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SA-200 Basic Principles Governing An Audit

Integrity, Objectivity & Independence
a) Auditor should be straightforward, honest and sincere in his professional work. b) He should be fair and must not be biased. c) He should maintain impartiality. He should be free of any interest. a) He should maintain confidentiality of information acquired during his work. b) He should not disclose any such information to a third party without specific permission of client or legal or professional duty to disclose. a) He should perform work with due professional care. b) Audit should be performed by persons having adequate training, experience and competence. a) The auditor can delegate work to assistants or use work performed by other auditors and experts. b) But he will continue to be responsible for his opinion on financial information. c) The Auditor is entitled to rely on work performed by others, provided He exercises adequate skills and care and There is nothing to doubt. a) He should document matters relating to the audit (maintain working papers). b) Working papers are maintained to demonstrate that the audit was carried out in accordance with the basic principles. a) He should plan his work to conduct audit in effective and timely
Confidentiality
Skill & Competence
Work Performed by Others
Documentation
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Planning
manner. b) Plans should be based on knowledge of the clients business. c) Plans should be further developed and revised during audit if circumstances require so. a) Auditor should obtain sufficient and appropriate audit evidence by performing compliance and substantive procedures. b) Evidences enable the auditor to draw reasonable conclusion. c) Compliance procedures mean the ests designed to obtain reasonable assurance that internal controls have been properly designed & operating effectively throughout the year. d) Substantive Procedures are performed to obtain evidence as to the completeness, accuracy and validity of data produced by the accounting system. a) Internal control system ensures that the accounting system is adequate and that all the accounting information has been duly recorded. b) The auditor should understand the accounting system and related internal controls adopted by the management. c) He should study and evaluate internal controls system to determine the nature, timing and extent of other audit procedures. a) The auditor should review and assess the conclusions drawn from the audit evidences obtained through performance of procedures. b) The audit report should contain clear written expression of opinion on the financial statements. c) His report is on whether: The financial information has been prepared using accounting policies which have been consistently acceptable applied;
Audit Evidence
Accounting System & Internal Control
Audit Conclusions & Reporting
The financial information complies with relevant regulation and statutory requirements; and There is adequate disclosure of all material matters. d) The report should be as per legal requirement. When other than clean opinion is given, the audit report should state the reasons thereof.
SA-200A - Objective & Scope Of The Audit Of Financial Statements

a) The objective is to enable the auditor to express and opinion on financial statements prepared by management of entity.
Objective of an Audit
b) For this, it is essential that financial statements are prepared as per the recognized accounting policies and practice and relevant statutory requirement and they should disclose all material matters. c) However, his opinion does not constitute an assurance as to future viability of the enterprise or the efficiency or effectiveness with which its management has conducted the affairs of the enterprise. a) The management is responsible for maintaining an up to date and proper accounting system and finally to prepare financial statements. b) The auditor is responsible for forming and expressing an opinion on the financial statements. c) The audit of the financial statement does not relieve the management of its responsibility. The auditor decides the scope of his audit having regard to:
Responsibility For The Financial Statements
Scope Of An Audit
The requirement of the relevant legislation The pronouncements of the institute (ICIA) Terms of engagement However, the terms of engagement can not supersede the pronouncement of the institute or the provisions of relevant legislation.
1. Inherent limitations of audit (a) What are these? (b) (c)
Test checking Auditor uses sampling during performance of audit. Its not possible for him to conduct detailed checking due to time constraints and other practical problems. They can enable auditor to draw only reasonable conclusions there from (not absolute conclusions).
( Word to PDF Converter - Unregistered ) http://www.Word-to-PDF-Converter.net 2. (a) (b) (c) 3. (a) Nature of evidences The evidences obtained by the auditor are persuasive rather them conclusive. They can't ensure the auditor in a certain way. They can enable auditor to draw only reasonable conclusions there from (not absolute conclusions). Involvement of judgment Auditor exercises judgment in evaluating the reasonableness of judgment & estimates made by the managements preparing the financials statements. The judgment by auditor may not always be correct. Inherent limitation of internal controls Internal controls suffer from limitation such as collusion among intuitions of employees or wrong use of authority by management etc. If internal controls are weak, auditor may not be in a position to controls obtain assurance.
(b) 4. (a)
(b)
Limitation On Scope-Effect On Audit Report
If there are any constraints as regards the scope of audit, he should mention them in his audit report.
Organizing An Audit
1. Auditor should conduct audit in such a way that he would be able to obtain sufficient and appropriate audit evidences. 2. He should cover all-important aspects affecting financial statements of the client. 3. If there is indication of misstatement, he should extend his audit procedures.
SA-200 (Revised) Overall Objectives of The Independent Auditor & The Conduct of An Audit In Accordance With Standards On Auditing (on or after April 1, 2010)
1. Applicable Financial Reporting Framework
Definitions
F.R.F. adopted by the management & TCWG In preparation & presentation of financial statements that is (i) acceptable as per the circumstances or (ii) required by law
2. Audit Evidence
Information used by the auditor In arriving at the conclusions On which the auditors opinion is based.
3. Financial Statements
A structured representation Of historical financial information Including related notes Intended to show entitys economic results & position As per applicable F.R.F.
4. Premises on which audit is conducted

That mgt. & TCWG have following responsibilities: For preparation & presentation of financial statements & implementation of I.C. To provide the auditor with (i) All information (ii) Any additional information that auditor may request (iii) Unrestricted access to those within the entity
5. Professional Judgment
Application of relevant training, knowledge & experience In making appropriate decisions During audit engagement.
6. Professional Skepticism An attitude That includes a questioning mind
( Word to PDF Converter - Unregistered ) http://www.Word-to-PDF-Converter.net Being alert to conditions Indicating possible misstatement.
7. Reasonable Assurance
A high But not absolute Level of assurance
8. Risk of Material Misstatement

Risk that Financial statement are misstated Prior to audit
Note It consists of two components: Inherent risk & Control risk 9. Audit Risk
Risk that auditor express In appropriate audit opinion When financial statement are materially misstated.
Note It consists of Risk of material misstatements & detection risk
Overall Objectives Of Audit Of Financial Statement Some Basic Points
1. Preparation of Financial Statement

Audit is conducted on the premise that management & TCWG have some fundamental responsibilities. Audit of the financial statements does not relieve them of their responsibilities.
2. Scope of Audit
The purpose of audit is to enhance the confidence of user of financial statements. Thus, his opinion is on whether the financial statement are presented fairly or give a true & fair view as per applicable F.R.F. His opinion does not assure (i) future viability of entity or (ii) efficiency or effectiveness, with which the management has conducted the affairs of the entity However, in some cases, applicable law & regulation may require auditor to express opinion on some specific matters. Then auditor
( Word to PDF Converter - Unregistered ) http://www.Word-to-PDF-Converter.net should undertake further work (As in The Companies Act,)
3. Reasonable Assurance w.r.t. Misstatements

Auditor is required to obtain reasonable assurance as to whether the financial statements are free from material misstatements Thus, auditor obtains sufficient & appropriate audit evidence to reduce audit risk to an acceptable low level. However, reasonable assurance is not absolute assurance. This is due to inherent limitations of an audit.
4. Inherent Limitations of an Audit

Audit can not obtain absolute assurance. (can not reduce audit risk to Zero) This is due to inherent limitations of an audit due to which auditor obtains persuasive evidence rather than conclusive. It arise from: (i) Nature of Financial reporting (ii) Nature of Audit procedures (iii) Limitation w.r.t. time & cost
(i) Nature of Financial reporting

Preparation of financial statement involves judgment by mgt. For example, accounting estimates. There may be subjective decisions. Moreover, auditor has to consider whether there estimates appear to be reasonable. Evidences w.r.t. such items can only be persuasive.
(ii) Nature of Audit procedures

Mgt. or others may not provide complete information. Moreover frauds may involve carefully designed schemes to conceal it. Thus auditor may not detect them.
(iii) Limitation w.r.t. time & cost

Users expect that the auditor will form an opinion on financial statements within reasonable time & cost.
( Word to PDF Converter - Unregistered ) http://www.Word-to-PDF-Converter.net Thus auditor resorts to test procedures (not 100% checking). Moreover, he directs more efforts to risky areas. 4. Due to aforesaid inherent limitations, there is unavoidable risk that some material misstatement may remain undetected.
5. Consideration of SA.
Auditor should consider SA while performing audit. SA require the auditor to : Maintain professional judgment & professional skepticism. Identify & assess risk of material misstatement. Obtain sufficient & appropriate audit evidences about misstatements. Form an opinion on financial statements based on conclusions drawn from evidences.
6. Form of opinion
It depends upon applicable F.R.F. & any law or regulations. Moreover, auditor may have certain reporting responsibilities to users, mgt., TCWG or outside parties (as per SA or law)
Overall Objectives of The Auditor
(1) While auditing the financial statements, the auditor has following objectives: (a) To obtain reasonable assurance about whether the financial statements are free form material misstatements thereby enabling the auditor to express on opinion on whether financial statement are prepared as per applicable F.R.F. & (b) To report on financial statements & communicate as per SAs. (2)If reasonable assurance can not be obtained & qualified opinion is insufficient then he should either disclaim the opinion or withdraw from engagement.
Requirements / Responsibilities of the Auditor
1. Ethical Requirements
He shall comply with ethical requirements including independence. He is required to comply with code of ethics issued by ICAI Integrity Objectivity
( Word to PDF Converter - Unregistered ) http://www.Word-to-PDF-Converter.net Professional competence & due care Confidentiality & Professional behavior He shall be independent. Thus he can form an opinion without being affected by influences.
2. Professional Skepticism
He should recognize misstatements. Contradictory evidences Conditions indicating possible frauds Conditions questioning reliability Moreover, it requires critical assessment of audit evidences gathered. By maintaining professional skepticism, overall risk can be reduced. the conditions indicating possible
It includes being alert to, for example
3. Professional Judgment
It is necessary to make proper decisions during audit. For example decisions aboutMateriality Audit risk NTE of Audit Procedure Sufficiency & appropriateness of evidence etc. While making professional judgment he considers level of consultation, if required It also needs to be appropriately documented.
4. Sufficient & Appropriate Audit Evidence & Audit Risk

Sufficiency refers to quantum of evidence whereas appropriateness refers to its quality. He should consider SA 500. It is required to reduce audit risk to an acceptable low level. Audit risk is a technical risk it does not include Business risk.
( Word to PDF Converter - Unregistered ) http://www.Word-to-PDF-Converter.net It consists of risk of material misstatements & detection risk. However, due to inherent limitations of audit, audit risk can not be reduced to Zero.
5. Conduct of Audit in accordance with SAs. (a) Complying with SAs. Relevant to the audit
He shall comply with relevant SAs. An SA is relevant if it is effective & circumstances stated in that SA exist. The auditor shall understand entire SA to apply it properly. He shall represent compliance with SAs in auditors reports only if he has complied with requirements of all relevant SAs.
(b) Objectives stated in Individual SAs.

He shall determine whether any additional procedure is required to fulfill the objectives stated in SA. He shall evaluate whether sufficient appropriate evidence has been obtained keeping in view the objectives stated in SA.
(c) Complying with Relevant Requirement

He shall comply with each requirement of a SA unless: Entire SA is not relevant or, Requirement is not relevant because it is conditional & the condition is not present. However, in exceptional circumstances, he may depart from relevant requirement in SA. He shall perform alternative procedures in that case
(d) Failure to achieve an objective in relevant SAs.

In that case, he shall consider the need to Modify the audit report, or Withdraw from the engagement. It is a significant matter requiring documentation as well.
SA 500 Audit Evidence (Revised) W.E.F. April 1, 2009

(a) Accounting records The records of initial accounting entries and supporting records, such as check and records of electronic funds transfers; invoices; contracts; etc. (b) Appropriateness(of audit evidence) The measure of the quality of audit evidence; that is, its relevance and its reliability in providing support for the conclusions on which the auditors opinion is based. (c) Audit evidence Information used by the auditor in arriving at the conclusions on which the auditors opinion is base. Audit evidence includes both information contained in the accounting records underlying the financial statements and other information. (d) Managements expert An individual organization possessing expertise in a field other than accounting or auditing, whose work in that field is used by the entity to assist the entity in preparing the financial statements. (e) Sufficiency (of audit evidence) The measure of the quantity of audit evidence. The quantity of the audit evidence needed is affected by the auditors assessment of the risks of material misstatement and also by the quality of such audit evidence.
Definitions
Sufficient Appropriate Audit Evidence
The auditor shall design and audit procedures that are appropriate in the circumstances for the purpose of obtaining sufficient appropriate audit evidence.
1. Inspections
Inspection consists of examining records, documents or tangible assets. Inspection involves examining records or documents, whether internal or external, in paper form, electronic form, or other media. An example of inspection used as a test of controls is inspections of records for evidence of authorization. Inspections of tangible assets may provide reliable audit evidence with respect to their existence, by not necessarily about the entitys rights ad obligations or the valuation of the assets.
2. Observation
( Word to PDF Converter - Unregistered ) http://www.Word-to-PDF-Converter.net Observation consists of witnessing a process or procedure being performed by others. For example, the auditor may observe the counting of inventories being performed by clients personnel.
3. Inquiry & Confirmation

1. Inquiry consists of seeking appropriate information from knowledgeable persons inside or outside the entity. 2. Confirmation consists of the response to an inquiry. 3. For example, the auditor requests confirmation of receivables by direct communications with debtors.
4. Recalculation
Recalculation consists of checking the mathematical accuracy of documents or records Recalculation may be performed manually or electronically.
5. Analytical Procedures
Analytical involves the auditors independent execution of procedures or controls that were originally performed as part of the entitys internal control
6. Re performance
Re performance involves the auditors independent execution of procedures or controls that were originally performed as part of the entitys internal control. 1. When Designing and performing audit procedures, the auditor shall consider the relevance and reliability of the information to be used and audit evidence. The reliability of audit evidence is increased when it is obtained from independent source outside the entity. The reliability of audit evidence that is generated internally is increased when the related controls are effective. Audit evidence obtained directly by the auditor is more reliable than audit evidence obtained indirectly Audit evidence in documentary form, whether paper. electronic, or other medium, is more reliable than evidence obtained orally Audit evidence provided by original documents is more reliable than audit evidence provided by photocopies or facsimiles, or
Information To Be Used As Audit Evidence
( Word to PDF Converter - Unregistered ) http://www.Word-to-PDF-Converter.net documents that have been filmed, digitized or otherwise transformed into electronic form, the reliability of which may depend on the controls over their preparation and maintenance. 2. When information to be used as audit evidence has been prepared using the work of a managements expert, the auditor shall, a) Evaluate the competence, capabilities and objectivity of that expert; b) Obtain an understanding of the work of that expert; and c) Evaluate the appropriateness of that experts work as audit evidence for the relevant assertion. 3. When using information produced by the entity, the auditor shall evaluate whether the information is sufficiently reliable for the auditors purposes.
Inconsistency In, Or Doubts Over Reliability Of, Audit Evidence
If, a) Audit evidence obtained from one source is inconsistent with that obtained from another; or b) The auditor has doubts over the reliability of information to be used as audit evidence. The auditor shall determine what modifications or additions to audit procedures are necessary to resolve the matter, and shall consider the effect of the matter, if any, on other aspects of the audit.
SA- 520 - Analytical Procedures
Meaning
Analytical procedures means the analysis of significant ratios and trends, including the investigation of fluctuations. Analytical procedures include comparisons of the entitys financial information with following: Comparable information for prior periods. Anticipated results such as budgets. Predictive estimates prepared by the auditor, such as estimation
Nature of Analytical Procedures
( Word to PDF Converter - Unregistered ) http://www.Word-to-PDF-Converter.net of depreciation. Industrial trend. Analytical procedures are used
Use of ARP
(a) In planning the nature, timing and extent of other audit procedures. (b) As an overall review of the financial statements.
STAGE- 1 In Planning The Audit
The auditor should apply analytical procedures at the planning stage for understanding the business and in identifying areas of potential risk. It uses both financial and non-financial information. He may use ARP at this stage as a mean to obtain extra evidence relating to an item. When performing analytical procedures as substantive procedures, auditor will need to consider whether to rely on results of ARP or not. He should apply analytical procedures at or near the end of the audit while concluding as to whether the financial statements as a whole are consistent with his Knowledge of the business. In some cases, the auditor may identify areas where further procedures should be applied before reporting. The application of analytical procedures is based on the assumption that relationships among data exist and continue. the following factors:
STAGE-2 As Substantive Procedures
STAGE-3 In Overall Review At The End Of The Audit
Extent Of Reliance The extent of reliance on the results of analytical procedures depends on ARP
a) Materiality of the items involved. For example, when inventory balances are material the auditor does not rely only on analytical procedures in forming conclusions; b) Other audit procedures applied for the same audit objectives; c) Accuracy with which the expected results of analytical procedures can be predicted. For example, the auditor will place greater reliance in comparing gross profit margins from one period to another than in comparing
( Word to PDF Converter - Unregistered ) http://www.Word-to-PDF-Converter.net discretionary expenses, such as research or advertising; and d) Assessment of inherent and control risks: For example, if internal control over sales order processing is weak, then auditor would consider adopting more substantive tests rather than AR? only.
Unusual Fluctuations
When ARP identify significant fluctuations which are inconsistent with other information, the auditor should perform extended procedures.
SA 520 (Revised) Analytical Procedures (on or after April 1, 2010)

Analytical Procedures Meaning
Means evaluation of Financial information Through analysis of relationship Financial & non-financial data. 1. It includes comparison with :
Nature of Analytical Procedures
Comparable information for prior periods. Anticipated results like budgets or forecasts Similar industry information 2. These can be performed by either Simple Comparison or complex Analysis (advanced statistical techniques)
Objectives of Auditor w.r.t. Analytical Procedures Substantive Analytical Procedures (SAP)
Obtain evidences when using Substantive analytical Procedures & Design & perform analytical Procedures near end of audit to conclude whether financial statements are consistent with auditors understanding of entity. When using substantive analytical procedures, he shall consider the following four factors:
1. Suitability of particular SAP

He should be determine suitability of SAP for a particular item. These are generally adopted for those transactions that tend to be
( Word to PDF Converter - Unregistered ) http://www.Word-to-PDF-Converter.net predictable over time. For Example it can used to compare Gross Profit Ratio in a stable entity. However, such comparison (like relationship between revenue & expenditure) may not be performed for PSU.
2. Reliability of Data to be compared It is influenced by the following:

Source of information available (for example it is more reliable if obtained from some independent source) Comparability of information available (Entities should be comparable) Relevance of the information available (budget should be realistic) Control over Preparation of information (if last years financial statements are audited)
3. Development of expectations
He shall develop an expectation of recovered values. There expectations should be sufficiently precise so that any misstatement can be easily identified.
4. Difference of Recorded amount from expected values that is acceptable

SA 330 requires the auditor obtain more persuasive evidence if he identifies high risk. Thus, for risky items, acceptable differences should be low. If difference is more than acceptable difference, he shall further investigate to rule out the possibility of misstatement.
Analytical Procedures That Assist When Forming Overall Conclusion Investigating Results of
He shall design & perform analytical procedures near the end of audit This way he can conclude whether financial statements are consistent with his understanding of entity Thus, it helps forming opinion on financial statement If he identifies fluctuations or a significant difference between recorded & expected values, he shall investigate by
Analytical Procedures
Inquiring of management & thereafter obtaining evidences to corroborate the same, & Performing other procedures as necessary in the circumstances (for e.g.- if mgts responses are not available or reliable)
SA-320 - AUDIT MATERIALITY

Materiality
Meaning
Material items are those which may affect the judgment of users of financial statements. It maybe quantitative / qualitative.
It Depends Upon
Size of item: Nature of item; Statutory provisions, etc.
Materiality to be considered
From both point of views Individual Account and Overall financial statements.
Auditor Should Consider Materiality While

1. 2. Determining NTE of audit procedures; and Evaluating effect of misstatements.
Relationship Between Materiality & Audit Risk
Relation
I inverse relations ship between Degree of Audit Risk and Materiality level.
Reason
Generally, management / employees dont commit fraud in high value items. Moreover, as a general practice, auditor examines high value items in detail. Thus, it is less risky that high value Fraud and Error may not be detected. Thus high materiality level leaves audit risk at lower degree. Hence, inverse relation.
Considerations by Auditor
Auditor decides upon materiality level during planning stage which may be changed during progress of audit. It may be increased! Decreased for specific account. If ARP indicates misstatements, auditor should adopt other procedures to estimate it.
Aggregate uncorrected misstatement
Meaning
Specific misstatements identified by Auditor + Uncorrected misstatements (not identified) + Net effect of uncorrected misstatements identified during previous years audit
SA 320(Revised) Materiality In Planning And Performing An Audit N Or After April 1, 2010)

This Standard on Auditing (SA) deals with the auditors responsibility to apply the concept of materiality in planning and performing an audit of financial statements. SA 450, explains how materiality is applied in evaluating the effect of identified misstatements on the audit and of uncorrected misstatements, if any, on the financial statements. 1. Financial reporting frameworks often discuss the concept of materiality in the context of the preparation and presentation of financial statements. Although financial reporting frameworks may discuss materiality in different terms, they generally explain that: Misstatements, including omissions, are material if they, individually or in the aggregate, influence the economic decisions of users taken on the basis of the financial statements; Judgments about materiality are made in the light of surrounding circumstances, and are affected by the size or nature of a misstatement,; and Judgments about matters that are material to users of the financial statements are based on a consideration of the common financial information needs of users as a group. 2. If the applicable financial reporting framework does not include a
Scope of this SA
Materiality In The Context Of An Audit
( Word to PDF Converter - Unregistered ) http://www.Word-to-PDF-Converter.net discussion of the concept of materiality, the characteristics referred to in above paragraph provide the auditor with such a frame of reference. 3. The auditors determination of materiality is a matter of professional judgment, and is affected by the auditors perception of the financial information needs of users of the financial statements. In this context, it is reasonable for the auditor to assume that users: (a) Have a reasonable knowledge of business and economic activities and accounting and a willingness to study the information in the financial statements with reasonable diligence; Understand that financial statements are prepared, presented and audited to levels of materiality; Recognize the uncertainties inherent in the measurement of amounts based on the use of estimates, judgment and the consideration of future events; and Make reasonable economic decisions on the basis of the information in the financial statements.
(b) (c)
(d) 4.
The concept of materiality is applied by the auditor both in planning and performing the audit, and in evaluating the effect of identified misstatements on the audit and of uncorrected misstatements, if any, on the financial statements and in forming the opinion in the auditors report. In planning the audit, the auditor makes judgments about the size of misstatements that will be considered material. These judgments provide a basis for:
5.
(a) Determining the nature, timing and extent of risk assessment procedures; (b) Identifying and assessing the risks of material misstatement; and (c) Determining the nature, timing and extent of further audit procedures. 6. The auditor considers not only the size but also the nature of uncorrected misstatements, when evaluating their effect on the financial statements.
Effective Date
This SA is effective for audits of financial statements for periods
( Word to PDF Converter - Unregistered ) http://www.Word-to-PDF-Converter.net beginning on or after April1, 2010.
Objective
The objective of the auditor is to apply the concept of materiality appropriately in planning and performing the audit. For purposes of the SAS, performance materiality means the amount or amounts set by the auditor at less than materiality for the financial statements as a whole to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality for the financial statements as a whole. If applicable, performance materiality also refers to the amount or amounts set by the auditor at less than the materiality level or levels for particular classes of transactions, account balances or disclosures. When establishing the overall audit strategy, the auditor shall determine materiality for the financial statements as a whole. If, there is one or more particular item for which misstatements of lesser amounts than the materiality for the financial statements as a whole could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements, the auditor shall also determine the materiality level or levels to be applied to that particular item. The auditor shall determine performance materiality for purposes of assessing the risks of material misstatement and determining the nature, timing and extent of further audit procedures. The auditor shall revise materiality for the financial statements as a whole (and, if applicable, the materiality level or levels for particular classes of transactions, account or disclosures) in the event of becoming aware of information during the audit that would have caused the auditor to have determined a different amount (or amounts) initially. If the auditor concludes that a lower materiality for the financial statements as a whole (and, if applicable, materiality level or levels for particular classes of transactions, account balances or disclosures) than that initially determined is appropriate, the auditor shall determine whether it is necessary to revise performance materiality, and whether the nature, timing and
Definition
1. Determining Materiality & Performance Materiality when Planning the Audit
2.
1.
Revision as the Audit Progress
2.
( Word to PDF Converter - Unregistered ) http://www.Word-to-PDF-Converter.net extent of the further audit procedures remain appropriate. The audit documentation shall include the following amounts and the factors considered in their determination: (a) (b) (c) (d) Materiality for the financial statements as a whole; If applicable, the materiality level or levels for particular classes of transactions, account balances or disclosures; Performance materiality; and Any revision of (a)-(c) as the audit progressed.
Documentation
SA 580 (Revised) - Written Representations (W.E.F. 1st April, 2009)

Scope of this SA Written Representations as Audit Evidence
This Standard on Auditing (SA) deals with the auditors responsibility to obtain written representations from management and TCWG. Similar to responses to inquiries, written representations are audit evidence. Although written representations provide necessary audit evidence, they do not provide sufficient appropriate audit evidence on their own about any of the matters with which they deal. Furthermore, the fact that management has provided reliable written representations does not affect the nature or extent of other audit evidence that the auditor obtains. a) To obtain written representations from management that management believes that it has fulfilled the fundamental responsibilities. b) To support other audit evidence by means of written representations, if determined necessary by the auditor or required by other SAS; and c) To respond appropriately to written representations provided by management or absence thereof. A written statement by management provided to the auditor to confirm certain matters or to support other audit evidence. Written representations in this context do not include financial statements, the
Objectives Of Auditor
Written
representations
assertions therein or supporting books and records. The auditor shall request written representations from management with appropriate responsibilities for the financial statements and knowledge of the matters concerned.
From Whom Written Representations about Managements Responsibilities
Preparation and Presentation of the Financial Statements

Written representation that mgt. has fulfilled its responsibility for the preparation and presentation of the financial statements
Information Provided to the Auditor

Written representation that mgt. has provided the auditor with all relevant information agreed in the terms of the audit engagement and that all transactions have been recorded and are reflected in the financial statements. Other SAS require the auditor to request written representations. If, in addition to such required representations, the auditor determines that it is necessary to obtain one or more written representations, the auditor shall request such other written representations. The date of the written representations shall be as near as practicable to, but not after, the date of the auditors report on the financial statements. The written representations shall he for all financial statements and period(s) referred to in the auditors report. The written representations shall be in the form of a representation letter addressed to the auditor. If law or regulation requires management to make written public statements about its responsibilities, the relevant matters covered by such statements need not be included in the representation letter.
Other Written Representations Date of and Period(s) Covered by Written Representations
Form of Written Representations
Doubt as to the Reliability of Written Representations and Requested Written Representations
Doubt as to the Reliability of Written Representations

If the auditor has concerns about the competence, integrity, ethical values or diligence of management, the auditor shall determine their effect on the reliability of representations (oral or written) and audit evidence in general. In particular, if written representations are inconsistent with other audit evidence, the auditor shall perform audit procedures to attempt to resolve the matter.
Not Provided
If the auditor concludes that the written representations are not reliable, the auditor shall take appropriate actions, including I determining the possible effect on the opinion
Requested Written Representations Not Provided

If management does not provide one or more of the requested representation, he shall discuss the matter with mgt. and re-evaluate the reliability and integrity of mgt. He shall consider its effect on his audit report as well.
Effect on Audit Report

The auditor shall disclaim an opinion on the financial statements if: (a) The auditor concludes that there is sufficient doubt about the integrity of management such that the written representations are not reliable; or (b) Management does not provide the written representations.
SA-505 External Confirmations

External Confirmationleaning
It is the process of obtaining and evaluating audit evidence through a direct communication from a third party in response to a request for information about a particular item. Selecting the items for which confirmations are needed.
Process of External Confirmations
Designing the form of the confirmation request. Communicating the confirmation request to third party. Obtaining response from third party. Evaluating the information or absence of confirmation. Debtor balances;
Situations where External Confirmations may be used
Creditor balances; Terms of agreement or transactions with third parties; Bank Balance and other information from bankers; Stock held by third parties; Property title deeds held by third parties;
( Word to PDF Converter - Unregistered ) http://www.Word-to-PDF-Converter.net Investments purchased but delivery not taken; & Bank loans.
Timing Of External Confirmations Use of Positive and Negative Confirmation Request
External confirmation may be requested either at the balance sheet date or as at any other date close to the balance sheet date. Respondents will be more willing to a confirmation request containing management authorization.
Positive confirmation request

It asks the respondent to reply to the auditor in all cases either by indicating the respondents agreement/ disagreement with the given information, or by asking the respondent to fill in information.
Negative confirmation request

It asks the respondent to reply only in the event of disagreement with the information provided in the request. Negative confirmation request should be used when: Inherent and control risk is low; a large number of small balances is involved; a substantial number of errors is not expected; and it does not appear to the auditor that respondents will disregard these requests.
Characteristics of Respondents
Respondents competence and independence affect the reliability of evidence. Thus, the confirmation request should be addressed to appropriate individual. The auditor should maintain control over selection of third parties to whom a request will be sent, the preparation and sending of requests and the responses to those requests. He should ensure that he directly sends out the confirmation requests, the requests are properly addressed and that all replies and the undelivered confirmations are delivered directly to him. He should perform alternative procedures if no response is received to a positive external confirmation request. The auditor should consider whether external confirmations appear to be unreliable. He should also consider the causes of inconsistency revealed by external confirmation, if any
The External Confirmation Process Considerations By Auditor
Meaning
Management Requests
If auditor wants to confirm certain information and management requests the auditor not to do so, he should consider validity of grounds for such a request. He should ask the management to submit its request in a written form, along with the reasons for such request. He should maintain documentation of the request made by the management along with the reasons given by the management.
If he agrees
If he agrees to management request not to seek external confirmation regarding a particular matter, then apply alternative procedures to obtain sufficient appropriate evidences.
If he doesnt agree
If the auditor does not accept the validity of managements request and is prevented from obtaining confirmations, there is a limitation on the scope of the auditors work. He should consider the possible impact on the audit report.
SA-505 (Revised) External Confirmation (on or after April1,2010)
External Confirmation
Audit Evidence obtained As a direct written response To the auditor from a third party In paper / Electronic / other form.
External Confirmation Procedures
He shall maintain control Over external confirmation requests Including Following : 1. Determining the information to be confirmed, 2. Selecting the appropriate third party, 3. Designing the confirmation requests (Properly addressed also),
( Word to PDF Converter - Unregistered ) http://www.Word-to-PDF-Converter.net 4. Sending the request including follow-up requests if required.
Mgt. Refusal To Allow The Auditor To Send A Confirmation Request
(a) In such case, he shall (i) Inquire mgts reasons for refusal and assess their validity, (ii) Evaluate the possibility of risk of material misstatement and (iii)Perform alternative procedures. (b) If mgts refusal is unreasonable, or Auditor is unable to perform alternate procedures Then he shall communicate with TCWG and consider effect on his report.
Reliability of Responses
If he has doubts about reliability of responses, he shall obtain further evidences to resolve doubts If response is found to be unreliable, it may indicate fraud risk factor. He shall consider its effect on NTE of other procedures.
Form Of Confirmation Requests
Positive confirmation requests

It asks the third party (Confirming party) To reply to the auditor In all cases Either by indicating agreement / disagreement with the given information Or by asking third party to provide information A response to positive Confirmation request is ordinarily expected to be reliable. If reply to a request is not received in reasonable time, he may send an additional confirmation request.
Negative confirmation requests

It asks the third party To respond directly to the auditor Only if there is disagreement With the information provided in the request. It is considered to be less persuasive than the positive
( Word to PDF Converter - Unregistered ) http://www.Word-to-PDF-Converter.net confirmation request. Auditor should use them only if all of following are presents (a) Risk of misstatement is low (b) I.C is effective (c) Item contains small amount (d) Low exception rate is expected (e) No reason to believe that recipient may disregard the request.
Non Responses To Positive Confirmation Request
It means failure of third party to respond or the request returned undelivered. In case of each non response he shall perform alternate procedures. However, if he determines that response is necessary & thus alternate procedures do not provide sufficient appropriate evidences, he should determines its effect on audit report.
Exception
1. It means a response indicating disagreement of third party. 2. Auditor shall investigate exceptions to determine whether these are indicative of misstatement.
SA-210 - Terms Of Audit Engagement
1.
Audit Engagement 2. Letter
Client and Auditor should agree on terms of engagement by way of an audit engagement letter, to avoid any misunderstanding. Auditor should send an engagement letter, preferably before commencement of endangerment
The objective of the audit;
Principal Contents
The scope of the audit; Managements responsibility for the financial statements; Managements responsibility for selection and consistent
( Word to PDF Converter - Unregistered ) http://www.Word-to-PDF-Converter.net application of appropriate accounting policies; Managements responsibility for preparation of the financial statements on a going concern basis; Managements responsibility for making reasonable judgments and estimates; Managements responsibility for the maintenance of adequate accounting records and internal controls; Unrestricted access to records and documentation; The fact that due to (1) the test nature of an audit, (2) persuasive rather than conclusive nature of audit evidence, (3) involvement of judgment and (4) inherent limitations of any accounting and internal control system, there is an unavoidable risk that even some material misstatements may remain undetected; & The fact that the audit process may be subjected to peer review. Planning of the audit.
Addition Matters
Expectation of receiving MRL. Requesting client to confirm the terms of the engagement. Description of any other letters the auditor expects to issue to the client. Fees and billing arrangements. Arrangements w.r.t. the involvement of other auditors and experts and internal auditor. Arrangements to be made with the predecessor auditor. When the auditor of a parent entity is also the auditor of its subsidiary, branch or division, Auditor should consider Legal requirements, independence of the management etc. to decide whether to send a separate engagement letter to the component. The auditor should consider whether circumstances require revision in terms of engagement or if there is need to remind existing terms of engagement to the client. If before completing the engagement, client requests the auditor to change the engagement to one, which provides a lower level of assurance, he should consider the reasonableness of such a request.
Audit of Component
Recurring Audits Changes in Engagement
SA 210 (Revised) Agreeing The Terms Of Audit Engagements (on or after April 1, 2010)
Scope of this SA
This Standard on Auditing (SA) deals with the auditors responsibilities in agreeing the terms of the audit engagement with management and, where appropriate, those charged with governance. This SA is effective for audits of financial statements for periods beginning on or after April 1, 2010. The objective of the auditor is to accept or continue an audit engagement only when the basis upon which it is to be performed has been agreed, through: a) b) Establishing whether the preconditions for an audit are present; and Confirming that there is a common understanding between the auditor and management and, where appropriate, those charged with governance of the terms of the audit engagement. Preconditions for an audit The use by management of an acceptable financial reporting framework in the preparation of the financial statements and the agreement of management and, where appropriate, those charged with governance to the premise on which an audit is conducted. For the purposes of this SA, references to management should be read hereafter as management and, where appropriate, those changed with governance.
Effective Date
Objective
Definitions
Preconditions for an Audit
In order to establish whether the preconditions for an audit are present, the auditor shall: (a) Determine whether the financial reporting framework to be applied in the preparation of the financial statements is acceptable; and (b) Obtain the agreement of management that it acknowledges and understands its responsibility: 1. For the preparation of the financial statements in accordance with the applicable financial reporting framework, including their fair
( Word to PDF Converter - Unregistered ) http://www.Word-to-PDF-Converter.net presentation; 2. For such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error; and 3. To provide the auditor with: a) Access to all information such as records, documentation and other matters; b) Additional information that the auditor may request from management for the purpose of the audit; and c) Unrestricted access to persons within the entity from whom the auditor determines it necessary to obtain audit evidence.
Limitation on Scope Prior to Audit Engagement Acceptance

If management or those charged with governance impose a limitation on the scope of the auditors work in the terms of a proposed audit engagement such that the auditor believes the limitation will result in the auditor disclaiming an opinion on the financial statements, the auditor shall not accept such a limited engagement as an audit engagement.
Other Factors Affecting Audit Engagement Acceptance

If the preconditions for an audit are not present, the auditor shall discuss the matter with management. Unless required by law or regulation to do so, the auditor shall not accept the proposed audit engagement. 1. The auditor shall agree the terms of the audit engagement with management or those charged with governance, as appropriate.
Agreement on 2. The agreed terms of the audit engagement shall be recorded in an Audit Engagement audit engagement letter or other suitable form of written agreement and Terms shall include:
a) The objective and scope of the audit of the financial statements; b) The responsibilities of the auditor; c) The responsibilities of management; d) Identification of the applicable financial reporting framework for the preparation of the financial statements; and e) Reference to the expected form and content of any reports to be issued by the auditor and a statement that there may be circumstances in which a report may differ from its expected
( Word to PDF Converter - Unregistered ) http://www.Word-to-PDF-Converter.net form and content. 3. If law or regulation prescribes in sufficient detail the terms of the audit engagement the auditor need not record them in a written agreement, except for the fact that such law or regulation applies and that management acknowledges and understands its responsibilities as above.
Recurring Audits
On recurring audits, the auditor shall assess whether circumstances require the terms of the audit engagement to be revised and whether there is a need to remind the entity of the existing terms of the audit engagement. 1. 1 The auditor shall not agree to a change in the terms of the audit engagement where there is no reasonable justification for doing so. 2. If, prior to completing the audit engagement, the auditor is requested to change the audit engagement to an engagement that conveys a lower level of assurance, the auditor shall determine whether there is reasonable justification for doing so. 3. If the terms of the audit engagement are changed, the auditor and management shall and record the new terms of the engagement in an engagement letter or other suitable form of written agreement. 4. If the auditor is unable to agree to a change of the terms of the audit engagement and is not permitted by management to continue the original audit engagement, the auditor shall: a) Withdraw from the audit engagement where possible under applicable law or regulation; and b) Determine whether there is any obligation, either contractual or otherwise, to report the circumstances to other parties, such as those charged with governance, owners or regulators.
Acceptance of a Change in the Terms of the Audit Engagement
Additional Considerations in Engagement Acceptance
Financial Reporting Standards Supplemented by Law or Regulation

If financial reporting standards established by an authorised or recognised standards setting organization are supplemented by law or regulation, the auditor shall determine whether there are any conflicts between the financial reporting standards and the additional requirements. If such conflicts exist, the auditor shall discuss with management the nature of the additional requirements and shall agree
( Word to PDF Converter - Unregistered ) http://www.Word-to-PDF-Converter.net whether: a) The additional requirements can be met through additional disclosures in the financial statements; or b) The description of the applicable financial reporting framework in the financial statements can be amended accordingly. If neither of the above actions is possible, the auditor shall determine whether it will be necessary to modify the auditors report.
Auditors Report Prescribed by Law or Regulation

In some cases, the law or regulation applicable to the entity prescribes the layout or wording of the auditors report in a form or in terms that are significantly different from the requirements of SAS. In these circumstances, the auditor shall evaluate: a) Whether users might misunderstand the assurance obtained from the audit of the financial statements and, if so, b) Whether additional explanation in the auditors report can mitigate possible misunderstanding. If the auditor concludes that additional explanation in the auditors report cannot mitigate possible misunderstanding, the auditor shall not accept the audit engagement, unless required by law or regulation to do so. An audit conducted in accordance with such law or regulation does not comply with SAS. Accordingly, the auditor shall not include any reference within the auditors report to the audit having been conducted in accordance with SAS.
SA 300 (Revised) Planning An Audit of Financial Statements (w.e.f 1st April 2008)
Scope of This SA
It deals with the auditor responsibility to plan an audit of financial statements. This SA is framed in the context of recurring audits. Additional considerations in initial audit engagements are separately identified.
Involvement of Key The engagement partner and other key members of the engagement Engagement Team team shall involve in planning the audit.
Members Preliminary Engagement Activities

The auditor shall undertake the following activities at the beginning of the current audit Engagement: (a) (b) Performing procedures required by SA 220 regarding the continuance of the client relationship; Evaluating compliance with ethical requirements, including independence, as required by SA 220; and
(c) Establishing an understanding of the terms of the engagement, as required by SA 210. The auditor shall establish an overall audit strategy that sets the scope, timing and direction of the audit, and that guides the development of the audit plan. In establishing the overall audit strategy, the auditor shall: (a) (b) Identify the characteristics of the engagement that define its scope; Ascertain the reporting objectives of the engagement to plan the timing of the audit and the nature of the communications required; Consider the factors that are significant in directing the engagement teams efforts; Consider the results of preliminary engagement activities and, where applicable, whether knowledge gained on other engagements performed by the engagement partner for the entity is relevant; and Ascertain the NTE of procedures. The auditor shall develop an audit plan that shall include a description of: (a) (b) (c) The nature, timing and extent of planned risk assessment procedures, as determined under SA 315. The nature, timing and extent of planned further audit procedure at the assertion level, as determined under SA 330. Other planned audit procedures that are required to be carried
Planning Activities
(c) (d)
(e)
( Word to PDF Converter - Unregistered ) http://www.Word-to-PDF-Converter.net out so that the engagement complies with SAs. The auditor shall update and change the overall audit strategy and the audit plan as necessary during the course of the audit The auditor shall plan the nature, timing and extent of direction and supervision of engagement team members and the review of their work.
Documentation
The auditor shall document: (a) (b) (c) The overall audit strategy; The audit plan; and Any significant changes made during the audit engagement to the overall audit strategy or the audit plan, and the reasons for such changes.
Additional Considerations In Initial Audit Engagements.
The auditor shall undertake the following activities prior to starting an initial audit: (a) Performing procedures required by S A 220 regarding the acceptance of the client relationship and the specific audit engagement; and Communicating with the predecessor audit, where there has been a change of auditors, in compliance with relevant ethical requirements.
(b)
SA 230 (Revised) - Audit Documentation (w.e.f. 1 April 2009)

Scope of This SA
Other SA and Laws or regulations may establish additional documentation requirements. Audit documentation provides:
Nature And Purposes Of Audit Documentation
(a) (b)
Evidence of the auditors basis for audit report; and Evidence that the audit was planned and performed in accordance with SAS and applicable legal and regulatory requirements.
Audit documentation serves a number of additional purposes, including
( Word to PDF Converter - Unregistered ) http://www.Word-to-PDF-Converter.net the following: I. 2. 3. 4. 5. 6. Assisting the engagement team to plan and perform the audit. Assisting members of the engagement team responsible for supervision to direct and supervise the audit work. Enabling the engagement team to be accountable for its work. Retaining a record of matters of continuing significance to future audits. Enabling the conduct of quality control reviews and inspections. Enabling the conduct of external inspections in accordance with applicable legal, regulatory or other requirements
(a)
Audit documentation The record of audit procedures

performed, relevant audit evidence obtained, and conclusions the auditor reached (terms such as working papers or work papers are also sometimes used).
Definitions
(b)
Audit file One or more folders or other storage media, in

physical or electronic form, containing the records that comprise the audit documentation for a specific engagement.
(c)
Experienced auditor An individual (whether internal or

external to the firm) who has practical audit experience, and a reasonable understanding of:
(i) (ii)
Audit processes; SAS and applicable legal and regulatory requirements;
(iii) The business environment in which the entity operates; and (iv) Auditing and financial reporting issues.
Documentation of Form, content and Extent of Audit Documentation the Audit The auditor shall prepare audit documentation that is sufficient to enable an experienced auditor to understand: Procedures The nature, timing, and extent of the audit procedures; Performed & Audit (a) Evidence Obtained (b) The results of the audit procedures performed, and the audit
evidence obtained; and (c) Significant matters arising during the audit and the conclusions reached thereon.
( Word to PDF Converter - Unregistered ) http://www.Word-to-PDF-Converter.net Auditor shall also record: (a) (b) (c) The identifying characteristics of the specific items or matters tested; Who performed the audit work and the date such work was completed; and Who reviewed the audit work performed and the date and extent of such review. If the auditor identified inconsistent information, the auditor shall document how the auditor addressed the inconsistency.
Departure from A Relevant Requirement

If, in exceptional circumstances, the departs from SA, the auditor shall document the reasons for the departure and alternative procedures performed.
Matters Arising after the Date of the Auditors Report

If, in exceptional circumstances, the auditor performs new or additional audit procedures or draws new conclusions after the date of the auditors report, the auditor shall document: (a) (b) The circumstances encountered; The new or additional audit procedures performed, audit evidence obtained, and conclusions reached, and their effect on the auditors report; and When and by whom the changes to audit documentation were made and reviewed.
(c)
Assembly of the Final Audit File

The auditor shall assemble the audit documentation in an audit file and complete the administrative process of assembling the final audit file on a timely basis after the date of the auditors report. After the assembly, the auditor shall not delete audit documentation before the end of its retention period.
SA 530 (Revised) Audit Sampling (w.e.f. 1st April, 2009)
Scope of This SA Objective
It deals with the auditors use of statistical and non-statistical sampling when designing and selecting the audit sample, performing tests of controls and tests of details, and evaluating the results from the sample. The objective of the auditor when using audit sampling is to provide a reasonable basis the auditor to draw conclusions about the population.
(a) Audit sampling (sampling) The application of audit
Definitions
procedures to less than 100% of items within a population such that all sampling units have a chance of selection in order to draw conclusions about the entire population.
(b) Population The entire set of data from which a sample is

selected and about which the auditor wishes to draw conclusions.
(c) Sampling risk The risk that the auditors conclusion based on a
sample may be different from the conclusion if the entire population were subjected to the same audit procedure. Sampling risk can lead to two types of erroneous conclusions: (i) In the case of a test of controls, that controls are more effective than they actually are, or in the case of a test of details, that a material misstatement does not exist when in fact it does. The auditor is primarily concerned with this type of erroneous conclusion because it affects audit effectiveness and is more likely to lead to an inappropriate audit opinion. (ii) In the case of a test of controls, that controls are less effective than they actually are, or in the case of a test of details, that a material misstatement exists when it fact it does not. This type of erroneous conclusion affects audit efficiency as I would usually lead to additional work to establish that initial conclusions were incorrect.
(d) Non-sampling risk The risk that the auditor reaches an

erroneous conclusion for any reason not related to sampling risk.
(e) Anomaly A misstatement or deviation that is demonstrably not

representative of misstatements or deviations in a population.
(f) Sampling unit The individual items constituting a population. (g) Statistical sampling An approach to sampling that has the
( Word to PDF Converter - Unregistered ) http://www.Word-to-PDF-Converter.net following characteristics: (i) Random selection of the sample items; and (ii) The use of probability theory to evaluate sample results, including measurement of sampling risk. A sampling approach that does not have characteristics (I) or (ii) is considered non-statistical sampling.
(h) Stratification
The process of dividing a population into sub-populations, each of which is a group of sampling units which have similar characteristics (often monetary value).
(i) Tolerable misstatement A monetary amount set by the auditor

in respect of which the auditor seeks to obtain an appropriate level of assurance that the monetary amount set by the auditor is not exceeded by the actual misstatement in the population.
(j) Tolerable rate of deviation A rate of deviation from prescribed

internal control procedures set by the auditor in respect of which the auditor seeks to obtain an appropriate level of assurance that the rate of deviation set by the auditor is not exceeded by the actual rate of deviation in the population.
Sample Design, Size and Selection of Items for Testing Performing Audit Procedures
The auditor shall determine a sample size sufficient to reduce sampling risk to an acceptably low level. The auditor shall select items for the sample in such a way that each sampling unit in the population has a chance of selection. The auditor shall perform audit procedures, appropriate to the purpose, on each item selected. If the auditor is unable to apply the designed audit procedures, or suitable alternative procedures, to a selected item, the auditor shall treat that item as a deviation or a misstatement. The auditor shall investigate the nature and cause of any deviations or misstatements identified, and evaluate their possible effect In the extremely rare circumstances when the auditor considers a misstatement or deviation discovered in a sample to be an anomaly, the auditor shall obtain a high degree of certainty that such misstatement or deviation is not representative of the population. For tests of details, the auditor shall project misstatements found in the
Nature & Cause of Deviations and misstatements
Projecting
Misstatements
sample to the population.
Evaluating Results The auditor shall evaluate: of Audit Sampling (a) The results of the sample; and
(b) Whether the use of audit sampling has provided a reasonable basis for conclusions about the population that has n tested.
SA-610 Relying Upon Work of Internal Auditor
Steps & Objectives Meaning of Internal Audit Internal audit is basically a part of IC. system. Function To check designing, operating effectiveness and continuity of other
internal controls.
It depends on
Size of organization and requirements of management.
Coverage
Review of accounting and I.C. system. Examine financial and operating information for management. Physical verification.
Basic Difference Internal audit Relationship between Internal & Appointment ----------- By Management External Auditors Scope ------------------- By Management
Objective ---------------- To ensure Designing, operating effectiveness and continuity of I.C. System
External Audit
Appointment ---------- By Members. Scope ------------------- By Law, ICAI.
( Word to PDF Converter - Unregistered ) http://www.Word-to-PDF-Converter.net Objective --------------To express opinion on Financial Statement.
How to use internal auditor's work

External auditor should himself check I.C. (perform compliance procedures). He should test work of internal auditor on which he intends to rely. He can determine his NTE based upon evaluation of internal audit function. External auditor atone is responsible for his report (Reliance on internal auditor doesn't reduce it).
Co-ordination
External auditor should discuss with internal auditor his plan at early stage. Meeting should be conducted at regular interval. There should be sharing of information between external and internal auditor
General Evaluation Organizational Status of Internal Audit Whether internal auditor reports directly to top management and is dedicated only for the internal audit work. Function
Scope of Coverage
Enquire about nature and depth of coverage of internal auditor's work and check whether management considers his recommendations.
Technical Competence
Whether professionally trained persona are performing internal audit.
Due Professional Care

Whether Internal Auditor properly plans, supervise, review and document his work.
Evaluating Specific Consider if: Internal Audit Work of internal auditor is adequate for him. Work Work of internal auditors has been properly planned and
supervised. Conclusions by internal auditor appear to be appropriate. Inconsistency identified by internal auditors has been properly resolved by management.
Conclusion
The statutory auditor may rely on Internal Auditor, provided he
( Word to PDF Converter - Unregistered ) http://www.Word-to-PDF-Converter.net exercises due skill and care and there is nothing to doubt.
SA 610 (Revised) Using The Work Of Internal Auditors (on or after April 1, 2010)
Scope of This SA
This Standards on Auditing (SA) deals with the external auditor's responsibilities regarding the work of internal auditors when the external auditor has determined, in accordance with SA 315, that the internal audit function is likely to be relevant to the audit. This SA does not deal with instances when individual internal auditors provide direct assistance to the external auditor in carrying out audit procedures or where, in terms of the applicable legal and regulatory framework, it is not permissible for the internal auditor to provide access to this working papers to the third parties. The role and objectives of the internal audit function are determined by management and, where applicable, those charged with governance. While the objectives of the internal audit function and the external auditor are different, some of the ways in which the internal audit function and the external auditor achieve their respective objective may be similar. Irrespective of the degree of autonomy and objectivity of the internal audit function, such function is not independent of the entity as it required of the external auditor when expressing an opinion on financial statement. The external auditor has sole responsibility for the audit opinion expressed, and that responsibility is not reduced by the external auditor's use of the work of the internal auditors. This SA is effective for audits of financial statements for periods beginning on or after April 1, 2010 The objectives of the external auditor, where the entity has an internal audit function that the external auditor has determined is likely to be relevant to the audit, are to determine: a) Whether, and to what extent, to use specific work of the internal auditors; and
Relationship Between The Internal Audit Function And The External Auditor
Effective Date
Objective
( Word to PDF Converter - Unregistered ) http://www.Word-to-PDF-Converter.net b) If so, whether such work is adequate for the purposes of the audit. For purpose of the SAS, the following terms have the meanings attributed below:
Definitions
a) Internal audit function An appraisal activity established for

provided as a service to the entity. Its functions include, amongst other things, examining, the adequacy and effectiveness of internal control.
b) Internal auditors Those individuals who perform the activities of

the internal audit function. Internal auditors may belong to an internal audit department of equivalent function. 1. The external auditor shall determine:
Determining for purposes of the audit; and Whether & to b) If so, the planned effect of the work of the internal auditors on the What Extent of Use nature, timing or extent of the external auditor's procedures. the Work of the 2. In determining whether the work of the internal auditors is likely to Internal Auditors
a) The objectivity of the internal audit functions; b) The technical competence of the internal auditors; c) Whether the work of the internal auditors is likely to be carried out with due professional care; and d) Whether there is likely to be effective communication between the internal auditors and the external auditor. 3. In determining the planned effect of the work of the internal auditors on the nature, timing or extent of the external auditor's procedures, the external auditor shall consider: a) The nature and scope of specific work performed, or to be performed, by the internal auditors;
a) Whether the work of the internal auditors is likely to be adequate
be adequate for purposes of the audit, the external auditor shall evaluate:
b) The assessed risks of material misstatement at the assertion level for particular classes of transactions, account balances, and disclosures; and c) The degree of subjectivity involved in the evaluation of the audit evidence gathered by the internal auditors in support of the relevant
( Word to PDF Converter - Unregistered ) http://www.Word-to-PDF-Converter.net assertions. 1. In order for the external auditor to use specific work of the internal auditors, the external auditor shall evaluate and perform audit procedures on that work to determine its adequacy for the external auditor's purposes. a. The work was performed by internal auditors having adequate technical training and proficiency; b. The work was properly supervised, reviewed and documented; c. Adequate audit evidence has been obtained to enable the internal auditors to draw reasonable conclusions; d. Conclusions reached are appropriate in the circumstances and any reports prepared by the internal auditors are consistent with the results of the work performed; and e. Any exceptions or unusual matters disclosed by the internal auditors are properly resolved.
Using Specific Work of the Internal Auditors
Documentation
The external auditor shall document conclusion regarding the evaluation of the adequacy of the work of the internal auditors, and the audit procedures performed by the external auditor on that work.
SA 315 - Identifying & Assessing the Risk of Material Misstatement Through Understanding the Entity & Its Environment (w.e.f. April 1, 2008)
Objective
The auditor should identify and assess the risks of material misstatement, whether due to fraud or error, at the financial statement and assertion levels. He should understand the entity and its environment, including the entitys internal control. Thus, he can design and implement responses to the assessed risks of material misstatement. This will help the auditor to reduce the risk of material misstatement to an acceptably lo level.
Assertions
Definitions
Representations by management, explicit or otherwise, embodied in the financial
Business risk
A risk resulting from significant conditions, events, circumstances, actions or inactions that could adversely affect an entitys ability to achieve its - objectives.
Internal control
The process designed, implemented and maintained by those charged with governance, management and other personnel to provide reasonable assurance about the achievement of an entitys objectives With regard to reliability of financial reporting, effectiveness and efficiency of operations, safeguarding of assets, and compliance with applicable laws and regulations.
Risk assessment procedures

The audit procedures performed to obtain an understanding of the entity and its environment, including the entitys internal control, to identify and assess the risks of material misstatement at the financial statement and assertion levels.
Significant risk
An identified and assessed risk of material misstatement that requires special audit consideration.
Material Weakness
A weakness in internal control that could have a material effect on the financial statement Risk assessment procedures by themselves, however, do not provide sufficient appropriate audit evidence on which to base the audit opinion. The risk assessment procedures shall include the following: a. Inquiries of management and of others within the entity b. Analytical procedures. c. Observation and inspection.
Risk Assessment Procedures & Related Activities
( Word to PDF Converter - Unregistered ) http://www.Word-to-PDF-Converter.net The auditor shall consider whether information obtained from the auditors client acceptance or continuance process is relevant to identifying risks of material misstatement. Where engagement partner has performed other engagements for the entity, consider whether information obtained is relevant to identity risks of material misstatement. If auditor uses his previous experience, consider if changes have occurred since the previous audit. The engagement partner and other key engagement team members shall discuss the susceptibility of the entitys financial statements to material misstatement.
The Entity and Its environment
The required Understanding of the Entity and its Environment, Including the Entitys Internal Control
The auditor shall obtain an understanding of the following: (a) (b) (ii) (iii) Relevant industry, regulatory, and other external factors The nature of the entity, including: (i) Its operations; Its ownership and governance structures; The types of investments; and
(iv) The way that the entity is structured and how it is financed; (c) (d) (e) The entitys selection and application of accounting policies, including the reasons for changes thereto. The entity s objectives and strategies, and those related business risks that may result in risks of material misstatement. The measurement and review of the entitys financial performance.
The Entitys Internal Control

The auditor shall obtain an understanding of internal control relevant to the audit. Although most controls relevant to the audit are likely to relate to financial reporting, not all controls that relate to financial reporting are relevant to the audit.
Nature and Extent of the Understanding of Relevant Controls

Hell evaluate the design of controls and determine whether they have
( Word to PDF Converter - Unregistered ) http://www.Word-to-PDF-Converter.net been implemented.
Control environment
The auditor shall evaluate whether: (a) Management, with those charged with governance, has created and maintained a culture of honesty and ethical behavior; and The strengths in the control environment provide an appropriate foundation for the other components of internal control.
(b)
The entitys risk assessment process

Consider if entity has a process for: a) Identifying business risks relevant to financial reporting objectives; b) Estimating the significance of the risks; c) Assessing the likelihood of their occurrence; and d) Deciding about actions to address those risks. If the entity has established entitys risk assessment process, the auditor shall obtain an understanding of it, and the results thereof. If the entity has not established such a process or has an ad hoc process, the auditor shall discuss with management whether business risks relevant to financial reporting objectives have been identified and how they have been addressed.
The information system, including the related business processes, relevant to financial reporting, and communication
The auditor shall obtain an understanding of the following areas: a) The classes of transactions; b) The procedures, within both information technology (IT) and manual systems, by which those transactions are initiated, recorded, processed and reported in the financial statements; c) The related accounting records. d) How the information system captures events and conditions, other than transactions, that are significant to the financial statements; e) The financial reporting process,
( Word to PDF Converter - Unregistered ) http://www.Word-to-PDF-Converter.net f) Controls surrounding journal entries. The auditor shall obtain an understanding of: (a) (b) Communications between management and those charged with governance; and External communications, such as those with regulatory authorities.
Control activities relevant to the audit

The auditor shall obtain an understanding of control to assess the risks of material misstatement at the assertion level and design further audit procedures. In understanding the entitys control activities, the auditor shall obtain an un of how the entity has responded to risks arising & from IT.
Monitoring of controls
Obtain an understanding of the (a) Activities that the entity uses to monitor internal control over financial reporting, and (b) Sources of the information used in the entitys monitoring activities and their reliability. The auditor shall identify and assess the risks of material misstatement Identifying & Assessing the Risks at: a) The financial statement level; and of Material Misstatement b) The assertion level for classes of transactions, account balances, and disclosures; to provide a basis for designing and performing further audit procedures. For this purpose, the auditor shall: (a) Identify risks, (b) Assess and evaluate the identified risks. (c) Relate the identified risks to what can go strong at the assertion level, (d) Consider the likelihood of misstatement.
Risks that Require special Audit Consideration
( Word to PDF Converter - Unregistered ) http://www.Word-to-PDF-Converter.net In exercising judgment as to which risks are significant risks, the auditor shall consider the following: (a) (b) (c) (d) (e) (f) Whether the risk is a risk of fraud; Whether the risk is related to recent significant economic, accounting, or other developments; The complexity of transactions; Whether the risk involves significant transactions with related parties; The degree of subjectivity in the measurement of financial information; and Whether the risk involves significant unusual transactions.
Risks for which substantive procedures alone Do not Provide sufficient Appropriate Audit Evidences
Such risks may relate to the inaccurate or incomplete recording of routine and significant classes of transactions or account balances, the characteristics of which often permit highly automated processing with little or no manual intervention. In such cases, the entitys controls over such risks are relevant to the audit and the auditor shall obtain an understanding of them.
Revision of Risk Assessment

The auditors assessment of the risks of material misstatement at the assertion level may change during the course of the audit as additional audit evidence is obtained. The auditor shall revise the assessment and modify the further planned audit procedures accordingly. The auditor shall evaluate whether he identified a material weakness in the design, implementation or maintenance of internal control. The auditor shall communicate material weaknesses in internal control identified during the audit on a timely basis to management at an appropriate level of responsibility, and, as required by SA 260 The auditor shall document:
Material Weakness in Internal Control
Documentation
(a)
The discussion among the engagement team;
( Word to PDF Converter - Unregistered ) http://www.Word-to-PDF-Converter.net (b) (c) (d) Key elements of the understanding obtained regarding each of the aspects of the entity and its environment; The identified and assessed risks of material misstatement at the financial statement level and at the assertion level; and The risks identified, and related controls.
SA 330- The Auditors Responses to Assessed Risks (w.e.f. April 1, 2008)
(a) Substantive procedure An audit procedure designed to detect
Definitions
material misstatements at the assertion level. Substantive procedures comprise: (i) (ii) Tests of details (of classes of transactions, account balances. and disclosures), and Substantive analytical procedures.
(b) Test of controls An audit procedure designed to evaluate the operating effectiveness of controls in preventing, or detecting and correcting, material misstatements at the assertion level.
Overall Responses
The auditor shall design and implement overall responses to address the assessed risks of material misstatement at the financial statement level. The auditor shall design and perform further audit procedures whose nature, timing and extent are based on and are responsive to the assessed risks of material misstatement at the assertion level. In designing the further audit procedures to be performed, the auditor shall: a) Consider the likelihood of material misstatement due to the particular characteristics of the role ant class of transactions, account balance, or disclosure i.e., the inherent risk): and Whether the risk assessment takes into account the relevant controls (i.e..
Audit procedures responsive to the assessed Risks of material Misstatement at he Assertion Level
( Word to PDF Converter - Unregistered ) http://www.Word-to-PDF-Converter.net the control risk) b) Obtain more persuasive (believable) audit evidence the higher the auditors assessment of risk.
Test of controls
The (a) (b) auditor shall design and perform tests of controls when: He expects that the controls are operating effectively, or Substantive procedures alone cannot provide appropriate audit evidence at the assertion level. sufficient
Timing of Tests of Controls

The auditor shall test controls for the particular time, or throughout die period.
Using audit evidence obtained during on interim period

When the auditor obtains audit evidence about the operating effectiveness of controls during an interim period, the auditor shall; (a) (b) Consider significant changes to those controls; and Determine the additional audit evidence to be obtained for the remaining period.
Using audit evidence obtained during an interim period

He shall establish the continuing relevance of that evidence by obtained in previous obtaining audit evidence about whether significant changes in those audit controls have occurred subsequent to the previous audit. (a) If there have been changes, the auditor shall test the controls in the current audit. (b) If there have not been such changes. the auditor shall test the controls at least once in every third audit, and shall test some controls each audit.
Controls over significant risks

When the auditor plans to r on controls over a significant risk, the auditor shall test those controls in the current period.
Evaluating the operating effectiveness of controls

Auditor should consider whether misstatements that have been detected indicate that controls are not operating effectively. Even if there are no identified misstatements, controls may not be
( Word to PDF Converter - Unregistered ) http://www.Word-to-PDF-Converter.net effective. The auditor shall communicate material weaknesses in internal control identified during the audit on a timely basis to management at an appropriate level and TCWG Irrespective of the assessed risks of material misstatement, the auditor shall design and perform substantive procedures for each material class of transactions, account balance, and disclosure.
Substantive Procedures
Substantive Procedures Related to the Financial Statement Closing Process

The auditors substantive procedures shall include a) Agreeing or reconciling the financial statements with the underlying accounting records and b) Examining material journal entries and other adjustments made during the course of preparing the financial statements.
Substantive Procedures Responsive to significant Risks

When the auditor has determined a significant risk, the auditor shall perform substantive procedures that are specifically responsive to that risk.
Timing of Substantive Procedures

When substantive procedures are performed at an interim date, the auditor shall cover the remaining period.
Adequacy of Presentation & Disclosure
The auditor shall perform audit procedures to evaluate whether the overall presentation of the financial statements, including the related disclosures, is in accordance with the applicable financial reporting framework. The auditor shall conclude whether sufficient appropriate audit evidence has been obtained. In forming an opinion, the auditor shall consider all relevant audit evidence. If the auditor has not obtained sufficient appropriate audit evidence as to a material financial statement assertion, try to obtain further audit evidence. If the auditor is unable to obtain sufficient appropriate audit evidence, the auditor shall express a qualified opinion or a disclaimer of opinion. The auditor shall document: (i) The overall responses to address the assessed risks of material
Evaluating The Sufficiency & Appropriateness of Audit Evidence
Documentation
misstatement at the financial statement level; (ii) The linkage of those procedures with the assessed risks at the assertion level; and (iii)The results of the audit procedures. If he uses audit evidence about the operating effectiveness of controls obtained in previous audits, the auditor shall document the conclusions reached about relying on such controls that were tested in a previous audit. The auditors documentation shall demonstrate that the financial statements agree or reconcile with the underlying accounting records.
SA-700 - Audit Report

(i) The auditor should review the conclusions drawn from the audit evidence obtained for the expression of an opinion on the financial statements. (ii) The auditors report should contain a clear written expression of opinion on the financial statements taken as a whole.
Report
Elements
Title
It may be appropriate to use the term Auditor to distinguish the auditors report from report issued by others.
Addressee
The auditors report should be appropriately addressed as required by the circumstances of the engagement and applicable laws and regulations.
Opening or Introductory paragraph

1. The report should identify the financial statements that have been audited including the date and period covered by the financial statements. 2. The report should include a statement of responsibility of the entitys management and of the auditor i.e. the report should include a statement that the financial statements are the responsibility the entitys management and a statement that the responsibility of the auditor is to
( Word to PDF Converter - Unregistered ) http://www.Word-to-PDF-Converter.net express an opinion on the financial statements based on the audit.
Scope paragraph
1. The report should describe the scope of the audit by stating that the audit was conducted in accordance with the auditing standards generally accepted in India. The report should include a statement that the audit provides a reasonable basis for opinion. The auditors report should describe the audit as: Examining, on a test basis, evidence to support the amounts and disclosures in financial statements; Assessing the accounting principles used in the preparation of the financial statements; Assessing the significant estimates made by management in the preparation of the financial statements; and Evaluating the overall financial statements presentation.
2. 3.
Opinion paragraph
1. The report should clearly express an opinion on the true and fair view and where appropriate, the compliance with the statutory and/ or regulatory requirements. 2. The term used to express the auditors opinion, give a true and fair view, indicates, that the auditor considers only those matters that are material to the financial statements.
Date of the report

1. The report should be dated as of the completion date of the audit. 2. It should not be earlier that the date on which the financial statements by the management
Place of signature
The report should name the specific location which is ordinarily the city where the audit report is signed
Auditor's signature
The report should be signed in the name of the firm and the personal name of C.A. He must mention his membership number as well.
Unqualified opinion
Audit Report Types
1. An unqualified opinion should be expressed when the auditor concludes that the financial statements give a true and fair view. 2. An unqualified opinion also indicates that: The financial statements have been prepared using the generally accepted accounting principles, which have been consistently applied; The financial statements comply requirements and regulations; and with relevant statutory
There is adequate disclosure of all material matters.
Modified opinion
Under following situations auditors report may have to be modified Matters that do not affect the auditors opinion(Emphasis of matter) Matters that do affect the auditors opinions including qualified opinion, disclaimer of opinion or adverse opinion. Matters that do not affect the auditors opinion(Emphasis of matter) In respect of matters that do not affect the auditors opinion, the auditor should modify the report by adding a paragraph to highlight a matter. The addition of such an emphasis of matter paragraph does not affect the auditors opinion The paragraph would preferably be included preceding the opinion paragraph. For example some uncertainty, the resolution of which is dependent on future events and which may significantly affect the financial statements and the same has already been incorporated by management in financial statement. In such matters, the opinion paragraph would refer to the fact that auditors opinion is not qualified in this respect. Matters that do affect the auditors opinion: For such matters, he can provide any of following as per stated criterion: (a) A qualified opinion should be expressed when the auditor concludes that an unqualified opinion cannot be expressed but that the effect of any disagreement with the management is not so material and pervasive as to require an adverse opinion, or limitation on scope is not material and pervasive as to require a disclaimer of opinion.
( Word to PDF Converter - Unregistered ) http://www.Word-to-PDF-Converter.net (b) A disclaimer of opinion should be expressed when the possible effect of a limitation on scope is so material and pervasive that the auditor is unable to obtain sufficient appropriate audit evidence and is thus unable to express an opinion on the financial statements. (c) An adverse opinion should be expressed when the disagreement with management is so material and pervasive to the financial statements that the auditor concludes that a qualification of the report is inadequate to disclose the misleading or incomplete nature of the financial statements.
Reason Opinion Other Than An Unqualified Opinion

Whenever the auditor requires an opinion other than unqualified, a description of all the reasons should be included in the report. Quantification of the possible effect (s), individually and in aggregate, on the financial statements should be mentioned in the report. If quantification is not possible, the fact should be stated.
Limitation on Scope
This standard also requires that in case there is a limitation on scope that requires expression of a qualified opinion or a disclaimer of opinion the auditors report should describe the limitation.
SA -220-Quality Control For Audit Work
Quality control should be maintained regarding:
Introduction
(i) Policies and procedures of an audit firm for audit work (ii) Procedures regarding the work delegated to assistants on an individual audit. Auditor - The person with final responsibility for the audit.
Meanings
Audit firm - A proprietary or a partnership firm providing audit service. Assistants - Personnel involved in an audit other than auditor.
Implementation of Quality control policies are implemented to ensure that all audits are conducted in accordance with Auditing Standards. Quality Control
Professional Requirements - Firms personnel should adhere to the principle of independence, integrity, objectivity, confidentiality, and professional behavior.
Factors For Incorporating Skills & competence - Personnel should have attained and maintain Quality Control an technical standard and professional. Audit Work.
Assignment Audit work is to be assigned to personnel who have degree of technical training as per the requirement. Delegation - Direction, supervision, and review of work at all level. Consultation Consultation within or outside the firms experts if necessary. Acceptance and Retention of clients Evaluation of prospective clients & review of existing to accept a client based on firms independence and ability to serve. Monitoring - Adequacy and operational effectiveness of quality control policies to be continuously monitored.
Communication Quality control for Individual Audits
The firms quality control policy should be properly communicated to its personnel. The quality control policies applicable to firm should be implemented for individual audits to the extent applicable. The audit work should be delegated to assistants with professional competence, directed and supervised. The nature of business, accounting policies, possible accounting or auditing problems clearly explained to Audit assistants. The planning and procedures to be performed should be explained to the assistants. They should be informed about the importance of audit programme, time budgets and overall audit plan. Supervisory responsibilities normally include to: Monitor the progress of audit
Supervision
Resolve significant questions raised during the audit Consider the level of consultation as appropriate. Work done by audit staff should be checked to ensure whether:
Review
Objectives of the audit procedures have been achieved. Work is sufficiently documented. All significant matters have been resolved. Work has been performed as per the audit programme. Conclusions are consistent with the evidences obtained. Overall audit plan and audit programme. .
Matters To Be Reviewed On a Timely- Basis
Assessment of inherent and control risks. Documentation of the procedures, audit evidence and the conclusions. Any amendment to the financial statement arising out-of audit and the auditors proposed modifications.
SA 220 (Revised) Quality control for an Audit of Financial Statements (on or after April 1, 2010)
Definitions
1. Engagement Documentation - Record of work performed, its result & conclusions. It is assembled in an engagement file. 2. Engagement Partner - Partners other person in firm (C.A. full time in practice) responsible for engagement & report thereon. 3. Engagement Quality Control Review - Process to evaluate the judgment & conclusions of Engagement Team before report is issued. 4. Engagement Q.C. Reviewer - Partner / other person in firm /
( Word to PDF Converter - Unregistered ) http://www.Word-to-PDF-Converter.net external person or a team to conduct Review. 5. Engagement Team - All person performing an engagement including any experts 6. Firm - Sole practitioner / Proprietorship firm / partnership firm. 7. Inspection - Procedures to check compliance by engagement team with firms Q.C policies w.r.t completed engagements 8. Monitoring - Evaluation of firms system of Q.C to check its operational effectiveness. (it include inspection) 9. Network firm - Entity under common control ownership or management with firm (Nationally / International) 10. Staff - Professionals other than partners.
Leadership Responsibilities For Quality on Audits
The engagement partner shall take responsibilities for the overall quality on each audit engagement to which that partner is assigned.
Relevant Ethical Requirements
1. Throughout the audit engagement, the engagement partner shall remain alert, for non-compliance with relevant ethical requirements by members of the engagement team. 2. If matters come to the engagement partners attention that indicate that members of the engagement team have not complied with relevant ethical requirements, in consultation with others in the firm, shall determine the appropriate action. The engagement partner shall form a conclusion on compliance with independence requirements. In doing so, the engagement partner shall: a) Obtain relevant information to identify circumstances & relationship that create threats to independence b) Evaluate information on identified breaches, of the firms independence policies & procedures c) Take appropriate action to eliminate such threats or reduce them to an acceptable level or to withdraw from the audit engagement. 1. The engagements partner shall be satisfied that appropriate procedure regarding the acceptance & Continuance of client relationships & Audit
Independence
Acceptance & Continuance of client relationships & Audit Engagement
Engagements have been followed. 2. If the engagement partner obtains information would have caused the firm to decline, the audit engagement had that information been available earlier, the engagement partner shall communicate that information promptly to the firm, so that the firm & the engagement partner can take the necessary action. The engagement partner shall be satisfied that the engagement term, & any auditors experts who are not part of the engagement team, collectively have the appropriate competence & capabilities to: Perform the audit engagement in accordance with professional standards, regulatory, legal requirements, & Enable an auditors report that is appropriate in the circumstances to be issued.
Assignment of Engagement Teams
Direction, Supervision & Performance Engagement Performance

The engagement partner shall take responsibility for: The direction, supervision & performance of the audit engagement in compliance with professional standards & regulatory & legal requirements, & The auditors report being appropriate in circumstances.
Reviews
The engagement partner shall take responsibility for reviews being performed in accordance with the firms review policies & procedures On or before the date of the auditors report, the engagement partner shall, be sufficient audit evidence has been obtained to support the conclusions & the auditor report.
Consultation
The engagement partner shall: 1. Take responsibility for the engagement appropriate consultation of difficult matters; team undertaking
2. Be satisfied that engagement team have undertaken consultation both within the engagement & between the engagement team & others
( Word to PDF Converter - Unregistered ) http://www.Word-to-PDF-Converter.net 3. Nature & scope of & conclusions resulting from, such consultations are agreed with the party consulted 4. Determine that conclusions resulting from such consultations have been implemented.
Engagement Quality Control Review

1. For audits of Financial statements of listed entities & those other audit engagement for which the engagement quality control reviews is required, the engagement partner shall Determine that an engagement quality control reviewer has been appointed, Discuss significant matters with the engagement quality control reviewer and, Not date the auditor report until the completion of the engagement quality control review. 2. The engagement quality control reviewer shall evaluate the following Discussion of significant matters with engagement partner Review of the financial statements & the proposed auditors report Conclusions reached in formulating the auditors report & consideration of whether the proposed auditors report is appropriate. 3. For audit of Financial statements of listed entities, the engagement quality control reviewer shall also consider the following The engagement teams evaluation of the firms independence Whether appropriate consultations has taken place & the conclusions arising from those consultations. Whether audit documentation selected for reviews reflects the work performed & supports the conclusions reached.
Differences of opinion
If differences of opinion arise within the engagement team with those consulted or between the engagement partner & the engagement quality control reviewer, the engagement team shall follow the firms policies & procedures for dealing with & resolving differences of opinion.
( Word to PDF Converter - Unregistered ) http://www.Word-to-PDF-Converter.net A monitoring process is designed to provide the firm with reasonable assurance that its policies & procedures relating to quality control are relevant adequate & operating effectively. The engagement partner shall consider the result of the firms monitoring process. 1. The auditors shall document-
Monitoring
Documentation
Issues identified with respect to compliance with relevant ethical requirement & how they were resolved. Conclusions on compliance with independence requirements Conclusions reached regarding the acceptance & continuance of client relationships & audit engagements The consultations undertaken during the course of the audit engagements 2. The engagement quality control reviewer shall document, for the audit engagement reviewed that, The procedures for engagement quality control review have been performed The engagement quality control review has been completed on or before the date of the auditors report & The reviewer is not aware of any unresolved matters.
SA 240 (Revised) - The Auditors Responsibilities Relating To Fraud in An Audit of Financial Statements (w.e.f. 1st April 2009)
Scope of This SA
Specifically, it expands on how SA 315 and SA 330 are to be applied in relation to risks of material misstatement due to fraud. Misstatements in the financial statements can arise from either fraud (intentional) or error(unintentional). The auditor is concerned with fraud that causes a material misstatement in the financial statements.
Characteristics of Fraud
( Word to PDF Converter - Unregistered ) http://www.Word-to-PDF-Converter.net The primary responsibility for the prevention and detection of fraud rests with both those charged with governance of the entity and management. Management and those charged with governance, should place a strong emphasis on fraud prevention. This involves a commitment to creating a culture of honesty and ethical behavior. An auditor is responsible for obtaining reasonable assurance that the financial statements taken as a whole are free from material misstatement. As described in SA 200, due to the inherent limitations of an audit, there is an unavoidable risk that some material misstatements of the financial statements will not be detected, even though the audit is properly planned and performed in accordance with the SAs. The risk of not detecting a material misstatement resulting from fraud is higher than the risk of not detecting one resulting from error. This is because fraud may involve carefully organized schemes designed to conceal it It is difficult for the auditor to determine whether misstatements in judgment areas such as accounting estimates are caused by fraud or error. The risk of the auditor not detecting a material misstatement resulting from management fraud is greater than for employee fraud as management can manipulate accounting records, The auditor is responsible form maintaining an attitude of professional skepticism throughout the audit.
Responsibility for the Prevention & Detection of Fraud
Responsibilities of the Auditor
Objectives
The objectives of the auditor are: To identify and assess the risks of material misstatement in the financial statements due to fraud; To obtain sufficient appropriate audit evidence about the assessed risks of material misstatement due to fraud and To respond appropriately to identified or suspected fraud. Fraud - An intentional act by one or more individuals among management, those charged with governance, employees, or third parties, involving the use of deception to obtain an unjust or illegal advantage. Fraud risk factors - Events or conditions that indicate an incentive or pressure to commit fraud or provide an opportunity to commit
Definitions
( Word to PDF Converter - Unregistered ) http://www.Word-to-PDF-Converter.net fraud. The auditor shall maintain an attitude of professional skepticism throughout the audit. He should recognize the possibility that a material misstatement due to fraud could exist, notwithstanding the auditors past experience of the honesty and integrity of the entitys management and those charged with governance Unless doubtful situations are present, the auditor may accept records and documents as genuine. If conditions cause the audit to believe that a document may not be authentic or that terms in a document have been modified, the auditor shall investigate further. Where responses to inquiries of management or those charged with governance are inconsistent, the auditor shall investigate the inconsistencies. They should discuss how and where the entitys financial statements may be susceptible to material misstatement due to fraud, including how fraud might occur. The discussion shall occur notwithstanding the engagement team members beliefs that management and those charged with governance are honest and have integrity.
Professional Skepticism
Discussion Among the Engagement Team
Enquiring Management and Others within the Entity Risk Assessment Procedures and Related Activities
The auditor shall make inquires of management regarding: Managements assessment of the risk of material misstatement due to fraud; Managements process for identifying & responding to the risks of fraud in the entity, including any specific risks of fraud; The auditor shall make inquiries of management regarding; Managements communication, if any, to those charged with governance; and Managements communication, if any, to employees regarding its views on business practices and ethical behavior. For those entities that have an internal audit function, the auditor shall make inquiries of internal auditor.
Enquiring Those Charged with Governance

He shall obtain an understanding of how TCWG supervise
( Word to PDF Converter - Unregistered ) http://www.Word-to-PDF-Converter.net management processes. The auditor shall ask TCWG whether they have knowledge of any fraud affecting the entity.
Unusual or Unexpected Relationships Identified

The auditor shall evaluate whether unusual or unexpected relationships identified in performing analytical procedures, may indicate risks of material misstatement due to fraud.
Other Information
The auditor shall consider whether other information obtained by the auditor indicates risks of material misstatement due to fraud.
Evaluation of Fraud Risk Factors

The auditor shall evaluate whether the information obtained, indicates that one or more fraud risk factors are present. However, fraud risk factors may not necessarily indicate the existence of fraud. In accordance with SA 315, the auditor shall identify and assess the risks of material misstatement due to fraud at the financial statement level, and at the assertion level for classes of transactions, account balances and disclosures. The auditor shall, based on a presumption that there are risks of fraud in revenue recognition, evaluate which types of revenue, revenue transactions or assertions give rise to such risks. The auditor shall obtain an understanding of the entitys related controls, including control activities, relevant to such risks. In accordance with SA 330, the auditor shall determine overall responses to address the assessed risks of material misstatement due to fraud at the financial statement level.
Identification and Assessment of the Risks of Material Misstatement Due to Fraud
Responses to the Assessed Risks of Material Misstatement Due to Fraud
Overall Responses
The auditor shall: Assign and supervise personnel as per their capability;
( Word to PDF Converter - Unregistered ) http://www.Word-to-PDF-Converter.net Evaluate whether accounting policies adopted by the entity indicate fraudulent financial reporting resulting from man effort to manage earnings; and Incorporate surprise element in the selection of the NTE of audit procedures.
Response to Assessed Risks of Material Misstatement Due to Fraud at the Assertion Level
The auditor shall design and perform further audit procedures whose nature, timing and extent are responsive to the assessed risks of material misstatement due to fraud at the assertion level.
Responses to Risks Related to Management Override of Controls

Management is in a unique position to perpetrate fraud because of managements ability to manipulate accounting records and prepare fraudulent financial statements by overriding controls. It is a risk of material misstatement due to fraud and thus a significant risk. The auditor shall determine whether the auditor needs to perform extra audit procedures. The auditor shall evaluate whether analytical procedures are consistent with the auditors understanding of the entity and its environment When the auditor identifies a misstatement, the auditor shall evaluate whether such a misstatement is indicative of fraud. If there is such an indication, the auditor shall evaluate the implications of the misstatement in relation to other aspects of the audit, particularly the reliability of management representations. If the auditor identifies a misstatement, the auditor shall re-evaluate the assessment of the risks of material misstatement due to fraud and its resulting impact on the nature, timing and extent of audit procedures. When the auditor confirms that, or is unable to conclude whether, the financial statements are materially misstated as a result of fraud the auditor shall evaluate the implications for the audit.
Evaluation of Audit Evidence
( Word to PDF Converter - Unregistered ) http://www.Word-to-PDF-Converter.net The auditor shall:
Auditor Unable to Continue the Engagement
1. Determine the professional and legal responsibilities applicable in the circumstances, including whether there is a requirement for the auditor to report to the person or persons who made the audit appointment or, in some cases, to regulatory authorities; 2. Consider whether it is appropriate to withdraw from the engagement; and 3. If the auditor withdraws: Discuss with the appropriate level of management and those charged with governance, the auditors withdrawal from tile engagement and the reasons for the withdrawal; and Determine whether there is a professional or legal requirement to report to the person or persons who made the audit appointment or, in some cases, to regulatory authorities, the auditors withdrawal from the engagement and the reasons for the withdrawal. Its responsibility for the design, implementation and maintenance of internal control to prevent and detect fraud;
Management Representations
It has disclosed to the auditor the results of its assessment of the risk of fraud; It has disclosed to the auditor its knowledge of fraud or suspected fraud affecting the entity involving: Management; Employees who have significant roles in internal control; or Others; and It has disclosed to the auditor its knowledge of any allegations of fraud, or suspected fraud, affecting the entitys financial statements.
Communications to Management and TCWG
If the auditor has identified a fraud or has indication of fraud, the auditor shall communicate these matters on a timely basis to the appropriate level of management. The auditor shall communicate with those charged with governance any other matters related to fraud that are, in the auditors judgment, relevant to their responsibilities.
Communications to The auditors legal responsibilities may override the duty of confidentiality in some circumstances. Regulatory Authorities
( Word to PDF Converter - Unregistered ) http://www.Word-to-PDF-Converter.net He shall maintain documentation as per SA 3 1 5 and 330.
Documentation
The auditor shall document communications about fraud made to management, those charged with governance, regulators and others. When the auditor has concluded that the presumption that there is a risk of material misstatement due to fraud related to revenue recognition is not applicable in the circumstances of the engagement, the auditor shall document the reasons for that conclusion.
SA 250 (Revised) Consideration of Laws & Regulations In An Audit of Financial Statements (w.e.f. 1 April2009)
Effect of Laws and Regulations
The provisions of some laws or regulations have a direct effect on the financial statements in that they determine the reported amounts and disclosures in an entitys financial statements. Other laws or regulations are to be complied with by management but do not have a direct effect on an entitys financial statements. Some entities operate in heavily regulated industries (such as banks and chemical companies). Non-compliance with laws and regulations may result in fines, litigation or other consequences for the entity that may have a material effect on the financial statements.
Responsibility of Management for Compliance with Laws & Regulations
It is the responsibility of management, with the oversight of those charged with governance, to ensure that the entitys operations are conducted in accordance with the provisions of laws and regulations, including compliance with the provisions of laws and regulations that determine the reported amounts and disclosures in an entitys financial statements. The requirements in this SA are designed to assist the auditor in identifying material misstatement of the financial statements due to non-compliance with laws and regulations. However, the auditor is not responsible for preventing non compliance and cannot be expected to detect non-compliance with all laws and regulations. In the context of laws and regulations, the potential effects of inherent limitations on the auditors ability to detect material
Responsibility of the Auditor
( Word to PDF Converter - Unregistered ) http://www.Word-to-PDF-Converter.net misstatements are greater. This SA distinguishes the auditors responsibilities in relation to compliance with two different categories of laws and regulations as follows: The provisions of those laws and regulations having a direct effect on the determination of material amounts and disclosures in the financial statements such as tax and labour laws; and Other laws and regulations that do not have a direct effect on the determination of the amounts and disclosures in the financial statements, but compliance with which may be fundamental to the operating aspects of the business. In this SA, different requirements are specified for each of the above categories of laws and regulations. For the category referred to in paragraph 6(a), the auditors responsibility is to obtain sufficient appropriate audit evidence about compliance with the provisions of those laws and regulations. For the category referred to in paragraph 6(b), the auditors responsibility is limited to undertaking specified audit procedures to help identify non-compliance with those laws and regulations that may have a material effect on the financial statements.
Definition
Non-compliance Acts of omission or commission by the entity,

either intentional or unintentional, which are contrary to the prevailing laws or regulations. The auditor shall obtain a general understanding of:
The Auditors Consideration of Compliance with Laws and Regulations
The legal and regulatory framework applicable to the entity and the industry or sector in which the entity operates; and How the entity is complying with that framework. The auditor shall obtain sufficient appropriate audit evidence regarding compliance with the provisions of those laws and regulations generally recognized to have a direct effect on the determination of material amounts and disclosures in the financial statements. The auditor shall perform the following audit procedures to identify instances of non-compliance with other laws and regulations that may have a material effect on the financial statements: Inquiring of management; and Inspecting correspondence, if any, with the relevant licensing or regulatory authorities. During the audit, the auditor shall remain alert to the possibility that
( Word to PDF Converter - Unregistered ) http://www.Word-to-PDF-Converter.net other audit procedures applied may bring instances of non-compliance or suspected non compliance with laws and regulations to the auditors attention. Obtain written representation that all known instances of non-compliance or suspected non-compliance with laws and regulations have been disclosed to the auditor. If the auditor becomes aware of information concerning an instance of non compliance or suspected non-compliance with laws and regulations, the auditor shall obtain: An understanding of the nature of the act and the circumstances in which it has occurred; and Further information to evaluate the possible effect on the financial statements. If the auditor suspects there may be non-compliance, the auditor shall discuss the matter with management and those charged with governance. If management or those charged with governance do not provide sufficient information the auditor shall consider the need to obtain legal advice. If sufficient information about suspected non-compliance cannot be obtained, the auditor shall evaluate the effect of the lack of sufficient appropriate audit evidence on the auditors opinion.
Audit Procedures When Non-Compliance is Identified or Suspected
Reporting Non-Compliance to Those Charged with Governance
Reporting of Identified or Suspected Non-Compliance
Unless all of those charged with governance are involved in management of the entity, the auditor shall communicate with those charged with governance matters involving non compliance with laws and regulations that come to the auditors attention. If, in the auditors judgment, the non-compliance is believed to be intentional and material, the auditor shall communicate the matter to those charged with governance as soon as practicable. If the auditor suspect that management or those charged with governance are involved in non-compliance, the auditor shall communicate the matter to the next higher level of authority at the entity, if it exists, such as an audit committee or supervisory board. Where no higher authority exists, or if the auditor believes that the communication may not be acted upon, the auditor shall consider the need to obtain legal advice.
Reporting Non- Compliance in the Auditors Report on the
Financial Statements
If the auditor concludes that the non-compliance has a material effect on the financial statements, and has not been adequately reflected in the financial statements, the auditor shall, express a qualified or adverse opinion on the financial statements. If the auditor is precluded by management or those charged with governance from obtaining sufficient appropriate audit evidence, the auditor shall express a qualified opinion or disclaim an opinion. If the auditor is unable to determine whether non-compliance has occurred because of limitations imposed by the circumstances rather than by management or those charged with governance, the auditor shall evaluate the effect on the auditors opinion.
Reporting Non-Compliance Enforcement Authorities
to
Regulatory
and
If the auditor has identified or suspects non-compliance with laws and regulations, the auditor shall determine whether the auditor has a responsibility to report the identified\ or suspected non-compliance to parties outside the entity.
Documentation
The auditor shall document identified or suspected non-compliance with laws and regulations and the results of discussion with management and those charged with governance and other parties outside the entity.
SA 260 (Revised) Communication With Those Charged With Governance (w.e.f. Ist April2009 )
Scope of This SA
This SA provides an overall framework for the auditors communication with those charged with governance, and identifies some specific matters to be communicated with them.
( Word to PDF Converter - Unregistered ) http://www.Word-to-PDF-Converter.net Additional matters to be communicated, which complement the requirements of this SA, are identified in other SAs. Further matters, not required by this or other SAs, may be required to be communicated by laws or regulations a) Those charged with governance - The person (s) or organization(s) (e.g.; a corporate trustee) with responsibility for overseeing the strategic direction of the entity and obligations related to the accountability of the entity. b) Management - The person (s) with executive responsibility for the conduct of the entitys operations. The auditor shall determine the appropriate person (s) within the entitys governance structure with whom to communicate. Communication with a Subgroup of Those charged with Governance- When the auditor communicates with a subgroup of those charged with governance, for example, an audit committee, or an individual, the auditor shall determine whether the auditor also needs to communicate with the governing body. When all of those charged with governance are involved in managing the Entity- In some cases, all of those charge with governance are involved in managing the entity, for example, a small business where a single owner manages the entity and no one else has a governance role. In these cases, if matters required by this SA are communicated with person (s) with management responsibilities, and those person (s) also have governance responsibilities, the matters need not be communicated again with those same person (s) in their governance role.
Definitions
Those Charged with Governance
Matters to be Communicated
The Auditors responsibilities in relation to the financial StatementThe auditor shall communicate with those charged with governance the responsibilities of the auditor in relation to the financial statement audit, including that: The auditor is responsible for forming and expressing an opinion on the financial statement; that: The audit of the financial statements does not relieve management or those charged with governance of their responsibilities. Planned scope and Timing of the Audit - The auditor shall communicate with those charged with governance an overview of the planned scope and timing of the audit.
Significant findings from the Audit - The auditor shall communicate with those charged with governance: The auditors views about significant qualitative aspects of the entitys accounting practices, including accounting policies, accounting estimates and financial statement disclosures. Significant difficulties, if any, encountered during the audit; Unless all of those charged with governance are involved in managing the entity: Material weaknesses, if any, in the design, implementation or operating effectiveness of internal control that have come to the auditors attention and have been communicated to management; Significant matters, if any, arising from the audit that were discussed or subject to correspondence with management; and Written representations the auditor is requesting; and Other matters, if any, arising from the audit that, in the auditors professional judgment, are significant to the oversight of the financial reporting process.
Auditor Independence
In the case of listed entities, the auditor shall communicate with those charged with governance: A statement that the engagement team and others in the firm as appropriate, have complied with relevant ethical requirements regarding independence; and All relationships and other matters between the firm, network firms, and the entity that, in the auditors professional judgment, may reasonably be thought to bear on independence.; and The related safeguards that have been applied to eliminate identified threats to independence or reduce them to an acceptable level.
Establishing the Communication Process
The Communication Process
The auditor shall communicate with those charged with governance the form, timing and expected general content of communications.
Forms of Communication
The auditor shall communicate in writing with those charged with
( Word to PDF Converter - Unregistered ) http://www.Word-to-PDF-Converter.net governance regarding significant matters. The auditor shall communicate in writing with those charged with governance regarding auditor independence.
Timing of Communication
The auditor shall communicate with those charged with governance on a timely basis.
Adequacy of the Communication Process

The auditor shall evaluate whether the two-way communication between the auditor and those charged with governance has been adequate for the purpose of the audit. If it has not, the auditor shall evaluate the effect on the auditors assessment of the risks of material misstatement. Where matters required by this SA to be communicated are communicated orally, the auditor shall document them, and when and to whom they were communicated. Where matters have been communicated in writing, the auditor shall retain a copy of the communication as part of the audit documentation.
Documentation
SA 265 Communicating Deficiencies In Internal Control To Those Charged With Governance And Management (On Or After April 1, 2010)
This Standard on Auditing (SA) deals with the auditors responsibility to communicate appropriately to those charged with
Scope of This SA
governance and management deficiencies in internal control that the auditor has identified in an audit of financial statements. The auditor is required to obtain an understanding of internal control relevant to the audit when identify and assessing the risks of material misstatement. In making those risk assessments, the auditor considers internal control in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of internal control. The auditor may identify deficiencies in internal control not only during this risk assessment process but also at any other stage of the audit. This SA specifies which identified deficiencies the auditor is required to communicate to those charged with governance and management. Nothing in this SA precludes the auditor from communicating to those charged with governance and management other internal control matters that the auditor has identified during the audit.
Effective Date
This SA is effective for audits of financial statements for periods beginning on or after April 1, 2010 1. Deficiency in internal control This exists when:
Definitions
A control is designed, implemented or operated in such a way that it is unable to prevent, or detect and correct, misstatements in the financial statements on a timely basis; or A control necessary to prevent, or detect and correct, misstatements in the financial statements on a timely basis is missing. 2. Significant deficiency in internal control A deficiency or combination of deficiencies in internal control that, in the auditors professional judgment, is of sufficient importance to merit the attention of those charged with governance.
Requirements
The auditor shall determine whether, on the basis of the audit work performed, the auditor has identified one or more deficiencies in internal control. If the auditor has identified one or more deficiencies in internal control, the auditor shall determine, they constitute significant deficiencies. The auditor shall communicate in writing significant deficiencies in internal control identified during the audit to those charged with governance on a timely basis. The auditor shall also communicate to management at an appropriate level of responsibility on a timely basis:
( Word to PDF Converter - Unregistered ) http://www.Word-to-PDF-Converter.net In writing, significant deficiencies in internal control that the auditor has communicated or intends to communicate to those charged with governance. Other deficiencies in internal control identified during the audit that have not been communicated to management by other parties and that, in the auditors professional judgment, are of sufficient importance to merit managements attention. The auditor shall include in the written communication of significant deficiencies in internal control: A description of the deficiencies and an explanation of their potential effects; and Sufficient information to enable those charged with governance and management to understand the context of the communication. In particular, the auditor shall explain that: The purpose of the audit was for the auditor to express an opinion on the financial statements; The audit included consideration of internal control relevant to the preparation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of internal control; and The matters being reported are limited to those deficiencies that the auditor identified during the audit and that the auditor has concluded are of sufficient importance.
SA 299 Responsibility of Joint Auditors

Meaning
Joint Auditor
When two or more practicing units are appointed to conduct audit of an entity.
Why
Due to voluminous work in large entities.
Basis of Division
Division of Work
Joint Auditor should divide work among themselves on basis of (i) Period; (ii) Functional areas; (iii)Components of financial statement; or (iv)Geographical location, etc.
Documentation
Such division should be adequately documented.
Reliance
Each joint Auditor is entitled to rely on other Joint Auditor. There is no need to review work done by other Joint Auditor. If some Joint Auditor comes to know a matter, relevant for other Joint Auditor, then he should communicate it immediately in writing to other joint auditors. The date of such communication should be before date of audit report.
Co-ordination
Separate responsibility of each Joint Auditor
Responsibility
For work allocated to him For drafting his own audit program For keeping appropriate documentation For components allocated to him in case of large entities having many components.
Joint and several responsibility of all Joint Auditors

Audit work not divided Collective decision w.r.t. NTE of audit procedure Matters brought to knowledge of all by any one of them and on which they all agree.
( Word to PDF Converter - Unregistered ) http://www.Word-to-PDF-Converter.net Disclosure requirements in financial statement. Compliance of Audit Report with statutory requirement. Generally all arrive at unanimous opinion.
Difference of Opinion
However, only joint auditor is not bound by majority opinion. Those disagreeing with others, may provide their own opinion through a separate report.
SA 402 Audit Considerations Relating To Entities Using Srvice Organisations

Role of Service Organisation
The Auditor should consider how a service organization affects the clients accounting and internal control system to plan his audit in a proper way.
Services provided by S.O.
Considerations for If service organizations performs only recording and processing of transactions to the client and the client retains authorization and The Auditor of maintenance of accountability, the client may implement effective polices The Client
and procedures within its organizations. However, the client may have to rely upon the systems of the service organization where the S.O. executes the transactions and maintains accountability on behalf of the client.
Details regarding S.O.

Auditor should consider Nature of the services provided Terms of contract. The capability and financial strength of the service organization. Extent of interaction of clients systems with those of the service organization Documentation of systems manual of service organization Material financial statement assertions that are affected by the use of the service organization
( Word to PDF Converter - Unregistered ) http://www.Word-to-PDF-Converter.net -------------------------------------------------------------------------------------Inherent risks associated with those assertions Clients internal controls that are applied to the transactions processed by the service organization. General controls and computer systems controls relevant to the clients application, adopted at S.O. site. Reports of the auditor of the service organization to furnish him information. -------------------------------------------------------------------------------------He should understand the service organizations accounting and internal control system from available information. If he cant get sufficient information, he should consider the need to request the auditor of the service organization to furnish him information.
Considerations by auditor of client
Service Organisations Auditors Report
If auditor of the client decides to use the report of the auditor of service organization, he should consider: The professional competence of the reporting auditor, and Nature and content of the report.
Types of Report
The report submitted to the clients auditor may be one of the two types as follows;
(A) Type A- Report of Suitability of Design Content

The contents of this report are Details of the service organizations accounting and internal control system; and An opinion by the service organizations auditor that The above detail is accurate; The systems controls have been placed in operation; and The accounting and internal control systems are suitably designed
( Word to PDF Converter - Unregistered ) http://www.Word-to-PDF-Converter.net to achieve their stated objectives.
Use
It helps the auditor of the client in understanding the accounting and internal control systems installed and operated by the service organization.
(B)Type B Report of suitability of Design operating effectiveness Content

The content of the report are
&
Details of the service organisations accounting and internal control systems; An opinion by the service organisation's auditor that: The above detail is accurate; The systems controls have been placed in operation; The accounting and internal control systems are, suitably designed to achieve the stated objectives; and The accounting and internal control system are operating effectively based on the results of the tests of control.
Use
The clients auditor can use such reports as an evidence of lower control risk assessment. Based on the control risk assessment, the clients auditor determines the nature, timing and extent of substantive procedures. He may also request the auditor of the service organisation to perform substantive tests in certain areas.
Reference of these reports in audit report of client

The audit report of the client should not contain reference to the report received from the service organisations auditor.
SA 402(Revised) Audit Considerations Relating To An Entity Using A Service Organisation (On Or After April 1, 2010)
1. This Standard on Auditing (SA) deals with the user auditors responsibility to obtain sufficient appropriate audit evidence when a user entity uses the services of one or more service organisations. 2. Many entities outsource aspects of their business to organisations that provide services ranging from performing a specific task under the direction of an entity to replacing an entitys entire business units or functions, such as the tax compliance function. Many of the services provided by such organisations are integral to the entitys business operations; however, not all those services are relevant to the audit. 3. Services provided by a service organisation are relevant to the audit of a user entitys financial statements when those services, and the controls over them, are part of the user entitys information system, including related business processes, relevant to financial reporting. Although most controls at the service organisation are likely to relate to financial reporting, there may be other controls that may also be relevant to the audit, such as controls over the safeguarding of assets. A service organisations services relevant to financial reporting if these services affect any of the following: a) The classes of transactions in the user entitys operations that are significant to the user entitys financial statements; b) The procedures, by which the user entitys transactions are initiated, recorded, processed, corrected as necessary, transferred to the general ledger and reported in the financial statements; c) The financial reporting process used to prepare the user entitys financial statements, including significant accounting estimates and disclosures; and d) Controls surrounding journal entries, including non-standard journal entries used to record non-recurring, unusual transactions or adjustments.
Scope of This SA
Effective Date
This SA is effective for audits of financial statements for periods beginning on or after April 1,2010.
( Word to PDF Converter - Unregistered ) http://www.Word-to-PDF-Converter.net The objectives of the user auditor, when the user entity uses the services of a service organisation, are: a) To obtain an understanding of the nature all of the services provided by the service organisation and their effect on the user entitys internal control relevant to the audit, sufficient to identify and assess the risks of material misstatement; and b) To design and perform audit procedures responsive to those risks. a) Complementary user entity controls Controls that the service organisation assumes, in the design of its service, will be implemented by user entities. b) Report on the description and design of controls at a service organisation (referred to in this SA as a Type I report) A report that comprises: A description, prepared by management of the service organisation, of the service organisations system, control objectives and related controls that have been designed and implemented as at a specified date; and A report by the service auditor with the objective of conveying reasonable assurance that includes the service auditors opinion on the description of the service organisations system, control objectives and related controls and the suitability of the design of the controls to achieve the specified control objectives. c) Report on the description, design, and o effectiveness of controls at a service organisation (referred to in this SA as a Type 2 report) A report that comprises: (i) A description, prepared by management of the service organisation, of the service organisations system, control objectives and related controls, their design and implementation as at a specified date or throughout a specified period and, in some cases, their operating effectiveness throughout a specified period; and (ii) A report by the service auditor with the objective of conveying reasonable assurance that includes:The service auditors opinion on the description of the service organisations system, control objectives and related controls, the suitability of the design of the controls to achieve the specified control objectives, and the operating effectiveness of the controls; and A description of the service auditors tests of the controls and
Objective
Definitions
( Word to PDF Converter - Unregistered ) http://www.Word-to-PDF-Converter.net the results thereof. d) Service auditor An auditor who, at the request of the service organisation, provides an assurance report on the controls of a service organisation. e) Service organisation A third-party organisation (or segment of a third-party organisation) that provides services to user entities that are part of those entities information systems relevant to financial reporting. f) Service organisations system The policies and procedures designed, implemented and maintained by the service organisation to provide user entities with the services. g) Subservice organisation A service organisation used by another service organisation to perform some of the services provided to user entities. h) User auditor An auditor who audits and reports on the financial statements of a user entity. i) User entity An entity that uses a service organisation and whose financial statements are being audited. 1. When obtaining an understanding of the user entity in accordance with SA 315, the user auditor shall obtain an understanding of how a user entity uses the services of a service organisation in the user enttys operations, including: a) The nature of the services provided by the service organisation and the significance of those services to the user entity. b) The nature and materiality of the transactions processed or accounts or financial reporting processes affected by the service organ isation; c) The degree of interaction between the activities of the service organisation and those of the user entity; and d) The nature of the relationship between the user entity and the service organisation, including the relevant contractual terms. 2. The user auditor shall evaluate the design and implementation of relevant controls at the user entity that relate to the services provided by the service organisation. 3. The user auditor shall determine whether a sufficient understanding of the nature and significance of the services provided by the service organisation and their effect on the user entitys internal control relevant to the audit has been obtained. 4. If the user auditor is unable to obtain a sufficient understanding from the user entity, the user auditor shall obtain that understanding from
Obtaining an Understanding of the Services Provided by a Service Organisation, Including Internal Control
( Word to PDF Converter - Unregistered ) http://www.Word-to-PDF-Converter.net one or more of the following procedures: a) Obtaining a Type 1 or Type 2 report, if available; b) Contacting the service organisation, through the user entity, to obtain specific information; c) Visiting the service organisation and performing procedures; or d) Using another auditor to perform procedures that will provide the necessary information about the relevant controls at the service organ organisation.
Using a Type 2 Support Auditor's Type 1 or Report to the User Understanding of the Service Organisation
In determining the sufficiency and appropriateness of the audit evidence provided by a Type I or Type 2 report, the user auditor shall be satisfied as to: The service auditors professional competence (except where the service auditor is a member of the Institute of Chartered Accountants of India) and independence from the service organisation; and The adequacy of the standards under which the Type I or Type 2 report was issued. In responding to assessed risks in accordance with SA 330 , the user auditor shall: Determine whether sufficient appropriate audit evidence concerning the relevant financial statement assertions is available from records held at the user entity; and, if not, Perform further audit procedures to obtain sufficient appropriate audit evidence or use another auditor to perform those procedures at the service organisation on the user auditors behalf. When the user auditors risk assessment includes an expectation that controls at the se organisation are operating effectively, the user auditor shall obtain audit evidence about the operating effectiveness of those controls from one or more of the following procedures: Obtaining a Type 2 report, if available; Performing appropriate tests of controls at the service organisation; or Using another auditor to perform tests of controls at the service organisation on behalf of the user auditor.
Responding to the Assessed Risks of Material Misstatement
Tests of Controls
Type 1 and Type 2 If the user auditor plans to use a Type I or a Type 2 report that excludes the services provided by a subservice organisation and those services are Reports that
Exclude the Services of a Subservice Organisation Fraud, NonCompliance with Laws and Regulations and Uncorrected Misstatements in Relation to Activities at the Service Organisation
relevant to the audit of the user entitys financial statements, the user auditor shall apply the requirements of this SA with respect to the services provided by the subservice organsation also.
The user auditor shall inquire of management of the user entity whether the service organisation has reported to the user entity, or whether the user entity is otherwise aware of, any fraud, non-compliance with laws and regulations or uncorrected misstatements affecting the financial statements of the user entity. The user auditor shall evaluate how such matters affect the nature, timing and extent of the user auditors further audit procedures, including the effect on the user auditors conclusions and user auditors report.
Reporting by the User Auditor
The user auditor shall modify the opinion in the user auditors report if the user auditor is unable to obtain sufficient appropriate audit evidence regarding the services provided by the service organisation. The user auditor shall not refer to the work of a service auditor in the user auditors report containing an unmodified opinion. If reference to the work of a service auditor is relevant to an understanding of a modification to the user auditors opinion, the user auditors report shall indicate that such reference does not diminish the user auditors responsibility for that opinion.
SA 450 Evaluation of Misstatements Identified During The Audit (on or After April 1, 2010)
( Word to PDF Converter - Unregistered ) http://www.Word-to-PDF-Converter.net This Standard on Auditing (SA) d with the auditors responsibility to evaluate the effect of identified misstatements on the audit and of uncorrected misstatements, if any, on the financial statements. This SA is effective for audits of financial statements for periods beginning on or after April 1,2010. The objective of the auditor is to evaluate:
Scope of This SA Effective Date
Objective
The effect of identified misstatements on the audit; and The effect of uncorrected misstatements, if any, on the financial statements.
Misstatement A difference between the amounts, classification, presentation, or disclosure of a reported financial statement item and required for the item to be in accordance with the applicable financial reporting framework. Misstatements can arise from error or fraud. Uncorrected misstatements Misstatements that the auditor has accumulated during the audit and that have not been corrected.
Definitions
Accumulation of Identified Misstatemen ts
The auditor shall accumulate misstatements identified during the audit, other than those that are clearly trivial
Consideration of Identified Misstatements as the Audit Progresses
The auditor shall determine whether the overall audit strategy and audit plan need to be revised if: The nature of identified misstatements and the circumstances of their occurrence indicate that other misstatements may exist that, when aggregated with misstatements accumulated during the audit, could be material; or The aggregate of misstatements accumulated during the audit approaches materiality. If, at the auditors request, management has examined a class of transactions, account balance or disclosure and corrected misstatements that were detected, the auditor shall perform additional audit procedures to determine whether misstatements remain. The auditor shall communicate on a timely basis all misstatements accumulated during the audit with the appropriate level of management, unless prohibited by law or regulation. The auditor
Communication &
Correction of Misstatements
shall request management to correct those misstatements. If management refuses to correct some or all of the misstatements communicated by the auditor, the auditor shall obtain an understanding of managements reasons for not making the corrections. Prior to evaluating the effect of uncorrected misstatements, the auditor shall reassess materiality determined in accordance with SA 320 (Revised)to confirm whether it remains appropriate in the context of the entitys actual financial results. The auditor shall determine whether uncorrected misstatements are material, individually or in aggregate. In making this determination, the auditor shall consider: The size and nature of the misstatements, both in relation to particular item and the financial statements as a whole; and The effect of uncorrected misstatements related to prior periods on the relevant and the financial statements as a whole.
The auditor shall communicate with those charged with governance uncorrected misstatements and the effect that they, individually or in aggregate, may have on the opinion in the auditors report, unless prohibited by law or regulation. The auditors communication shall identify material uncorrected misstatements individually. The auditor shall request that uncorrected misstatements be corrected. The auditor shall also communicate with those charged with governance the effect of uncorrected misstatements related to prior periods.
Evaluating the Effect of Uncorrected Misstatements
Communication with those Charged with Governance
Written Representation
The auditor shall request a written representation from management and, where appropriate, those charged with governance whether they believe the effects of uncorrected misstatements are immaterial, individually and in aggregate, to the financial statements as a whole. A summary of such items shall be included in or attached to the written representation. The audit documentation shall include:
Documentation
The amount below which misstatements would be regarded as clearly trivial All misstatements accumulated during, the audit and whether they have beer corrected; and The auditors conclusion as to whether uncorrected misstatements are material. individually or in aggregate, and the basis for that conclusion.
SA 501 Audit Evidence Additional Consideration for Specific Items

This standard provides additional guidance to SA-SOO "Audit Evidence, with respect to certain specifies financial statement amounts and other disclosure.
Objective
PART A Attendance at Physical Inventory Counting Managements Responsibility

Physical verification of inventory
Auditors Duty
Sufficient appropriate audit evidence regarding existence and condition of inventory should be obtained by attendance at physical inventory counting, unless impracticable. If impracticable, he should obtain sufficient & appropriate evidences through alternative procedures. If he cant attend physical inventory count on planned date due to unforeseen circumstances, take some physical counts on alternative date and perform procedures to consider appropriate adjustment of changes in inventory between period end and date of physical count. He ordinarily observes count procedures adopted by management and perform test counts. He should obtain confirmation from third party. He should also consider:
Inventory Under Control of Third Parties
1. Independence of third party. 2. Observing/arranging another auditor to observe, physical Count. 3. Obtaining another auditors report on third parties system. 4. Inspecting documentation regarding inventory held by third parties. 5. Subsequent receipt of goods from third parties.
Management Representation Auditors Conclusion &
Completeness of information provided. Assurance with regard to adherence to laid down procedures for physical inventory count. If he is unable to obtain sufficient appropriate evidence w.r.t. physical inventory count, refer scope limitation in audit report. If inventory is not properly disclosed in the financial statements, he
Reporting
should issue qualified report.
PART B Inquiry regarding litigation and claims

Auditors duty
Carry out procedures to become aware of any litigation and claim which. may materially affect financial statements of entity. He should seek direct communication with entitys lawyer and other concerned professionals Auditor should request them to communicate directly with him.
If management dont permit auditor to communicate with entity lawyer, it is scope limitation resulting in either qualified opinion or disclaimer of opinion.
Unable to Communicat ion Management Representation
Auditor should obtain written representation from it regarding completeness and adequacy of information provided.
PART C Valuation and Disclosure of Long Term Investments

To obtain sufficient and appropriate evidence regarding valuation and disclosure of Long- Term Investments (as per AS-1 3). Evidences specific their ownership and existence Evidence of Valuation of Quoted Securities (Consider market quotation) Unquoted Securities (Consider reasonableness of Method adopted by management) Others (Consider market reports & experts opinion.) Obtain MRL regarding
Auditors Duty
Management Representation
Completeness of information provided; Valuation of long term investments including provision for diminution in value, if required; and Managements intention to hold them term.
Audit Conclusion & Reporting
If unable to obtain sufficient appropriate audit evidence, then render qualified report or disclaimer of opinion. If concludes that their disclosure is not adequate then render qualified opinion.
PART D Segment Information

Auditors Duty
When segment reporting is required (as per AS-17), obtain sufficient and appropriate evidence regarding its disclosure. For this, discuss with management, the methods used in determining segment information.
Regarding: Completeness of information regarding segments and disclosures thereof, and Appropriateness of selected segments based on risks and returns, and Organisational structure of enterprise and its internal financial reporting systems and any deviations there from.
Audit Conclusion & Reporting
If unable to obtain sufficient appropriate evidence regarding segment & adequacy of their disclosure, then render qualified report or disclaimer of opinion. If he concludes that their disclosure in financial statements is not adequate, then render qualified opinion.
SA 501 (Revised) Audit Evidence Specific Considerations for Selected Items. (on or After April 1, 2010)
Inventory
Sufficient Appropriate Evidence
When inventory is material He shall obtain sufficient appropriate evidence w.r.t. existence & condition of inventory by Attendance at physical inventory count Examining Entitys final inventory records & comparing them with actual count result. Evaluate I.C Observe mgt. count procedure Inspect inventory Perform test count
Inventory Counting Conducted at Date Other Than B/S Date

He shall perform additional procedure w.r.t. changes in inventory Between count date & B/S date.
Auditor Unable to Attend Inventory Count Due to Unforeseen Circumstances

He shall make some count On alternate date And perform procedures on intervening transactions.
Attendance at Inventory Count is Impracticable

He shall perform alternate procedures. If it is not possible, then modify the audit report.
Inventory Under Control of a Third Party

Obtain evidences by performing one or more of following:a) Request confirmation from third party. b) Obtaining service auditors report w.r.t. adequacy of procedures of third party. c) Attending / Arranging another auditor to attend third partys counting procedure. d) Inspecting documentation (Example warehouse receipts). e) Request confirmation from parties when inventory has been pledged as collateral.
Litigation & Claims
Identify Litigation & claims

Perform procedures to Identify litigation & claims by Inquiring mgt. & others Reviewing minutes of meetings correspondence with legal council. Reviewing legal expense account. of TCWG &
Risk of Misstatement w.r.t. Litigation & Claims
( Word to PDF Converter - Unregistered ) http://www.Word-to-PDF-Converter.net If Risk id identified Then, seek communication With entitys external legal council. If law, regulation etc. Prohibits such direct communication Then perform alternate procedures.
Written Representation
Auditor shall request WR From mgt. & TCWG That all know litigation & claims affecting financial statements Have been disclosed to auditor & appropriately accounted for.
Modify the Opinion

If mgt. does not permit auditor to communicate with legal council or Legal council refuses to respond. And auditor is unable to obtain sufficient appropriate evidence then modify opinion.
Segment Information
Sufficient Appropriate Evidences

w.r.t. Presentation & disclosure of segment information as per applicable F.R.F.
Audit Procedures
He should understand the methods used by Mgt. & evaluate their consistency with applicable F.R.F. Perform analytical procedures appropriate in circumstances.
SA 510 - Initial Engagements - Opening Balance

When financial statements of preceding period are not audited or
Initial Engagement
Some other auditor audited the financial statement for preceding period. Opening balances means accounting balances existing at beginning of the period i.e. closing balance of preceding period brought forward to current period. It reflects the effect of: Transaction / Eventsof preceding period, and Accounting policies applied in preceding period Obtain sufficient appropriate evidence that: Opening balances have been correctly brought forward.
Opening Balance
Evidence
Opening Balance dont contain misstatements affecting current period financial statements and There is consistent application of appropriate accounting policy.
General consideration
Audit Procedure
Accounting policy followed by entity. Preceding periods Audit Report-whether it was clean / modified. Nature of Opening Bal and their risk of misstatement. Materiality of opening balance for current period financial statement
Consideration of previous years financial statement Financial Statement for preceding period
1. Audited by some other Auditor
( Word to PDF Converter - Unregistered ) http://www.Word-to-PDF-Converter.net 2. Not Audited 1. Audited by some other Auditor Sufficient appropriate evidence are obtained for Op. balances by having audited financial statement Generally reliance on them During Current Years audit, if there is indication of misstatement in opening balance Extended procedures
2. Not Audited
Extended Procedure should be performed (i) (ii) Current Assets & Current Liabilities Evidenced can be obtained during audit procedure performed in current year. Others He may check records underlying opening balance or seek external confirmations If auditor unable to obtain sufficient appropriate regarding opening balance, then render qualified / disclaimer of opinion. If opening balance contain misstatements affecting current year financial statement which is not properly incorporated / disclosed in financial statement, then render qualified / adverse report.
Audit conclusion & Reporting
SA 510 (Revised) Initial Audit Engagements-Opening Balances (on or After April 1, 2010)
This Standard on Auditing (SA) deals with the auditors responsibilities relating to opening balances when conducting an initial audit engagement. In addition to financial statement amounts, opening balances include matters requiring disclosure that existed at the beginning of the period, such as contingencies. When the financial statements include comparative financial information, the requirements
Scope of This SA
( Word to PDF Converter - Unregistered ) http://www.Word-to-PDF-Converter.net and guidance in SA 710 also apply. SA 300 (Revised) includes additional requirements and guidance regarding activities prior to starting an initial audit.
Effective Date Objective
This SA is effective for audits of financial statements for periods beginning on or after April 1,2010. In conducting an initial audit engagement, the objective of the auditor with respect to opening balances is to obtain sufficient appropriate audit evidence about whether: a) Opening balances contain misstatements that materially affect the current periods financial statements; and b) Appropriate accounting policies reflected in the opening balances have been consistently applied in the current periods financial statements, or changes thereto are properly accounted for and adequately presented and disclosed in accordance with the applicable financial reporting framework.
Initial audit engagement An engagement in which either:
Definitions
The financial statements for the prior period were not audited; or The financial statements for the prior period were audited by a predecessor auditor.
Opening balances Those account balances that exist at the

beginning of the period. Opening balances are based upon the closing balances of the prior period and reflect the effects of transactions and events of prior periods and accounting policies applied in the prior period.
Predecessor auditor The auditor from a different audit firm,

who audited the financial statements of an entity in the prior period and who has been replaced by the current auditor.
Opening balances
Audit Procedures
The auditor shall read the most recent financial statements, if any, a the predecessor auditors report thereon, if any, for information relevant to opening balances, including disclosures. The auditor shall obtain sufficient appropriate audit evidence about whether the opening balances contain misstatements that material affect the current periods financial statements by: a) Determining whether the prior periods closing balances ha been correctly brought forward to the current period or, when appropriate, any adjustments have been disclosed as prior pen
( Word to PDF Converter - Unregistered ) http://www.Word-to-PDF-Converter.net items in the current years Statement of Profit and Loss; b) Determining whether the opening balances reflect the application of appropriate accounting policies; and c) Performing one or more of the following: Where the prior year financial statements were auditor perusing the copies of the audited financial statements. Evaluating whether audit procedures performed in the currency period provide evidence relevant to the opening balances; oil Performing specific audit procedures to obtain evidence regarding the opening balances. If the auditor obtains audit evidence that the opening balances contain misstatements that could materially affect the current periods financial statements, the auditor shall perform such additional audit procedures as are appropriate in the circumstances to determine t effect on the current periods financial statements. If the audit concludes that such misstatements exist in the current period financial statements, the auditor shall communicate the misstatement with the appropriate level of management and those charged with governance in accordance with SA 450.
Consistency of Accounting Policies

The auditor shall obtain sufficient appropriate audit evidence about whether the accounting policies reflected in the opening balances a been consistently applied in the current periods financial statement and whether changes in the accounting policies have been proper accounted for and adequately presented and disclosed in accordance with the applicable financial reporting framework.
Relevant Information in cite Predecessor Auditors Report

If the prior periods financial statements were audited by a predecessor auditor and there was a modification to the opinion, the auditor should evaluate the effect of the matter giving rise to the modification assessing the risks of material misstatement in the current period financial statements in accordance with SA 315.
Opening Balances
Audit Conclusions If the auditor is unable to obtain sufficient appropriate aw evidence
regarding the opening balances, the auditor shall express qualified
and Reporting
opinion or a disclaimer of opinion, - If the auditor concludes that the opening balances contain misstatement that materially affects the current periods finance statements, and the effect of the misstatement is not proper accounted for or not adequately presented or disclosed, the audit shall express a qualified opinion or an adverse opinion.
Consistency of Accounting policies

If the auditor concludes that: The current periods accounting policies are not consistently applied in relation to opening balances in accordance with the applicable financial reporting framework; or A change in accounting policies is not properly accounted for or not adequately presented or disclosed in accordance with the applicable financial reporting framework. The auditor shall express a-qualified opinion or an adverse opinion.
Modification to the Opinion in the Predecessor Auditors Report

If the processor auditors opinion regarding the prior periods financial statements included a modification to the auditors opinion that remains relevant & material to the current periods financial statements, the auditor shall modify the auditors opinion on the current periods financial statements.
SA 540 (Revised) Auditing Accounting Estimates, Including Fair Value Accounting Estimates, And Related Disclosures (w.e.f. 1st April, 2009)
Some financial statement items cannot be measured precisely, but can only be estimated.
Nature of Accounting
For purposes of this SA, such financial statement items are referred to as accounting estimates. The degree of estimation uncertainty affects the risks of material
Estimates
misstatement of accounting estimates. A difference between the outcome of an accounting estimate and the amount originally recognized in the financial statements does not necessarily represent a misstatement of the financial statements. This is particularly the case for fair value accounting estimates. to obtain sufficient appropriate, audit evidence whether:
Objective of Auditor
accounting estimates, including fair value accounting estimates are reasonable; and related disclosures in the financial statements are adequate.
Accounting estimate a precise means of measurement. This
Definitions
term is used for an amount measured at fair value where there is estimation uncertainty.
Auditors point estimate or auditors range The amount,

respectively, derived from audit evidence for use in evaluating manager point estimate.
Estimation uncertainty The susceptibility of an accounting

estimate and related disclosures to an inherent lack of precision in its measurement.
Management bias A lack of neutrality by management. Managements point estimate The amount selected by
management for recognition or disclosure in the financial statements as an accounting estimate.
Outcome of an accounting estimate
The actual monetary amount which results from the resolution of the underlying transaction(s) and event(s). Auditor shall obtain an understanding of the following in order to identify and assess the risks of material misstatement for accounting estimates: a) The requirements of the applicable financial reporting framework. b) How management identifies those transactions, events and conditions that may give rise to the need for accounting estimates. c) How management makes accounting assumptions, use of expert etc.), estimates (methods,
Risk Assessment Procedures and Related Activities
The auditor shall review the outcome of accounting estimates included in the prior period financial statements. Based on the assessed risks of material misstatement, the auditor shall determine:
Responses to The Assessed Risks
Whether management has appropriately applied the applicable financial reporting framework. Whether the methods are appropriate and have been applied consistently, For accounting estimates that give rise to significant risks, the auditor shall evaluate the following: a) How management has considered alternative assumptions or outcomes, and why it has rejected them. b) Whether the significant assumptions used by management are reasonable. If, in the auditors judgment, management has not adequately addressed the effects of estimation uncertainty, the auditor shall, develop a range with which to evaluate the reasonableness of the accounting estimate.
Response to Significant Risks Estimation Uncertainty
Measurement and Disclosures Related to Accounting Estimates
The auditor shall obtain sufficient appropriate audit evidence about whether the accounting estimate and their disclosure in the financial statements is appropriate. For accounting estimates that give rise to significant risks, the auditor shall check adequacy of the disclosure /of their estimation uncertainty in the financial statements.
The auditor shall review the judgments and decisions made by Indicators of management. Possible Management Bias
Written Representations
The auditor shall obtain written representations from management whether management believes significant assumptions used by it in making accounting estimates are reasonable. The audit documentation shall include:
Documentation
The basis for the auditors conclusions about the reasonableness of accounting estimates and their disclosure that give rise to significant risks; and Indicators of possible management bias, if
SA 55O - Related Parties
Meaning
Related Parties
Same as per that given in Accounting Standard (AS) 18 Related Party Disclosures.
Management Responsibility
1. Identification; and 2. Disclosure of Related Parties; and Transactions with such parties.
Basic understanding
Auditors Duty
1. To perform audit procedures to obtain sufficient and appropriate audit evidence as to whether management property identilS and disclose related parties and transactions with such parties However, audit cant be expected to detect all related party transactions. 2. He should have knowledge of entitys business and industry.
Review of information provided by management

He should review information by the management and consider its completeness by performing procedures as follows: Review his working papers for the prior years for names of known related parties; Review the entitys procedures for identification of related parties; Inquire as to the affiliation of directors and key management personnel; Review shareholder records or obtain -a list of principal shareholders from the share register, Review memorandum and articles of association, minutes of the meetings of shareholders and the board of directors and statutory records; Inquire of other auditors of the entity as to their knowledge of
( Word to PDF Converter - Unregistered ) http://www.Word-to-PDF-Converter.net additional related parties and review the report of the predecessor auditors; Review the joint venture.
Disclosure in financial statements

When disclosure of related party relationships is required , auditor should satisfy & himself regarding adequacy of disclosure.
Internal control
He should consider whether control procedures are adequate w.r.t. authorization, and recording of related party transaction.
Unusual transaction
He needs to be alert for transactions appearing unusual and thus indicating that same related parties exist which were not specifically identified by management. For example Transactions with unusual price and repayment terms. High volume transactions with certain parties as compared with others, etc.
Evidences
1. He should obtain sufficient appropriate evidence as to whether these transactions have been properly Recorded; and Disclosed. 2. Due to nature of related party relationships, evidences of such transactions may be limited. He should Confirm terms and amount of transaction with related party and Obtain confirmation from persons associated with the transaction like banks, agents, etc.
( Word to PDF Converter - Unregistered ) http://www.Word-to-PDF-Converter.net Auditor should obtain MRL regarding 1. Completeness of information identification of related parties; and provided regarding
2. Adequacy of related party disclosures in financial statements 1. If he is unable to obtain sufficient and appropriate evidences regarding related parties and transactions with such parties, express.
Audit Conclusion and Reporting
A qualified opinion, or Disclaimer of opinion. 2. If he concludes that their disclosure is the financial statements is not adequate, then express a qualified opinion.
Standard on Auditing (SA) 550 (Revised) Related Parties (on or After April 1,2010)
This Standard on Auditing (SA) deals with the auditors responsibilities regarding related party relationships and transactions when performing an audit of financial statements. Specifically, it expands on how SA 315, SA 330 and SA 240 are to be applied in relation to risks of material misstatement associated with related party relationships and transactions. Many related party transactions are in the normal course of business. In such circumstances, they may carry no higher risk of material misstatement of the financial statements than similar transactions with unrelated parties. However, the nature of related party relationships and transactions may. n some circumstances, give rise to higher risks of material misstatement of the financial statements than transactions with unrelated parties. For exampleRelated party transactions may not be conducted under normal market terms and conditions; for example, some related party transactions may be conducted with no exchange of consideration. Planning and performing the audit with professional skepticism is therefore particularly important in this context given the potential for undisclosed related party relationships and transactions. The requirements in this SA are designed to assist the auditor in identify and assessing the risks of material misstatement associated with related party relationships and transactions, and in designing audit procedures to respond to the assessed risks
Scope of This SA
Nature of Related Party Relationships and Transactions
Effective Date
This SA is effective for audits of financial statements for periods beginning on or after April 1, 2010 The objectives of the auditor are:
Objective
(a) Irrespective of whether the application financial reporting framework establishes related party requirements, to obtain an understanding of related party relationships and transactions sufficient to be able: (i) To recognize fraud risk factors, if any, arising from related party relationships and transactions that are relevant to the identification and assessment of the risks of material misstatement due to fraud; and (ii) To conclude whether the financial statements, insofar as they are affected by-those relationships and transactions: Achieve a true and fair presentation; or Are not misleading; and (b) In addition, where the applicable financial reporting framework establishes related party requirements, to obtain sufficient appropriate audit evidence about whether related party relationships and transactions have been appropriately identified, accounted for and disclosed in the financial statements in accordance with the framework. For purposes of the SAs, the following terms have the meanings attributed below: (a) Arms length transaction A transaction conducted on such terms and conditions as between a willing buyer and a willing seller who are unrelated and are acting independently of each other and pursuing their own best interests. (b) Related party A party that is either: (i) A related party as defined in the applicable financial reporting framework; or (ii) Where the applicable financial reporting framework establishes minimal or no related party requirements: a. A person or other entity that has control or significant influence, directly or indirectly through one or more intermediaries, over the reporting entity; b. Another entity over which the reporting entity has control or
Definitions
( Word to PDF Converter - Unregistered ) http://www.Word-to-PDF-Converter.net significant influence, directly or indirectly through one or more intermediaries; or c. Another entity that is under common control with the reporting entity through having: I. Common controlling ownership; II. Owners who are close family members; or III. Common key management. However, entities that are under common control by a state (i.e., a national, regional or local government) are not considered related unless they engage in significant transactions or share resources to a significant extent with one another.
Understanding the Entitys Related Party Relationships and Transactions

The auditor shall inquire of management regarding: a) The identity of the entitys related parties, including changes from the prior period; b) The nature of the relationships between the entity and these related parties; and c) Whether the entity entered into any transactions with these related parties during the period and, if so, the type and purpose of the transactions. The auditor shall inquire of management and others within the entity, and perform other risk assessment procedures considered appropriate, to obtain an understanding of the controls, if any, that management has established to: Identify &, account for, and disclose related party relationships and transactions in accordance with the applicable financial reporting framework; Authorize and approve significant transactions and arrangements with related parties; and Authorize and approve significant transactions and arrangements outside the normal course of business.
Maintaining Alertness for Related Party Information whom Reviewing Records or Documents
( Word to PDF Converter - Unregistered ) http://www.Word-to-PDF-Converter.net During the audit, the auditor shall remain alert, when inspecting records or documents, for arrangements or other information that may indicate the existence of related party relationships or transactions that management has not previously identified or disclosed to the auditor. If the auditor identifies significant transactions outside the entitys normal course of business the auditor shall inquire of management about: a) The nature of these transactions; and b) Whether related parties could be involved.
Sharing Related Party Information with the Engagement Team

The auditor shall share relevant information obtained about the entitys related parties with the other members of the engagement team.
Identification & Assessment of the Risks of Material Misstatement Associated with Related Party Relationships and Transactions
The auditor shall identify & and assess the risks of material misstatement associated with related party relationships and transactions and determine whether any of those risks are significant risks. If the auditor identifies fraud risk factors the auditor shall consider such information when identify and assessing the risks of material misstatement due to fraud in accordance with SA 240.
Responses to the Risks of Material Misstatement Associated with Related Party Relationships and Transactions
Identification of Unidentified or Undisclosed Related Parties or Significant Related Party Transactions

If the auditor identifies related parties or significant related party transactions that management has not previously identified or disclosed to the auditor, the auditor shall: a) Promptly communicate the relevant information to the other members of the engagement team; b) Where the applicable financial reporting framework establishes related party requirements: 1) Request management to identify all transactions with the newly identified related parties for the auditors further evaluation; and 2) Inquire as to why the entitys controls over related party
( Word to PDF Converter - Unregistered ) http://www.Word-to-PDF-Converter.net relationships and transactions failed to enable the identification or disclosure of the related. party relationships or transactions; c) Perform appropriate substantive audit procedures relating to such newly identified related parties or significant related party transactions; d) Reconsider the risk that other related parties or significant related party transactions may exist that management has not previously identified or disclosed to the auditor. and perform additional audit procedures as necessary; and e) If the non-disclosure by management appears intentional evaluate the implications for the audit.
Identified Sign Related Party Transactions outside the Entitys Normal Course of Business
For identified significant related party transactions outside the entitys normal course of business, the auditor shall: a) Inspect the underlying contracts or agreements, if any, and evaluate whether: The business rationale (or lack thereof) of the transactions suggests that they may have been entered into to engage in fraudulent financial reporting or to conceal misappropriation of assets; The terms of the transactions are consistent with managements explanations; and The transactions have been appropriately accounted for and disclosed in accordance with the applicable financial reporting framework; and b) Obtain audit evidence that the transactions have been appropriately authorized and approved.
Assertions That Related Party Transactions Were Conducted on Terms Equivalent to Those Prevailing in on Anns Length Transaction
When management has made an assertion in the financial statements to the effect that a related party transaction was conducted on terms
( Word to PDF Converter - Unregistered ) http://www.Word-to-PDF-Converter.net equivalent to those prevailing in an arms length transaction, the auditor shall obtain sufficient appropriate audit evidence about the assertion. In forming an opinion on the financial statements the and hoc shall evaluate: a) Whether the identified related party relationships and transactions have been appropriately accounted for and disclosed in accordance with the applicable financial reporting framework; and b) Whether the effects of the related party relationships and transactions: (i) Prevent the financial statements from achieving true and fair presentation; or (ii) Cause the financial statements to be misleading. Where the applicable financial reporting framework establishes related party requirements, the auditor shall obtain written representations from management and, where appropriate, those charged with governance that: They have disclosed to the auditor the identity of the entitys related parties and all the related party relationships and transactions of which they are aware; and They have appropriately accounted for and disclosed such relationships and transactions in accordance with the requirements of the framework.
Evaluation of the Accounting for and Disclosure of Identified Related Party Relationships and Transactions
Written Representations
Communication with Those Charged with Governance
Unless all of those charged with governance are involved in managing the entity, the auditor shall communicate with those charged with governance significant matters arising during the audit in connection with the entitys related parties. In meeting the documentation requirements of SA 230 and other SAs, the auditor shall include in the audit documentation the names of the identified related arties and the nature of the related party relationships.
Documentation
SA 560 (Revised) Subsequent Events (w.e.f. 1st April, 2009)
a) Date of the financial statements The date of the end of the
Definitions
latest period covered by the financial statements.
b) Date of approval of the financial statements The date on

which the financial statements have been prepared and those with the recognized authority have asserted that they have taken responsibility for those financial statements.
c) Date of the auditors report The date the auditor dates the
report on the financial statements.
d) Date the financial statements are issued The dale that the
auditors report and audited financial statements are made available to third parties.
e) Subsequent events Events occurring between the date of the

financial statements and the date of the auditors report, and facts that become known to the auditor after the date of the auditors report. The auditor shall obtain sufficient appropriate audit evidence that all events occurring between the date of the financial statements and the date of the auditors report that require adjustment of, or disclosure in, the financial statements have been identified. The auditor shall: a) Obtain an understanding of any pr management has established to ensure that subsequent events are identified. b) Inquiring of management and TCWG. c) Read minutes, if any, of the meetings, of the entitys owners, management and those charged with governance, that have been held after the date of the financial statements. d) Read the entitys latest subsequent interim financial statements, if any. If auditor identifies events that require adjustment of, or disclosure in, the financial statements, the auditor shall determine whether each such event is appropriately reflected in those financial statements. The auditor shall request the mgt. to provide NIRL that all events occurring subsequent to the date of the financial statements and for
Events Occurring Between the Date of the Financial Statements and the Date of the Auditors Report
Written Representations Facts which Become Known to the Auditor After the Date to the Auditors Report but Before the Date the Financial Statements are Issued
which the applicable financial reporting framework requires adjustment or disclosure have been adjusted or disclosed. The auditor has no obligation to perform any audit procedures regarding the financial statements after the date of the auditors report. However, when, after the date of the auditors report but before the date the financial statements are issued, a fact becomes known to the auditor that, had it been known to the auditor at the date of the auditors report, may have caused the auditor to amend the auditors report, the auditor shall: a) Discuss the matter with management and TCWO b) Determine whether the financial statements need amendment and, if so, c) Inquire how management intends to address the matter in the financial statements. If management amends the financial statements, the auditor shall: a) Extend the audit procedures referred to the date of the new auditors report; and b) Provide a new auditors report on the amended financial statements. When law, regulation or the financial, reporting framework does not prohibit management from restricting the amendment of the financial statements to the effects of the subsequent events ,the auditor is permitted to restrict the audit procedures on subsequent events to that amendment. In such cases, the auditor shall either: a) Amend the auditors report to include an additional date restricted to that amendment, or b) Provide a new or amended auditors report that includes a statement in an Emphasis of Matter paragraph or Other Matter(s) paragraph that conveys that auditors procedures on subsequent events are restricted solely to the amendment of the financial statements as described in the relevant note to the financial statements. In some entities, management may not be required by the applicable law, regulation or the financial reporting framework to issue amended financial statements and, accordingly, the auditor need not provide an amended or new auditors report. However, when management does not amend the financial
( Word to PDF Converter - Unregistered ) http://www.Word-to-PDF-Converter.net statements in circumstances where the auditor believes they need to be amended, then a) If the auditors report has not yet been provided to the entity, the auditor shall modify the opinion; or b) If the auditors report has already been provided to the entity, the auditor shall notify management and TCWG, not to issue the financial statements to third parties before the necessary amendments have been made. If the financial statements are nevertheless subsequently issued without the necessary amendments, the auditor shall take appropriate action, to seek to prevent reliance on the auditors report.
Facts Which Become Known to the Auditor After the Financial Statements have been Issued
After the financial statements have been issued, the auditor has no obligation to any audit procedures regarding such financial statements. However, when, after the financial statements have been issued, a fact becomes known to the auditor that, had it been known to the auditor at the date of the auditors report, may have caused the auditor to amend the auditors report, the auditor shall: a) Discuss the mailer with management and TCWG. b) Determine whether the financial statements need amendment and, if so, c) Inquire how management intends to address the mailer in the financial statements. If the management amends the financial statements, the auditor shall: a) Carry out the audit procedures necessary in the circumstances on the amendment. b) Review the steps taken by management to ensure that anyone in receipt of the previously issued financial statements together with the auditors report thereon is informed of the situation. If management do not take the necessary steps to ensure that anyone in receipt of the previously issued financial statements is informed of the situation, the auditor will seek to prevent future reliance on the auditors report.
SA 570 (Revised) Going Concern (w.e.f. 1st April 2009)
Under the going concern assumption, an entity is viewed as continuing in business for the foreseeable future.
Going Concern Assumption
General purpose financial statements are prepared on a going concern basis, unless management either intends to liquidate the entity or to cease operations. When the use of the going concern assumption is appropriate, assets and liabilities are recorded on the basis that the entity will be able to realize its assets and discharge its liabilities in the normal course of business.
Responsibilities of Management
In case the financial statements have not been prepared on a going concern basis, the fact would need to be appropriately disclosed. The detailed requirements regarding managements responsibility may also be set out in law or regulation. It is managements responsibility to assess the entitys ability to continue as a going concern even if the financial reporting framework does not include an explicit requirement to do so. Any judgment about the future is based on information available at the time at, which the judgment is made. However, Subsequent events may result in outcomes that are inconsistent with that were reasonable at the time the made. The auditors responsibility is to obtain sufficient appropriate audit evidence about the appropriateness of managements use of the going concern assumption. He shall consider whether there is a material uncertainty bout the entitys ability to continue as a going concern. The absence of any reference to going concern uncertainty in an auditors report cannot be viewed as a guarantee as to the entitys ability to continue as a going concern (SA 200A). The auditor shall consider whether there are events or conditions that may east significant doubt on the entitys ability to continue as a going concern. In so doing, the auditor shall determine whether management has already performed a preliminary assessment of The entitys ability to continue as a going concern(discuss with management) The auditor shall remain alert throughout the audit for audit evidence of events or conditions that may cast significant doubt on the entitys ability to continue as a going concern. There may be following types of indicators:
Responsibilities of The Auditor
Financial indicators
Negative Net worth/working capital; Arrears / discontinuance of Dividends; Adverse financial ratio; Substantial operating losses; Borrowings approaching renewal/repayment; maturity without any chance of
Short term borrowing for long term asset financing; No payment to creditors on due date. Non compliance with terms in loan agreement; Negative cash flow from operations; Rearrangement with creditors for reduction in liability; or Change from creditors to cash on delivery transaction with supplier.
Operating indicators
Loss of key management and no replacement available; Loss of major market or supplier; Labour unrest, strikes etc; or Loss of major license, franchise, etc.
Other indicators
Pending legal proceedings; Change in Govt. Policy affecting the entity adversely; or Non- compliance with Statutory requirements However, such indications may be mitigated by some positive factors. For example loss of some major supplier may be compensated by availability of some alternate source of supply.
Evaluating Managements Assessment
In evaluating managements assessment of the entitys ability to continue as a going concern, the auditor shall cover the same period as that used by management. In evaluating managements assessment, the auditor shall consider
( Word to PDF Converter - Unregistered ) http://www.Word-to-PDF-Converter.net whether management has considered all relevant information f which the auditor is aware. When events or conditions have been identified that may cast significant doubt on the entitys ability to continue as a going concern, the auditor shall perform procedures as follows: Request management to make its assessment of the entitys ability to continue as a going concern. Evaluating managements plans for future actions. When the entity has prepared a cash flow forecast, then consider its reliability. Considering whether any additional facts or information have become available since the date on which management made its assessment. Requesting written representations from management or those charged with governance, regarding their plans for future action and the feasibility of these plans. Auditor shall conclude whether a material uncertainty exists related to events or conditions that, individually or collectively; m cast significant doubt on the entitys ability to continue as a going concern. A material uncertainty exists when the magnitude of its potential impact and likelihood of occurrence is such that, in the auditors judgment, appropriate disclosure c the nature and implications of the uncertainty is necessary. Communication with those charged with governance shall include the following:
Additional Audit Procedures When Events or Conditions Are Identified
Audit Conclusions and Reporting
Communication with Those Charged with Governance Delay in the Approval of Financial Statements
Whether the events or conditions constitute a material uncertainty; Whether the use of the going concern assumption is appropriate in the preparation and presentation of the financial statements; and The adequacy of related disclosures in the financial statements. When the auditor believes that the delay in the approval of the financial statements could be related t events or conditions relating to the going concern assessment, the auditor shall perform additional audit procedures necessary.
SA 600 - Using The Work Of Another Auditor

Component
Meaning
Any branch, division, subsidiary, joint venture or associates, etc., whose financial information is used in the financial statements of client.
Principal Auditor
Auditor of client.
Another Auditor
Auditor of corn of client.
Applicability
This standard is applicable to material components, w.r.t. financial statements as a whole. Not applicable to Joint Auditors Predecessor Auditors 1. Principal auditor is entitled to rely upon another auditor, provided he exercised due skill and care and there is nothing to doubt.
Consideration By Principal Auditor
2. Principal auditor should advise another auditor regarding Use to be made of his report. Areas requiring special consideration. Time table for completion of audit. Significant accounting auditing and reporting requirement. 3. Principal auditor should ask another auditor regarding any limitation on his work. 4. Auditor should consider his findings. He may discuss them with him and branch officials. 5. Principal auditor may require another auditor to submit questionnaire w.r.t. work performed by him. 6. Principal auditor may require supplement tests to be performed by:
( Word to PDF Converter - Unregistered ) http://www.Word-to-PDF-Converter.net another auditor; or himself 7. In ease of foreign component, he should consider another auditors qualification and experience. 8. If there is modification in another auditors report then, Principal auditor should consider whether modification in his report is required.
Co-ordination Documentation by Principal Auditor
Another auditor should also share important information with principal auditor and properly co-ordinate with him. Components audited by another auditor; Audit procedures adopted and evidence obtained; Conclusion that particular component is not material; Manner of dealing with modification in another auditors report, Principal auditor should Qualify I Disclaim his audit report if he Cant use another auditors work & procedures: Cant be able to perform sufficient additional procedures. There should be statement of division of responsibility in Principal Auditors Audit report by showing extent to which financial statement of component audited by another auditor has bee included in financial statement of entity.
Reporting By Principal Auditor
SA 620 - Using The Work Of An Expert

Meaning
Expert
Expert is a person possessing special skill knowledge and experience in a particular field other than accounting and auditing.
By whom
He may be
Engaged by auditor or Engaged by client
Objectivity of Expert
Expert may not be completely objective, if expert is employed by the client or otherwise related to the client. Auditor should consider experts skill and competence by considering his
Skill and Competence
Professional qualification; Experience; and Reputation. Auditor alone is responsible for his own report (opinion). However, he is entitled to rely on expert if He exercised due skill and care; and There is nothing to doubt. For this, he should consider Source data used by expert; Assumptions and methods of expert; and Results of expert in light of his knowledge of business. If Work of expert is inconsistent with related representation Try to resolve inconsistency (Auditor should adopt additional procedure/he may engage another expert) Inconsistency removed Still inconsistent Unable to decide Unqualified / Clean Qualified / Adverse Qualified / Disclaimer
Evaluating work of Expert
Reference to Expert in Audit Report
Auditors Report Unqualified No reference as to expert work Otherwise (Auditor may need to refer experts work while giving reasons) But reference of experts name can be given only after obtaining prior
( Word to PDF Converter - Unregistered ) http://www.Word-to-PDF-Converter.net consent of expert.
SA 620 (Revised) Using The Work of An Auditors Expert (on or After April 1, 2010)
Meaning
Auditors expert
An individual / organization Possessing expertise in a field Other than accounting or auditing Whose work is used by auditor In obtaining evidence He may be auditors internal expert or external expert
Management expert
Whose work is used by Entity In preparing the financial statements.
SA Not Applicable When Auditors Responsibility
Engagement team indicates a member with expertise in specialized area of accounting or auditing, or Auditors use of managements expert. Auditor has sole responsibility of his audit opinion. His responsibility is not reduced by using auditors expert. However, he may accept the work of auditors expert as evidence if he concludes that auditors expert is adequate.
Objectives of Auditor Need For Auditors Expert
To determine whether a) To use the work of auditors expert. b) That work is adequate for his purpose a) He shall consider whether it is necessary to use the work of auditors expert. b) For example it may be required to understand the entity operating in a complex environment.
( Word to PDF Converter - Unregistered ) http://www.Word-to-PDF-Converter.net In case, auditors considers that using the work of auditors expert is Auditors Procedures w.r.t. necessary, he shall determine whether the work of that expert is adequate by considering the followingDetermining (A)Competence, capability & objectivity of Auditors Expert Adequacy or Work 1. He shall evaluate whether expert is having necessary skills & of Auditors objectivity. Expert 2. He should inquire regarding experts objectivity also. 3. He should be aware of the relationships that may hamper experts independence.
(B)Understanding the field of expertise of Auditors Expert

1. He should understand the field of expertise of that expert through discussion with him. 2. This understanding will help the auditor in evaluating the adequacy of work of auditors expert.
(C)Agreement with Auditors Expert

1. Auditor shall agree with auditors expert in writing on following matters Nature, scope & objectives of that experts work The role & responsibilities of auditor & that expert Timing etc. of communication (including report to be provided by expert) between the auditor & that expert. Need for auditors expert to observe confidentiality.
(D)
Evaluating Adequacy of Auditors Experts Work

Reasonableness of experts findings, Consistency of findings of that expert with other evidences, Reasonableness of assumption used by expert, Reasonableness & accuracy of source data used by expert.
1. By considering
2. If auditor determines that work of expert is not adequate, he shall perform further procedures.
NTE of Audit
1. While performing procedures [(a) to (d) as above], he should consider the risk of misstatement & significance of experts work to
Procedures
the audit etc. 2. If the matter is highly sensitive, he should extend his procedures as above.
Reference to Auditors Expert in Auditors Report
In case of unmodified opinion

1. Auditor shall not refer to work of auditors expert in the report containing unmodified opinion unless required by law/regulations to do so. 2. If required by law/regulations, he shall indicate in auditors report that such reference does not reduce auditors responsibility for the audit opinion.
In case of modify opinion

1. He shall refer to work of auditors expert if such reference is necessary for understanding the nature of modification. 2. He shall indicate that such reference does not reduce auditors responsibility for the audit opinion.
SA 710 Comparatives
Corresponding figures
Comparatives: Way To Disclose In Financial Statements
Amount and other disclosures for preceding period are included as part of Current year Financial Statements (Applicable in India and thus, covered by this standard)
Comparative financial statements

Amount and other disclosures for preceding period are included for comparison but not form part of Current year financial statement. (Not applicable in India and thus, not covered by this standard) To obtain sufficient & appropriate evidences that corresponding figures meet requirement of relevant financial reporting framework
Auditors Responsibility
However, extent of audit procedure is less for corresponding figures as compared to current period figure. He should assess whether Accounting Policies used for corresponding figures are consistent with those of Current year figures (or whether appropriate adjustments I disclosure made)
( Word to PDF Converter - Unregistered ) http://www.Word-to-PDF-Converter.net Corresponding figures agree with amount and disclosure in prior period (or whether appropriate adjustments / disclosure made) He should also take care of (SA-510).
Reporting
Auditor Report (opinion) is on current period financial statements as a whole, including corresponding figures.
SA 720 The Auditors Responsibility In Relation To Other Information In Documents Containing Audited Financial Statements (on or After April 1, 2010)
Scope of This SA
In this SA documents containing audited financial statements refers to annual reports (or similar documents), that are issued to owners (or similar stakeholders), containing audited financial statements and the auditors report thereon. This SA may also be applied, adapted as necessary in the circumstances, to other documents containing audited financial statements. This SA is effective for audits of financial statements for periods beginning on or after April 1,2010. The objective of the auditor is to respond appropriately when documents containing audited financial statements and the auditor report thereon include other information that could undermine the credibility of those financial statements and the auditors report. Other information Financial and non-financial information (other than the financial statements and the auditors report thereon) which is included, either by law, regulation or custom, in a document
Effective Date Objective
Definitions
( Word to PDF Converter - Unregistered ) http://www.Word-to-PDF-Converter.net containing audited financial statements and the auditors report thereon. Inconsistency Other information that contradicts information contained in the audited financial statements. Misstatement of fact Other information that is unrelated to matters appearing in the audited financial statements that is incorrectly stated or presented. A material misstatement of fact may undermine the credibility of the document containing audited financial statements. The auditor shall read the other information to identify material inconsistencies, if any, with the audited financial statements. The auditor shall make appropriate arrangements with management or those charged with governance to obtain the other information prior to the date of the auditors report. If, on reading the other information, the auditor identifies a material inconsistency, the auditor shall determine whether the audited financial statements or the other information needs to be revised.
Reading Other Information
Material Inconsistencies
When revision of the audited financial statements is necessary and Material management refuses to make the revision, the auditor shall modify Inconsistencies the opinion. identified in Other When revision of the other information is necessary and management Information refuses to make the revision, the auditor shall communicate this matter to those charged with governance; and Obtained Prior too the Date of the (a) Include in the auditors report an Other Matter(s) paragraph describing the material inconsistency. Auditors Report (b) Where withdrawal is legally permitted, withdraw from the engagement.
Material Inconsistencies Identified in Other Information Obtained Subsequent to the Date of the
When revision of the audited financial statements is necessary, the auditor shall follow the relevant requirement in SA 560 (Revised). When revision of the other information is necessary and management agrees to make the revision, the auditor shall carry out the procedures necessary under the circumstances. When revision of the other information is necessary, but management refuses to make the revision, the auditor shall notify those charged with governance of the auditors concern regarding the other
Auditors Report
information and take any further appropriate action. If, on reading the other information for the purpose of identifying material inconsistencies, the auditor becomes aware of an apparent material misstatement of fact, the auditor shall discuss the matter with management. When, following such discussions, the auditor still considers that there is an apparent material misstatement of fact, the auditor shall request management to consult with a qualified third party, such as the entitys legal counsel, and the auditor shall consider the advice received. When the auditor concludes that there is a material misstatement of fact in the other information which management refuses to correct, the auditor shall notify those charged with governance of the auditors concern regarding the other information and take any further appropriate action.
Material Misstatements of Fact
SRS 4400 Engagement To Perform Agreed Upon Procedure Regarding Financial Information
Objective
For auditor To carry out procedure of audit nature, to which the auditor and the entity and any appropriate third parties have agreed and To report on factual finding thereon.
Who can use Principles of agreed upon procedure
Report is generally restricted to those parties that have agreed to the procedures to be performed. Auditor should comply with Code of Ethics issued by ICAI Compulsory 1. Integrity 2. Objectivity 3. Professional competence and due care; 4. Confidentiality 5. Professional conduct; and 6. Technical standard
( Word to PDF Converter - Unregistered ) http://www.Word-to-PDF-Converter.net Optional Independence But if hes not independent, he should refer it in his report
Defining terms There should be clear understanding regarding the agreed procedures.
1. 2. 3. 4. 5.
Nature of the engagement Purpose Identification of the financial information Nature, timing and extent of the specific procedures Limitation on distribution of the report of factual findings. If such limitation would be in conflict with the legal requirements, the auditor would not accept the engagement.
Planning
By auditor for performing effective engagement
Documentation Of important matters to support the report of factual findings. Procedures & Evidence Reporting
Auditor should carry out necessary procedures (including computation. Comparison, observation, inspection and obtaining confirmations) to use evidence obtained there from as basis for report of factual findings. The report of factual findings should contain : 1. Title 2. Addressee 3. Identification of specific financial or non financial information to which the agreed upon procedures have been applied 4. A statement that the procedures performed were those agreed upon with the recipient. 5. A statement that the engagement was performed in accordance with this standard and terms of engagement. 6. Identification of the purpose. 7. A listing of the specific procedures performed 8. A description of the auditors factual findings including sufficient details of errors and exceptions found 9. A statement that the procedures performed does not constitute either an audit or a review and, as such, no assurance is expressed. 10. A statement that the report is restricted to those parties that have agreed to the procedures to be performed. 11. A statement (when applicable) that the report relates only to the elements specified and that it does not extend to the entitys financial statements taken as a whole 12. Date of the report
( Word to PDF Converter - Unregistered ) http://www.Word-to-PDF-Converter.net 13. Place of signature 14. Auditors signature Report should be signed by the auditor in his personal name. where the firm is appointed, the report should be signed in the personal name of the auditor and in the name of the firm. Also mention the membership number.
SRS 4410 Engagements To Compile Financial Information

Objective of Compilation Engagement
To collect classify and summaries financial information By using accounting expertise
Principles of a Compulsory Integrity Compilation Objectivity; Engagement
Professional competence and due care; Confidentiality Professional conduct; and Technical standard Ensuring correctness, completeness and reliability of financial information generated in the entity. Maintaining Accounting Records and Internal Controls Selecting and applying appropriate accounting policies. Establishing controls for safeguard the assets and detecting frauds. Ensuring compliance with laws and regulation Complete disclosure of all material and relevant information to the accountant.
Managements Responsibility
Defining terms of engagement Accountant should send an engagement letter listing the key terms of
appointments to avoid misunderstanding. It includes. 1. Nature of the engagement. 2. Fact that engagement cant be relied upon to disclose fraud, etc. but if accountant comes across any such manner, hell tell management about same
( Word to PDF Converter - Unregistered ) http://www.Word-to-PDF-Converter.net 3. Nature of information to be supplied by client 4. Fact that management is responsible for Complete disclosure of all material and relevant information to the accountant Ensuring correctness, completeness and reliability of financial information generated in the entity. Maintaining Accounting Records and Internal Controls Selecting and applying appropriate accounting policies Establishing controls for safeguarding the assets and detecting frauds. Ensuring compliance with laws and regulation. 5. Intended use and distribution of information 6. Basis of accounting 7. Unrestricted access to documents records, etc. 8. Basis for fee computation and billing arrangements. 9. Fact that management is responsible to users for complied information. 10. Request for client to confirm the terms of engagement by acknowledging receipt of engagement letter
Planning
Accountant should plan the work for effective performance of work per this standard and terms of engagement.
Documentation Important matters to provide evidence that engagement was performed as
Procedures and Evidences
a. General Procedures The accountant should Obtain the general knowledge of business and operations of the entity Be familiar with Accounting principles and practices of industry in which entity operates Understand form and content of financial statement / information which is appropriate in the circumstances. Request management representation letter on significant matters Read compiled information to consider whether it appears to beAppropriate in form and Free from obvious misstatement
( Word to PDF Converter - Unregistered ) http://www.Word-to-PDF-Converter.net b. Procedures in exceptional circumstances If information by management is expected to be Incorrect Incomplete, or Unsatisfactory Then accountant should Make enquiries of management Assess internal controls, or Verify any matters and explanations. Request management to provide additional information If management refuse to provide additional information Accountant should withdraw from engagement informing entity of the reasons for the withdrawal
Special Consideration
1.
For Clients having
Identified financial Reporting Framework If material departure from requirements of same (i) (ii) Notes to A/c + Accountants report on compilation
No Identified financial Reporting Framework Different basis of compilation be set out in (i) (ii) Notes to A/c + Accountants report on compilation
( Word to PDF Converter - Unregistered ) http://www.Word-to-PDF-Converter.net 2. Non Compliance with applicable Accounting Standard Accountant should bring this to managements attention If not rectified by management Notes to accounts + Accountants report 3. If it appears to accountant that some estimate is unreasonable, he should draw managements attention towards this. 4. If he becomes aware of material misstatements Accountant should persuade management to amend the financial information If management doesnt make them and thus Financial information is still misleading Accountant should withdraw from the engagement 5. Financial information compiled should be approved by client before signing the compilation report by accountant. The word audit should not be used anywhere. He shouldnt prepare financial statements etc. on his letter head as it may mislead the user.
Reporting : Layout
1. Title Title of the report should be Accountants Report on Compilation of Un-audited Financial Statements 2. Addresses addressed to the appointing authority 3. Identification of the financial information also nothing that it is based on the information provided by the management. 4. When relevant, a statement that the accountant is not independent of the entity. 5. A statement that the management is responsible for : Completeness and accuracy of the underlying data and complete disclosure of all material and relevant information to the accountant; Maintaining adequate accounting and other records and internal controls and selecting and applying appropriate accounting
( Word to PDF Converter - Unregistered ) http://www.Word-to-PDF-Converter.net policies Preparation and presentation of financial statements or other financial information in accordance with the applicable laws and regulation, if any; Establishing controls to safeguard the assets of the entity and preventing and detecting frauds or other irregularities. Establishing controls for ensuring that the activities of the entity are carried out in accordance with the applicable laws and regulations and preventing and detecting any non compliance. 6. A statement that the engagement was performed in accordance with this standard; 7. A statement that neither an audit nor a review has been carried out and that accordingly no assurance is expressed on then financial information; 8. A paragraph, when considered necessary, drawing attention to the disclosure of material departures from the identified financial reporting framework; 9. Date of report 10. Place 11. Accountants signature: The report on compilation of financial information should be signed by the accountant in his personal name and in the name of the firm. Also mention the membership number. 12. Financial statements compiled by then accountant should contain a reference such as Unaudited, Compiled without Audit or Review and also Refer to compilation Report on each page or on the front of financial statements.
SRE 2400 Engagements To Review Financial Statements

Objectives
To enable the auditor to state Whether on the basis of less extensive procedures (than required in
( Word to PDF Converter - Unregistered ) http://www.Word-to-PDF-Converter.net audit); Anything has come to auditors attention That causes him to believe that financial statements are not prepared as per appropriate financial reporting framework.
Principles
Auditor should comply with code of ethics issued by ICAI i.e. Independence Integrity Objectivity Professional competence and due care Confidentiality Professional conduct, and Technical standards. Primarily through inquiry and analytical Review Procedures.
How to obtain Evidence Scope of Review
Decided by (i) Requirements of this standard (ii) Relevant legislation and regulations & (iii) Terms of Review engagement Level of Assurance in Review is lesser than assurance given in audit (Due to limited procedures) Auditor and client should agree on terms of review engagement to avoid any misunderstanding. Engagement terms should contain Objective of the service Managements responsibility for the financial statements Scope of the review, including reference to this standard Unrestricted access to whatever records, documentation and other information The fact that the engagement cannot be relied upon to disclose errors, violation of laws or other irregularities. Statement that an audit is not being performed and that an audit opinion will not be expressed By auditor for effective performance of review engagement He should obtain/update the knowledge of the business. Auditor should be satisfied that it is adequate for his purpose.
Moderate Assurance Terms of Engagement
Planning Work performed by others
Documentation Of important evidences to support review report and compliance with this
standard.
Procedures & Evidences
Professional judgment to determine nature, timing and extent of review procedures He should apply materiality considerations. It primarily includes inquiry and ARP Auditor should inquire about events subsequent to B/S date, affecting financial statements If he does doubt about material misstatement, then apply extensive procedures. There should be clear written expression of negative assurance 1. Title 2. Addressee 3. Opening or introductory paragraph including Identification of the financial statement on which the review had been performed; and A statement of the responsibility of the entitys management and the responsibility of the auditor. 4. Scope paragraph, including A reference to this standard & to relevantly laws or regulations A statement that a review is limited primarily to inquires and analytical procedures. A statement that An audit has not been performed The procedures undertaken provide less assurance than an audit An audit opinion is not expressed 5. Statement of negative assurance 6. Date of the Report 7. Place 8. Auditors signature and membership number Sign the review report as of the date review is completed Date of review report by auditor should not be earlier than date of signing / approval by management If no justification for changing the terms Auditor shouldnt agree to change
Conclusion & Reporting
Date of Report
Changing Terms of Engagement
( Word to PDF Converter - Unregistered ) http://www.Word-to-PDF-Converter.net If not permitted to continue the original engagement Then withdraw and consider whether any obligation to report theses circumstances to other parties (BOD or Shareholders)
Negative Assurance
1. State that Nothing has come to auditors attention based on review That causes him to believe That financial statements do not give a true and fair view (or not presented) In accordance with appropriate framework 2. If matters come to auditors attention that impair true and fair view, then describe those matters with qualification on financial statement and either Express qualification of negative assurance, or If effect is so material and pervasive that qualification is not adequate give an adverse statement. 3. If there is material scope limitation, describe the limitation and either Express a qualification of negative assurance, or When possible effect of limitation is so significant dont provide any assurance.
SAE 3400 The Examination Of Prospective Financial Information

Prospective Financial Information
It means financial information based on the assumptions about the events that may occur in future and possible action by management. It is, thus, a subjective concept requiring judgment. It may be of two types. 1. Forecast it is based upon assumptions which management expects to take place.(Best estimate assumptions) 2. Projection it is based on Hypothetical assumptions which are not necessarily expected to take place; or
( Word to PDF Converter - Unregistered ) http://www.Word-to-PDF-Converter.net Mixture of best estimate and hypothetical assumptions.
Managements Management is responsible for preparation of OFI including Identification and disclosure of PFI; Responsibility
The basis of forecast; Underlying assumptions,
Auditors Duty
Auditor may be asked to examine and report on it to enhance its credibility. It relates to events and actions that have not yet occurred and might not occur. Evidence are future oriented and thus speculative. Auditor is not in a position to express opinion as to whether the results shown in prospective financial information will be achieved. He can provide only moderate assurance (Negative assurance) He should not accept or should withdraw from engagement when assumptions are clearly unrealistic or when he believes that it will be inappropriate for its intended use. Auditor and client should agree on the terms of the engagement. Auditor should obtain knowledge of the business so that can be able to evaluate whether all required assumptions have been identified. He should consider the extent of reliance that can be placed on entitys historical financial information (whether it was audited / reviewed, etc.) information. Assumptions become more speculative if length of period covered, increases.
Acceptance of Engagement
Knowledge of Business
Period Covered Auditor should consider the time period covered by prospective financial
Examination Procedures
While determining NTE of Audit procedures, he should consider Knowledge obtained during any previous engagement Managements competence Likelihood of material misstatement Extent to which PFI is affected by managements judgment Source of information and their reliability Stability of entitys business The experience of engagement team in this connection He should obtain MRL regarding completeness of significant assumptions and intended use of PFI. evidence that he has followed this standard. If report is modifies, he should
MRL
Documentation He should keep proper documentation to support his report and to have
( Word to PDF Converter - Unregistered ) http://www.Word-to-PDF-Converter.net document the reasons also.
Report on Examination of PFI
1. 2. 3. 4. 5. 6.
Title Addressee Identification of PFI Reference to this standard Statement that management is responsible for its preparation When applicable, a reference to the purpose and for restricted distribution of PFI 7. Statement that examination procedure included examination, on a test basis of evidences supporting the assumptions, amounts and other disclosures in PFI. 8. Statement of negative assurance as to whether assumptions provide a reasonable basis for PFI 9. Opinion as to whether PFI is properly prepared on the basis of assumptions and presented as per relevant financial reporting framework 10. Appropriate caveats w.r.t. achievability of results indicated by PFI 11. Date 12. Place 13. signature If presentation and disclosures are not adequate either resign or provide Qualified / Adverse report. If significant assumptions dont provide reasonable basis either resign or adverse report If he cant perform necessary procedures either resign or disclaimer
Considerations

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( Word to PDF Converter - Unregistered ) http://www.Word-to-PDF-Converter.net Veekkas Kapoor 98182-66987 www.caauditclasses.

SA-200 Basic Principles Governing An Audit

Skill & Competence

Work Performed by Others

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Accounting System & Internal Control

Audit Conclusions & Reporting

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SA-200A - Objective & Scope Of The Audit Of Financial Statements

Responsibility For The Financial Statements

1. Inherent limitations of audit (a) What are these? (b) (c)

Limitation On Scope-Effect On Audit Report

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1. Applicable Financial Reporting Framework

4. Premises on which audit is conducted

6. Professional Skepticism An attitude That includes a questioning mind

8. Risk of Material Misstatement

Note It consists of Risk of material misstatements & detection risk

Overall Objectives Of Audit Of Financial Statement Some Basic Points

1. Preparation of Financial Statement

3. Reasonable Assurance w.r.t. Misstatements

4. Inherent Limitations of an Audit

(i) Nature of Financial reporting

(ii) Nature of Audit procedures

(iii) Limitation w.r.t. time & cost

Overall Objectives of The Auditor

Requirements / Responsibilities of the Auditor

It includes being alert to, for example

4. Sufficient & Appropriate Audit Evidence & Audit Risk

(b) Objectives stated in Individual SAs.

(c) Complying with Relevant Requirement

(d) Failure to achieve an objective in relevant SAs.

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SA 500 Audit Evidence (Revised) W.E.F. April 1, 2009

Sufficient Appropriate Audit Evidence

3. Inquiry & Confirmation

Information To Be Used As Audit Evidence

Inconsistency In, Or Doubts Over Reliability Of, Audit Evidence

SA- 520 - Analytical Procedures

Nature of Analytical Procedures

STAGE- 1 In Planning The Audit

STAGE-2 As Substantive Procedures

STAGE-3 In Overall Review At The End Of The Audit

SA 520 (Revised) Analytical Procedures (on or after April 1, 2010)

Nature of Analytical Procedures

Objectives of Auditor w.r.t. Analytical Procedures Substantive Analytical Procedures (SAP)

1. Suitability of particular SAP

2. Reliability of Data to be compared It is influenced by the following:

4. Difference of Recorded amount from expected values that is acceptable

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SA-320 - AUDIT MATERIALITY

Auditor Should Consider Materiality While

Relationship Between Materiality & Audit Risk

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Aggregate uncorrected misstatement

SA 320(Revised) Materiality In Planning And Performing An Audit N Or After April 1, 2010)

Materiality In The Context Of An Audit

This SA is effective for audits of financial statements for periods

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1. Determining Materiality & Performance Materiality when Planning the Audit

Revision as the Audit Progress

SA 580 (Revised) - Written Representations (W.E.F. 1st April, 2009)