. Observation and Inspection
• Entity’s Operations
• Documents

31
SA 315 - Identifying & Assessment Of Risk Of Material Misstatements Through Understanding
Entity & Its Environment

7. Understanding the entity and its 8. Internal Control 9.Benefits of understanding the
environment Internal Control

i. Relevant Industry , regulatory i. It is a process (Policies and

i. Identify the
framework Procedures)
factors affecting
ii. Nature of entity’s operations , • Designed
RMM
Ownerships structure • Implemented
ii. Identifying
iii. Selection and application of • Maintained by
Potential MS
policies ii. MGMT , TCWG to provide
iii. Designing NET of
• Appropriateness iii. Reasonable Assurance about
FAP
• Consistency achievement of entity’s objectives
• Need to involve experts with regards to
iv. Entity’s objectives and strategies • Compliance of laws and
v. Entity’s Financial performance Regulation
• Safeguarding the Assets
• Reliability of Financial
Reporting
• Efficiency and Effectiveness
of Operations
32
SA 315 - Identifying & Assessment Of Risk Of Material Misstatements Through Understanding
Entity & Its Environment

10.Limitations of Internal 11. Components of Internal Control 11A. Control Environment

Control

i. Control Environment i. It sets the tone of organization

i. Reasonable Assurance only
ii. Entity’s RAP
ii. Human Judgment
iii. Information System
iii. Lack of understanding the
iv. Control Activities
purpose of IC
v. Monitoring of Controls
iv. Collusion among People
v. Judgment by MGMT
vi. Not useful in Small Entity
ii. Attitude and awareness of TCWG , Mgmt.
iii. Honesty and Ethical Behavior
iv. Governance and Mgmt. Functions
v. COMPONENTS OF CONTROL ENVIRONMENT
• Communication and enforcement of
integrity and ethical Values
• Commitment to competence
• Participation By TCWG
• Mgmt.’s Philosophy and operating style
• Organizational structure
• HR policies and Procedures

33
SA 315 - Identifying & Assessment Of Risk Of Material Misstatements Through Understanding
Entity & Its Environment

11B. Entity’s RAP 11C. Information Systems (IS) 11D. Control Activities

i. Entity’s Process for i. The Auditor shall obtain i. Policies and Procedures to
• Identification of Risks understanding IS including ensure Mgmt. directives
• Estimate the significance Business process , relevant to FR are carried out
of Risk • The Significant COT ii. Control Activities relevant
• Assess the likelihood of • The process of initiation , to audit
Occurrence recording, processing the • Those necessary to
• Deciding actions to transaction assess RMM
address the risks • How IS captures significant • Related to Significant
events ABCD
• FR process • Related to Significant
Risk where SAPs are
not sufficient
• Relevant in auditor’s
Judgments

34
SA 315 - Identifying & Assessment Of Risk Of Material Misstatements Through Understanding
Entity & Its Environment

11E. Monitoring of Controls 12. Risk that require special audit 13. IT related Risk
consideration

i. Process to assess
i. Risk of fraud. i. Inaccurate data
effectiveness of IC
ii. Complexity of transactions. processing
performance on a timely basis
iii. Risk of unusual transactions with related ii. Unauthorized access
ii. Management accomplish
person. of data
monitoring through
iv. Degree of subjectivity in the iii. Unauthorized changes
• Ongoing activities – of
measurement of financial statements. to data, systems or
Routine nature
v. Risk due to involvement of uncertainty. programs
• Separate Evaluation –
vi. Risk relating to recent significant iv. Failure to make
Using Info. From external
economic, accounting or other necessary charges in
sources
developments systems
v. Inappropriate manual
intervention
vi. Potential loss of data

35
 SA 320 -Materiality In Planning And Performing An Audit

1.Meaning of Materiality 2.Objective 3.Revision in Materiality 4.Documentation

of Materiality

i. The Omission or erroneous i. The objective of i. Change in

i. Materiality is to be
presentation of Any item auditor is to apply circumstances
documented.
which will influence the the concept of ii. New Information
ii. If applicable, lower
Economic Decisions of the materiality iii. Change in auditor’s
level of materiality
entity , Such item is known as appropriately in understanding of
determined for a
material Item planning and entity
particular class of
ii. Performance materiality (PM) performing the iv. Further audit
transactions,
• An amount is set by the audit procedures
account balances
auditor at less than the
or disclosures
materiality level for COT
iii. PM
, A/c Balance, Disclosure.
iv. Any revision of
• Determination of the
materiality as audit
level of materiality is the
progresses
professional Judgment

36
 SA 500 -Audit Evidence (AE)

1.Meaning 2.Objective 3.Sufficiency and Appropriateness

i. Audit evidence is information i. Auditor must form his audit i. Sufficiency refers to quantum
used by the auditor in arriving opinion on the basis of of Audit evidence
at the conclusions on which sufficient and appropriate • Materiality
the auditor’s opinion is based. audit evidence which are • Size and Characteristics
ii. It includes both information obtained by performing RAP of populations
contained in the accounting and FAP • RMMs
records underlying the ii. Appropriateness refers quality
financial statements and other of Audit evidence
information • Relevance
• Reliability

37
 SA 500 -Audit Evidence (AE)

4. Reliability of Audit evidence 5.Audit Techniques to obtain AE 6.Types of Audit Evidence

increases when

i. Obtain from Independent i. Inspection – Examine Records i. Depending on nature

Sources ii. Observation – Witness the i. Visual
ii. Related Controls are Effective others performance ii. Oral
iii. Directly obtained by auditor iii. External Confirmation - Direct iii. Documentary
iv. Obtained in documentary form response by third party ii. Depending on Source
v. Provide Original Documents iv. Recalculation – check i. Internal
mathematical accuracy ii. External
v. Re-performance – independent
execution of procedures
vi. Analytical Procedures –
Evaluate plausible relationship
between data
vii. Inquiry – Seek Information
from knowledgeable persons

38
 SA 501 -Audit Evidence – Specific Considerations for Selected Items

1. Objectives 2. Selected Items 3.Inventory

i. Attendance at Physical Inventory Counting (PIC)

i. The objective of the i. Inventory • Evaluate management procedures
auditor is to obtain ii. Litigation and • Observation Inspection
SAAE regarding: Claims • Test Count
• Existence and iii. Segment ii. Perform other APs Relevant matters in planning PIC
condition of Information • Nature of inventory
inventory • Stage of WIP
• Completeness of • RMM
litigation and claim • Nature of IC
involving the entity • Need for expert
• Presentation and • Location of inventories
disclosure of iii. Date other than FS Date - Changes recorded or not
segment information iv. Attendance at PIC impracticable
in accordance with • Perform alternative APs to obtain SAAE
applicable FRF • If not possible, issue modified report
v. Inventories lying with third parties
• Obtain confirmation -Inspection and Other APs
39
SA 501 -Audit Evidence – Specific Considerations for Selected Items

4.Litigations and Claims 5.Segement Reporting

i. Perform APs to identify RMM i. SAAE about

• Inquiry of management presentation and
• Inquiry of in-house legal disclosure
counsel ii. Methods used in
• Minutes of TCWG meeting determining segment
• Correspondence information
• Reviewing legal expense account iii. Understanding the
ii. If RMM identified method
• Direct communication with legal iv. Testing application of
counsel the method
• Alternative Aps
iii. Meet legal counsel
• Determine significant risk
• Complex matter
• Disagreement between
management and legal counsel

40
 SA 505 -External Confirmations

1.Meaning & Suitability 2.Important Terms 3. Factors determining whether

External Confirmation to be
performed
i. Direct written response i. Positive Confirmation Request -
from a third party in paper Respond whether agrees or
or electronic form disagrees
i. Confirming party's
ii. Suitability of External ii. Negative Confirmation
knowledge of subject
Confirmations Request-Respond only in case of
matter
• Account Balances and disagreement
ii. Ability or willingness
their elements iii. Non Response –
of third party to
• Terms of contracts, • Failure of confirming party
respond
agreements to respond
iii. Objectivity and
iii. E.g. External confirmations • Request return undelivered
reliability of the third
provide relevant audit iv. Exception
party
evidence for existence of • Difference between
inventories but less relevant information requested and
audit evidence for their information provided by the
completeness and valuation confirming party

41
 SA 505 -External Confirmations

4. Performing External Confirmation 5. Factors to consider while 6. If management refuses auditor

Procedures designing ECRs to send ECRs

i. Determine information i. Identified RMM • Inquire as to reason for

to be confirmed ii. Layout and refusal
ii. Selecting appropriate presentation • Evaluate implications on RMM
confirming party iii. Assertions being assessment
iii. Designing the ECR addressed • Perform alternative APs
iv. Sending the ECR iv. Method of • If refusal considered
communication unreasonable, Communicate
v. Prior experience with with TCWG
client or similar • Consider implications on Audit
industry opinion
vi. Management
authorization or
encouragement
vii. Ability of third party

42
 SA 510 – Initial Audit Engagements – Opening Balances

1.Application of SA 510 2. Objective 3. Audit Procedures as per SA 510

i. Prior period FS i. Obtain SAAE i. The auditor should read the most recent FS and
unaudited • Opening balance the predecessor auditor’s report regarding the
ii. Prior period FS containing MS Opening balance
audited by • Appropriate ii. Obtain SAAE to confirm
predecessor accounting policy • Brought forward of prior period’s Closing
auditor consistently balance
applied in current • opening balances reflect application of
period FS appropriate A/c Policy
• Perform specific audit procedures to obtain
evidence on opening balances
iii. If prior period’s audit report was modified, the
auditor shall evaluate its effect on the assessment
of Risk of Material Misstatement

43
 SA 510 – Initial Audit Engagements – Opening Balances

4.Auditor’s Opinion w.r.to Opening Balances 5.Auditor’s Opinion w.r.to 6.Reporting

contain MS affecting current period FS Consistent application of
accounting policies
i. Unable to obtain
i. Perform APs to obtain SAAE
SAAE
ii. Prior period closing balance i. Obtain SAAE
• Qualified Opinion
correctly brought forward ii. Whether accounting policies
• Disclaimer of
iii. Application of appropriate consistently applied in
Opinion
accounting policies current period FS
ii. Concludes that
iv. Perusing copies of audited FS iii. Changes are adequately
Opening balance
v. APs for current year provide AE for presented
contain MS
prior period
• Qualified Opinion
vi. Specific APs
• Adverse Opinion
vii. If MS identified
viii. Perform additional APs
ix. Communicate to management and
TCWG

44
 SA 520 – Analytical Procedures

1. Meaning 2. Objectives 3. Nature Of Analytical Procedure

i. Analytical Procedures i. To obtain relevant and reliable i. Analytical procedures include

means evaluations of audit evidence when using comparison of entity’s financial
financial information substantive analytical information with:
through analysis of procedures • Comparable information for
plausible relationships ii. To design and perform SAP prior period
among both financial and towards the end of the audit to • Anticipated results of the
non-financial data. form an overall conclusion as to entity, based on budgets or
ii. The choice of whether the FS are consistent forecasts
procedures, methods is a with auditor’s understanding of • Similar industry
matter of professional the entity information
judgement • Relationships Among
elements of financial
information
• Between financial and non-
financial information

45
 SA 520 – Analytical Procedures

4. Investigate the results of 5. Application of SAP 6. Determine reliability of data

analytical procedures

i. The auditor shall: i. Determine suitability of SAP i. Source of the information

• Inquire of for particular assertions while available
management and considering ROMM ii. Comparability of the
obtain SAAE ii. Evaluate the reliability of data information available
relevant to from which auditor will build iii. Nature and relevance of the
management’s expectations information available
response iii. Develop an expectation of iv. Controls over the preparation
• Perform other audit recorded amounts or ratios and of the information that are
procedures as evaluate whether expectation is designed to ensure its
necessary in the sufficiently precise to identify completeness, accuracy
circumstances misstatements
iv. Determine fluctuations between
expectation and amounts
actually recorded

46
 SA 520 – Analytical Procedures

7. Evaluate whether the auditor’s expectation is sufficiently precise Or not

i. The accuracy with which results can be predicted

ii. The degree to which information can be disaggregated
(broken up)
iii. The availability of financial and non-financial information

47
 SA 530 – Audit Sampling

1.Meaning 2.Objectives 3.Population 4.Anomaly

i. Application of audit The objective of the i. Entire data set about Deviations and MS
procedures to auditor is to provide a which conclusion is to identified -
ii. Less than 100% reasonable basis when using be drawn and from Evaluate whether it
population where audit sampling to draw which sample is represent the
iii. Each unit has an equal conclusions about the selected population or not
chance of selection population from which the ii. Characteristics
Such that sample is selected • Appropriateness
iv. conclusion on population with regard to
is based on the audit objective
conclusion on sample • Completeness-
should include all
relevant items
• Reliable-Complete
and accurate
information

48
 SA 530 – Audit Sampling

5. Tolerable error 6. Expected error

Tolerable error Expected error is the deviation expected by auditor to remain

refers to deviation between sample result & population result. Higher the sample
between sample result size lowers the expected error and it should always lie within the
and population result arms of the tolerable error
which auditor is willing
to accept & still Expected error < tolerable error  Sampling objective achieved
conclude that sample
result & population Expected error > tolerable error  Sampling objective not yet
result are same achieved, so increase the sample size to make E.E. < T.E.

49
 SA 530 – Audit Sampling

7.Approaches to Sampling 8.Sampling Risk 9.Non-Sampling Risk

i. Statistical Sampling i. Risk that auditor's conclusion based on

sample May be different If APs were Auditor reaches an
i. Random selection of erroneous conclusion for
the sample items. applied to entire population
ii. Two types of erroneous conclusion will any reason not related
ii. Use of probability to sampling risk
theory occur
iii. Type 1 i. Human Mistakes
iii. Measurement of ii. Misinterpreting the
sampling risk • TOC -Controls more effective than
actually are sample results
iv. More scientific iii. Applying
ii. Non-statistical Sampling • TOD-MS does not exist when in fact
it does inappropriate APs
i. Sample size determined iv. Relying on erroneous
as per personal • Affects-Audit effectiveness
• Results-Inappropriate audit opinion conclusions
experience
ii. Traditional approach iv. Type 2
iii. Neither objective, nor • TOC-Controls less effective than
subjective actually are
iv. Less time consuming • TOD-MS exists when in fact it does
not
• Affects-Audit efficiency
• Results Additional workload 50
 SA 530 – Audit Sampling

10. Stratification & Value 11. Sample design, size and 12. Performing audit
Weighted selection selection of item procedures

Stratification: Factors to be considered • Perform APs on each item

Entire population while designing sample selected
Divided into stratum • Specific purpose to • Unable to apply AP on
or sub-populations be achieved by AP selected item / AP
having identifying i. Nature of AE unsuitable
characteristics ii. Possible • Perform AP on
Value-weighted selection deviation or replacement item
Identify sampling misstatement • Unable to apply
units as • Characteristics of designed AP
Monetary units population • Treat item as
• Focus on high i. Stratification deviation (TOC) or
value items ii. Value-weighted MS (TOD)
• Reduce sample selection
size

51
 SA 530 – Audit Sampling

13.Sample Selection methods

Simple Random Sampling Monetary Unit

• Each unit has equal Stratified Random Interval / Systematic Sampling
chance of selection Sampling Sampling • Type of value-
• Items chosen using • Dividing population • Determination of an weighted selection
random number into strata interval • Sample size in
generators • Taking random sample • Dividing number of monetary amounts
• Simple, easy and from each strata sampling units by sample
unbiased • Appropriate for size
• Appropriate for similar diversified population • Determine that sampling
units in population units are not in a
structured pattern

Haphazard Sampling Block Sampling

• Selecting sample • Selection of block of
without structured contiguous items
technique • Suitable for
• Auditor should avoid heterogeneous sampling
conscious bias units
52
 SA 550 – Related parties

1.Meaning 2. Related Party transactions 3. Auditor’s duties

posing high RMM

i. Entity over which reporting

entity has significant control i. RPs operating i. Perform APs to identify
ii. Entities under Common control through complex and assess RMM of
iii. Person or entity that has control relationships and failure to account/
or significant influence, directly structures disclosure RPTs
or indirectly ii. Ineffective ii. Obtain an understanding
• Exception : Entities under information systems of the entity’s RP
common control by for identifying relationships and
Government are not transactions transactions
considered related unless iii. Transactions with no iii. Whether FS achieve true
they share resources or or inadequate and fair presentation or
transactions significantly consideration are not misleading
iv. Evaluate whether RP is a
fraud risk factor

53
 SA 550 – Related parties
4.Verify existence of related parties
Inspect the following documents
i. Income tax returns
ii. Shareholder registers
iii. Investment register
iv. Internal Audit report
v. Statement of conflict
vi. Contracts not in ordinary Course
of Business
5.Responsibilities of Auditor
i. Obtain AE regarding accounting and
Disclosures
ii. Identify the fraud risk factors (
especially fraud can happen Through RP)
iii. Inherent limitations arising out of RP
transactions (mgmt. may not aware the
existence RPT)
iv. Maintain Professional Skepticism
54
 SA 560 – Subsequent Events

1. Meaning 2. Objective 3. Audit Procedures

i. Events Occurring i. Obtain SAAE about whether i. Understanding of

between the events occurring between the mgmt. responsibilities
• Date of FS date of the FS and the date to identify
• Date of of the auditor’s report that subsequent events
Auditor’s require adjustment or ii. Inquiring of Mgmt. &
Report disclosure are appropriate TCWG
ii. And the fact came reflected in the FS iii. Reading Minutes of
to auditor’s ii. Responds appropriately to the BOD and SH
knowledge after facts that become known to meetings
the Date of the auditor after the date of iv. Reading Interim FS
Auditor’s Report Auditor’s Report v. Obtain WR

55
 SA 560 – Subsequent Events

4. Auditor’s Responsibilities

1. Facts came to auditor’s knowledge before the FS issued

• Discuss the matter with Mgmt.
• Determine whether the FS need Amendment
• inquire whether mgmt. amends the FS
Mgmt. Amends the FS Mgmt. does not Amends the FS

Audit Report already

• Perform AP related to amendment Audit Report not yet given to Mgmt.
• Obtain SAAE given to Mgmt.

Instruct mgmt. Not to

NO IMPACT ON Modify the Opinion & Give
Circulate Audit Report
OPINION ( No need to the Audit Report
If Circulated take
modify the Opinion) Appropriate action
Give modified Opinion

56
 SA 560 – Subsequent Events

4A. Auditor’s Responsibilities

2. Facts came to auditor’s knowledge after the FS issued

• Discuss the matter with Mgmt.
• Determine whether the FS need Amendment
• inquire whether mgmt. amends the FS
• If FS need amendment first ask mgmt. to take appropriate action to stop ,
if mgmt. doesn’t auditor himself take action

Mgmt. Amends the FS Mgmt. does not Amends the FS

Auditor shall give a new

• Perform AP related to amendment Audit Report containing
• Obtain SAAE • Modified Opinion
(Qualified /
Give New Audit Report containing Adverse)
Unmodified opinion & EOM , OM • Explain the reason in
para to highlight basis for Modified
Opinion para
57
 SA 570 – Going Concern

1. Meaning 2. Objective 3. Auditor’s

Responsibilities

i. Entity will continue i. Obtain SAAE from

its operations for management and TCWG i. to obtain SAAE regarding the
foreseeable future regarding their use of GCA appropriateness of
ii. Realize its assets ii. To conclude based on evidence management’s use of the GCA
in the normal whether material uncertainty in the preparation of FS
course regarding GCA exists ii. Determine whether a material
iii. Discharge its iii. Report as per SA 570 uncertainty casting doubt on
liabilities in the GCA exists
normal course

58
 SA 570 – Going Concern

4. Conditions casting doubt on entity’s ability to continue as a Going Concern

Financial Operating Other

• Net liability position • Management intention for • Non-compliance with
• Borrowings approaching maturity liquidation regulatory requirements
but no scope for renewal • Loss of key management • Pending legal proceedings
• Withdrawal of financial support by without replacement • Adverse effect of
creditors etc. • Loss of market changes in government
• Adverse financial ratios • Labor difficulties policies
• Negative operating cash flow • Shortage of supplies • Uninsured catastrophes

59
 SA 570 – Going Concern

5. When Events/ Conditions casting significant 6. Relevant Audit Procedures

doubt on entity’s going concern identified

i. Analysing and discussing cash flows

i. Requesting management to make GC ii. Analysing and discussing latest interim
assessment, if not already made FS
ii. Evaluating future plans of management in iii. Obtaining and reviewing reports of
relation to its going concern regulatory actions
iii. Evaluating reliability of cash flow forecast and iv. Reading terms of loan agreements
its analysis v. Reading minutes of meetings
iv. Considering additional facts since vi. Inquiring legal counsel
management's assessment vii. Planned disposal of assets
v. Requesting written representations regarding
future plans

60
 SA 580 – Written Representations (WR)

1.Meaning 2. Objective 3. Who gives Written 4. Do WR provide 5. WR about fulfilment of

Representations SAAE ? Management Responsibilities

• Written • Obtain WR • Management or • Provides • Responsibility

statement by • Support TCWG necessary AE, regarding FS
management other AE • Responsibility for not SAAE preparation
• To confirm • Respond FS preparation • WR should • Responsibility
certain facts appropriately (CEO/CFO) not affect regarding design
• Support • Knowledge of NET of other and implementation
other AE concerned AE of IC
matters

61
 SA 580 – Written Representations (WR)
6. Circumstances requiring reconfirmation of
management's understanding of its responsibilities
• Those who signed the terms of engagement are no
longer responsible
• Terms of engagement prepared in previous year
• Misunderstanding responsibilities
• Change in circumstances
7. Doubts over reliability of WR
• If concerns regarding competence,
integrity and diligence of management
• If WR inconsistent with other AE, perform
APs to resolve
• If WR not reliable, consider effect on
opinion as per SA 705
• If management does not provide requested
WR – discuss with management, re-
evaluate integrity, consider possible effect
on audit opinion
62
 SA 610 – Using the Work of Internal Auditors
1. Objective
• Determine whether the
work of direct
assistance from
internal auditors can be
used
• Determine whether
such work is adequate
• Appropriate direction,
supervision and review
in case of direct
assistance
• External auditor has
the sole responsibility
for the audit opinion
expressed and it is not
reduced if he uses the
work of internal auditor
2. External Auditor’s procedures w.r.to
evaluation of IA Function
• Determine adequacy of work of IAF for use by external auditor
• Evaluate
• Objectivity of IA
• Application of systematic and disciplined approach
• Determine nature and extent of work of IAF to be used
• Using the work of IAF
• Discuss planned use of IAF’s work for consideration
• Read reports of IAFs relating to area of work external
auditor plans to use
• Perform sufficient APs on work of IA
• Determine appropriations of use of work of IAF
63
 SA 610 – Using the Work of Internal Auditors
3. Determining whether IA can be used
to provide direct assistance
If not prohibited by law or
regulation, external auditor may
use an IA to provide direct
assistance if:
• No significant threats to
objectivity of IA are present
• IA is sufficiently competent to
perform proposed work
4. Determining Nature & Extent of Work that
can be assigned to IA
• Involve making significant judgments in the
audit
• Relate to higher assessed RMM
• Relate to work with which internal auditors
have been involved
• Relate to decisions, external auditor makes in
accordance with this SA w.r.t. internal audit
function and use of its work or direct
assistance
64
 SA 610 – Using the Work of Internal Auditors

5. Using Direct Assistance of Internal 6. Audit Documentation

Auditor

• Evaluation of the existence and

• Prior to using internal auditors to
significance of threats to the objectivity
provide direct assistance, the external
of the IA
auditor shall
• Level of competence of IA
• Obtain written agreement from
• Nature and extent of work performed by
entity that IA will be allowed to
IA
follow the external auditor’s
• Review of work of IA
instructions
• Written agreements of entity and IA
• Obtain written agreement from the
• Working papers prepared by IA in case of
IA that they will keep confidential
direct assistance
specific matters
• The external auditor shall DSR the
work performed by IA on the
engagement in accordance with SA
220.

65
 SA 700 –Forming An Opinion And Reporting On Financial Statements

1. Objectives 2. Qualitative aspects of 3. Specific evaluations by

entity’s accounting practices auditor as per SA 700

• To form an opinion on FS
• Based on conclusions from
AE
• and express opinion through
a written report
• To form an opinion, the
auditor shall conclude
whether he has
obtained reasonable
assurance about
whether the FS as a
whole are free from
MMS, whether due to
fraud or error
• Management makes a • FS adequately discloses
number of judgments significant accounting policies
about the amounts and applied
disclosures in the FS • Accounting policies applied are
• Possible management consistent with applicable FRF
bias in the making of • Accounting estimates made are
accounting estimates reasonable
• Selective correction of • Information presented in FS is
MS brought to relevant, reliable and
management’s comparable
attention • FS provide adequate disclosures
of significant transactions and
events
• Terminology used in FS is
appropriate

66
 SA 700 –Forming An Opinion And Reporting On Financial Statements

4. Basic Elements in the Audit Report

Tittle – Addressee – Opinion Paragraph Basis for Opinion Going Concern

Independent To the • Identify the Name of the entity • State the audit was conducted in Paragraph
Auditor’s members of whose FS audited accordance with SA (SA 570)
Report the Company • Identify the Tittle of each FS • Reference to the auditor’s (Material
• Reference to the Notes Responsibilities section Uncertainty)
• State the FS is Audited • Statement that the auditor is
• Specify the Period or date covered follow up Independent and ethical
by the audit requirement
• State whether SAAE has obtained
or not

67
 SA 700 –Forming An Opinion And Reporting On Financial Statements

4. Basic Elements in the Audit Report

Key Audit Other Mgmt.’s. Responsibilities for the FS
Matters (SA Information • State the responsibilities of
701) Paragraph management or TCWG (if
management and TCWG is different)
• Preparing the financial statements
as per FRF
• Design, implementation and
maintenance of IC
• Assessing the entity’s ability to
continue as a going concern
Auditor’s responsibilities for the audit of FS-
Obtain Reasonable Assurance
• To maintain attitude of Professional
Skepticism and Professional Judgement
• To identify and Assess RMMS
• To obtain understanding the Internal Control
• To check the Accounting Policies and
Estimates
• To check the Ability to continue as Going
Concern
• To Check the Structure and Presentation of
contents of FS
• To determine matters communicated with
TCWG

68
 SA 700 –Forming An Opinion And Reporting On Financial Statements

4. Basic Elements in the Audit Report

Location of description of Signature of the Auditor's Date of the Auditor’s Report -

auditor's responsibilities auditor address - "Date"
• Body of the auditor’s • Firms "Place" • Date of signing audit report
report Registration • Name of • Should not be date earlier
• Within an appendix to number city where than date of obtaining SAAE
the auditor’s report • Membership audit on which opinion is based
• By a specific reference Number report is • This date informs the users
within the auditor’s • Unique signed that the auditor has
report to the location of Documentation considered the effect of
such a description on a Identification events and transactions of
website of an appropriate Number which he became aware and
authority, if permitted that occurred up to that date
by law or regulation

69
 SA 701 – Communicating Key Audit Matters (KAM) In The Auditor’s Report

1.Meaning 2. Applicability 3. Objectives 4. Purpose 5. Determining KAM

• Matters which • Listed entities • To determine • To enhance • Areas of higher

• in auditor's • Other KAM communicative value assessed RMM
professional circumstances • communicate of the auditor's • Significant auditor
judgment where auditor those matters by report judgments relating to
• were of most decides to describing them in • Assist intended areas in the FS that
significance in communicate the auditor’s users in involved significant
audit of FS of • KAM Where report understanding the management judgment
current period Law or areas of significant • Effect of significant
• out of all matters regulation management events or transactions
communicated requires judgment in the
with TCWG communication audited FS
of KAM • Provides additional
information to
intended users

70
 SA 701 – Communicating Key Audit Matters (KAM) In The Auditor’s Report

6. Communicating KAM 7.Circumstances in which 8. Communication 9. Audit

is not KAM is not communicated with TCWG Documentation
in Audit report

• Substitute for Auditor shall • Matters that required

disclosures in the FS • When Law or communicate the significant attention for
• Substitute for regulation following with TCWG: determination of KAM
reporting as per SA precludes public • Matters determined • If no KAM determined,
570 regarding disclosure of such as KAM by the auditor's rationale for
material uncertainty matters auditor the same
of Going Concern • If adverse • If no KAM • If KAM not
approach consequences of determined, communicated,
• Substitute for a the communication communicate auditor's rationale for
modified opinion as would outweigh auditor's not communicating the
per SA 705 the public interest determination that same
• Separate opinion on benefit there are no KAM
individual matters

71
 SA 705 – Modifications To The Opinion In The Independent Auditor’s Report

1.Scope 2. Objective 3. Types of Modified opinion 4.Qualified Opinion

• To issue an • To express clearly an Qualified Opinion • SAAE OBATINED  MMs

appropriate appropriately modified Adverse Opinion existed in the FS  Not
report with a opinion on the FS that is Disclaimer of opinion Pervasive = QUALIFIED
modified opinion necessary when OPINION
• Form and • The auditor concludes, based • SAAE NOT OBATINED 
content of on AE obtained that FS as Possible effect of MMs 
modified opinion whole are not free from Not Pervasive = QUALIFIED
MMS OPINION
• The auditor is unable to
obtain SAAE to conclude
that the FS as a whole are
free from MMS

72
 SA 705 – Modifications To The Opinion In The Independent Auditor’s Report

5.Adverse Opinion 6.Disclaimer of 7.Pervasive 8. Circumstances when

Opinion modification is required

• SAAE • Are not confined

OBATINED  (Restricted to certain • When auditor
• SAAE NOT concludes that FS are
MMs existed extent) to specific
OBATINED  not free from MMS
in the FS & elements of FS
Possible • Inappropriate
It is Pervasive • If so confined , it
effect of MMs accounting policies
= ADVERSE represent a substantial
& Pervasive = • When auditor unable to
OPINION proportion of FS or
DISCLAIMER obtain SAAE to form a
• In relation to
OF OPINION conclusion on the FS
disclosure , that are
fundamental to user’s • Limitations
understanding of the imposed by
FS management
• Circumstances
beyond control

73
 SA 705 – Modifications To The Opinion In The Independent Auditor’s Report

9. Auditor’s Responsibility in 10. Limitation imposed by management after engagement is

case of Disclaimer of Opinion accepted

• Statement regarding Auditor accepts Mgmt. Impose Likely to result in Request

responsibility to conduct audit
of FS as per SAs and issue a
report
• Statement that because of
matters described in Basis for
Disclaimer of Opinion, auditor
unable to obtain SAAE
• Statement about auditor’s
independence and ethical
responsibilities
engagement Limitation qualification/ disclaimer Mgmt. to
Remove
limitation
Determine possibility to Communicate with If management
perform alternative APs TCWG refuses
Still unable to obtain SAAE Determine possible effect on FS
Material but not pervasive -> Material but pervasive
Issue qualified opinion Is resignation possible  yes = Resign
Is resignation possible  No = Communicate
with TCWG and issue Disclaimer of opinion

74
 SA 706 – Emphasis Of Matter Paragraphs (EOM) And Other Matter Paragraphs (OM) In The
Independent Auditor’s Report

1.Objective 2. EOM 3.OM

• To draw users’ • EOM is a paragraph included in the auditor’s • OM is a paragraph included in the
attention to report that refers to a matter appropriately auditor’s report that refers to a matter
significant presented and disclosed in the FS that in the other than those presented or disclosed
matters by way auditor’s judgment is of such importance that is in the FS that in the auditor’s judgment
of fundamental to users’ understanding of the FS is relevant to user’s understand of the
communication • The auditor shall include the paragraph within a audit the auditor’s responsibilities or
in: separate section of the auditor’s report with an the auditor’s report.
• Emphasis of appropriate heading that includes the term • The auditor shall include the paragraph
Matter “Emphasis of Matter within a separate section of the
paragraph • The auditor shall indicate that the auditor’s auditor’s report with an appropriate
• Other Matter opinion is not modified in respect of the matter heading that includes the term “Other
paragraph emphasized Matter” or other appropriate heading.
• The auditor shall include an EOM provided: • The auditor shall include an OM
• The auditor is not required to modify the provided:
opinion as per SA 705 • This is not prohibited by law or
• The matter is not determined as a Key Audit regulation.
Matter as per SA 701 • The matter is not determined as a
Key Audit Matter as per SA 75701
SA 706 – Emphasis Of Matter Paragraphs (EOM) And Other Matter Paragraphs (OM) In The
Independent Auditor’s Report

4.Others 5. EOM included

• EOM is not a substitute for a
modified opinion as per SA
705.
• EOM is not a substitute for
disclosures in the FS.
• EOM is not a substitute for
reporting responsibilities as
per SA 570
• To alert users that FS are prepared in accordance with a special
purpose framework
• When facts become known to the auditor after the date of
auditor’s report and the auditor provided a new auditor’s report
• An uncertainty relating to future outcome of litigation or
regulatory action
• A significant subsequent event between date of financial
statements and date of auditor’s report
• Early application of a new accounting standard that has a
material impact on FS
• A major catastrophe that has a significant effect on the entity’s
financial position

76
 SA 710 – Comparative Information–corresponding Figures And Comparative FS

1. Comparative 2. Corresponding 3. Comparative 4.Audit

Information Figures FS Procedures

• Amounts and • Determine

Amounts and • Amounts and • Whether FS includes comparative
Disclosures disclosures for disclosures for
the prior period, information as required by FRF
included in the the prior • Whether such information is
FS in respect of are as an period, are
included integral appropriately classified
one or more prior included for • Evaluate
periods in part of only to comparison
be read current • Whether it agrees with amounts and
accordance with with the FS of disclosures in prior period
the applicable period F.S in the current
relation to • Whether accounting policies are
FRF period consistently applied; changes, if any
• Corresponding current figures Referred to in
Not referred to properly disclosed and accounted for
Figures auditor's • Other procedures
• Comparative in auditor's opinion, if
opinion • Whether possible MMS in comparative
FS audited information exists
• If yes, perform additional procedures
• Obtain WR for all periods covered in
audit opinion
77
 SA 710 – Comparative Information–corresponding Figures And Comparative FS

5. Audit Reporting

Comparative FS: Corresponding Figures

• Audit opinion to refer to each
period for which FS are
presented and on which opinion
is expressed.
• If opinion on prior period FS
expressed in current period
differs from opinion expressed
in the relevant prior period,
give substantive reason for
difference in Other Matter
Para
• Audit opinion not to refer the corresponding Figures
except in the following case:
i. Auditor’s report in prior period FS was modified
and the subject matter is still unresolved:
Modify current audit report also.
ii. Auditor obtains AE w.r.t. existence of MMS in
prior period FS on which unmodified opinion was
issued: Express qualified/ adverse opinion on
current FS w.r.t. corresponding figures if
misstatement has not been dealt as required by
applicable FR

78
 SA 710 – Comparative Information–corresponding Figures And Comparative FS

6. Prior Period FS Audited/ Unaudited

• When prior period FS audited by When prior period FS are unaudited

predecessor auditor
• Comparative FS
• If MMS exists in prior period FS on
which unmodified opinion was issued
• Communicate to TCWG
• Request that predecessor auditor is
informed
• Comparative FS & Corresponding Figures
• If permitted, state in report that:
i. Prior period FS audited by
predecessor auditor
ii. Type of opinion expressed
iii. Type of opinion expressed
iv. Date of report
• Comparative FS
Include Other Matter para:
i. That comparative information is
unaudited
ii. However, auditor not to be relieved
from obtaining SAAE on opening
balances
• Corresponding Figures
Include Other Matter para:
i. That corresponding figures are
unaudited
ii. However, auditor not to be relieved
from obtaining SAAE on opening
balances

79
80