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SA 200 "OVERALL OBJECTIVES OF THE INDEPENDENT AUDITOR AND

CONDUCT OF THE AUDIT IN ACCORDANCE WITH SAS

1.1 Overall Objectives of the Auditor

As per SA-200 "Overall Objectives of the Independent Auditor", in conducting an audit of

financial statements, the overall objectives of the auditor are:

a) To obtain reasonable assurance about whether the F. S. as a whole are free from

material misstatement, whether due to fraud or error, thereby enabling the auditor to

express an opinion on whether the F.S. are prepared, in all material respects, in

accordance with an applicable FRF, and

b) To report on the F.S. and communicate as required by the SAs, in accordance with

the auditor’s findings.

In all cases when reasonable assurance cannot be obtained and a qualified opinion in

the auditor’s report is insufficient, the SAs require that the auditor disclaim an opinion

or withdraw from the engagement.

1.2 AUDITOR REQUIREMENT/RESPONSIBILITIES OF THE AUDITOR

risk that the auditor expresses an inappropriate audit opinion

Audit Risk

To obtain reasonable assurance

1. Reasonable Assurance: A high, but not absolute, level of assurance.

2. Sufficient Appropriate Audit Evidence: Sufficiency refers to quantum and Appropriateness refers to quality.

Sufficient Appropriate Audit Evidence

1. Application of relevant training, knowledge and experiencein planning and performing an audit of financial statements

2. exercised throughout the audit

3. important when deciding about:

- Materiality & audit risk.

- NTE of audit procedures.

- Evaluating sufficiency & -appropriateness of audit procedures.

- Evaluating management judgment in applying applicable FRF.

- Drawing conclusions based on audit evidence.

Professional

Judgment

1. Questioning mind,

2. being alert to onditions,may indicate possible misstatement due to error or fraud

3. Reduces risk of

- Overlooking unusual circumstances.

- Over generalising when drawing conclusions from audit observations.

- Using inappropriate assumptions in determining N, T, E of audit procedures

Professional

Skepticism

1. Integrity;

2. Objectivity;

3. Professional competence and due care;

4. Confidentiality; and Professional behaviour.

Ethical Requirements Relating to an Audit of

F.S.

1. Compliance

2. Objectives

3. Complying with relevant Requirements

4. Failure to Achieve an Objective

Some Extra Summary for CA IPCC and INTER – CA Final Students can ignore this part.

SA 210- AGREEING THE TERMS OF AUDIT ENGAGEMENT

•Acknowledgement by management of it's responsibility w.r.t

•preperation of financial statement as per FRF

•I.C so that financial statement should be free from frauds and error

•They will provide auditor with : #access to all information#additional information#unrestricted access to persons if necessary

Preconditions for an Audit

•Audit Engagements letter includes

•Objectives of the Audit

•Scope of Audit

•Responsibility of Mgt. and Auditor

•Identification of FRF

•Reference to expected form & content of reports to be issued by the auditors

•If Laws/Regulation prescribes terms, then no need for separate written terms except that management acknowledge the same.

Audit Engagement Terms

If additional disclosure in financial statements or amendment to standard is possible

Yes, OK No, Modify Audit Report

Additional Consideration

Financial Reporting Standards are in conflict with law, Discuss with management

However, the following factors may make it appropriate to revise the terms of the audit

engagement or to remind the entity of existing terms:

Any indication that the entity misunderstands the objective and scope of the audit.

Any revised or special terms of the audit engagement.

A recent change of senior management.

A significant change in ownership.

A significant change in nature or size of the entity's business.

A change in legal or regulatory requirements.

A change in the financial reporting framework adopted in the preparation of the F.S.

A change in other reporting requirements.

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Aforesaid precondition not present Prior to acceptance management impose

limitations

Recurring Audit - Whether to revise/remind the

terms?

Before completing Audit, if the client requests the auditor to change the terms that conveys

lower assurance

Consider whether justification for change is

reasonable

Yes No

Agree to new

terms

If management doesn't permit Original Engagement,

then withdraw for engagement and communicate to

TCWG and members

Auditor should not accept audit if

SA 220 “QUALITY CONTROL FOR AN AUDIT OF FINANCIAL STATEMENT

Examples of

Information which should consider by firm before acceptance of new client

The identity and business reputation of the client’s principal owners, key management, related parties

and those charged with its governance.

The nature of the client’s operations, including its business practices.

Information concerning the attitude of the client’s principal owners, key management and those

charged with its governance towards such matters as aggressive interpretation of accounting standards

and the internal control environment.

Whether the client is aggressively concerned with maintaining the firm’s fees as low as possible.

Indications of an inappropriate limitation in the scope of work.

Indications that the client might be involved in money laundering or other criminal activities.

The reasons for the proposed appointment of the firm and non-reappointment of the previous firm

The extent of knowledge a firm will have regarding the integrity of a client will generally grow within

the context of an ongoing relationship with that client.

Information which may cause firm to withdraw

The integrity of the principal owners, key management and TCWG of the entity;

Competency of engagement team to perform the audit engagement and availability of necessary

capabilities, including time and resources;

Compliance with relevant ethical requirements by firm and the engagement team; and

Significant matters that have arisen during the current or previous audit engagement, and their

implications for continuing the relationship.

Pla

nn

ing

Stag

e •Acceptance and continuance of client relationships and specific engagements.

•Human resources

•Assignment of engagement teams

•Independence

•Ethical requirements

•Leadership responsibilities for quality within the firm.

Exe

cuti

on

/ En

gage

men

t P

erfo

rman

ce

•Direction, Supervision

•Review

•Consultation

•Discuss Key Matters

•Monitoring

•EQR

•Documentation

Enga

gem

ent

Qu

alit

y C

on

tro

l Rev

iew

(EQ

R )

•Review all process including

•Appointment

•Independence

•Discuss Significant Matters

•Review Propose Audit Report

•Review Documentation

•Difference of Opinion?

•EQR Documentation

Engagement quality control review (EQR)

PARTNER QUALITY CONTROL REVIEWER

1. The engagement partner shall:

a) Determine that an engagement

quality control reviewer has been

appointed,

b) Discuss significant matters with

the engagement quality control

reviewer, and

c) Not date the auditor report until the

completion of the engagement

quality control review,

Differences of opinion- Firm’s policies

and procedures for dealing with and

resolving differences of opinion.

1. The engagement quality control reviewer shall evaluate

the following:

a) Discussion of significant matters with the engagement

partner

b) Review of the financial statements and the proposed

auditors report

c) Review of selected audit documentation and

d) Conclusions reached in formulating the auditor’s report and

consideration of whether the proposed auditor’s report is

appropriate.

2- For audits of financial statements of listed entities,

(a) The engagement team’s evaluation of the firm’s

independence

(b) Whether appropriate consultations has taken place

and the conclusions arising from those

consultations

(c) Whether audit documentation selected for reviews

reflects the work performed and supports the

conclusions reached

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SA 230 – AUDIT DOCUMENTATIONS

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SA 240– THE AUDITOR’S RESPONSIBILITIES RELATING TO FRAUD IN AN AUDIT OF

FINANCIAL STATEMENTS

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Kapil Goyal Audit Discussion

Why Management do Fraud

Incentive – Bonus to employess for more sales

Abality of people – If you will not achieve this target, Bonus will not paid

Opportunity to commit Fraud – Weak Internal control (Issue Procedure)

SITUATION MANAGEMENT AUDITOR

Responsibility for

the Prevention and

Detection of Fraud

Primary Responsibility – Management

& TCWG

Management and those charged with

governance, should place a strong

emphasis on fraud prevention.

An auditor is responsible for obtaining

reasonable assurance that the financial

statements taken as a whole are free

from material misstatement.

Link With –

SA 200 INHERENT

LIMITATION

RISK OF FRAUD IS

HIGHER THAN ERROR

INTENTIONAL FRAUD

AUDITOR SHOULD

MAINTAIN

PROFESSIONAL

SKEPTICISM

AUDIT PROCEDURE

RISK ASSESSMENT

PROCEDURE

IDENTIFICATION &

ASSESSMENT OF ROMM

RESPONSE TO ROMM DUE

TO FRAUD

. Enquiring Management and

Others within the Entity

The auditor shall make

inquiries of management

regarding:

i. Management’s

assessment of the risk of

material misstatement due

to fraud;

ii. Management’s process

for identifying &

responding to the risks of

fraud in the entity,

including any specific

risks of fraud;

iii. Management’s

communication, if any, to

those charged with

governance; and

iv. Management’s

communication, if any, to

employees regarding its

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 obtain an

understanding of the entity’s

related controls, including control

activities, relevant to such risks.

Overall Responses SA 330

The auditor shall:

Assign and supervise

personnel as per their

capability;

Evaluate whether

accounting policies

adopted by the entity

indicate fraudulent

financial reporting

resulting from

management’s 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

views on business

practices and ethical

behaviour.

For those entities that have an

internal audit function, the

auditor shall make inquiries of

internal auditor.

2. Enquiring Those Charged

with Governance

i. He shall obtain an

understanding of how

TCWG supervise

management’s processes.

ii. The auditor shall ask

TCWG whether they have

knowledge of any fraud

affecting the entity.

Perform further audit

procedure

If Auditor identify mis-

statement than consider

whether such a

misstatement is indicative

of fraud

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.

Evaluate the implications

for the audit

OBTAIN MRL FOR

1. Its responsibility for the design, implementation and maintenance of internal control to prevent and detect

fraud;

2. It has disclosed to the auditor the results of its assessment of the risk of fraud;

3. It has disclosed to the auditor its knowledge of fraud or suspected fraud affecting the entity involving:

a. Management;

b. Employees who have significant roles in internal control; or

c. Others; and

4. It has disclosed to the auditor its knowledge of any allegations of fraud, or suspected fraud, affecting the

entity’s financial statements.

REPORTING RESPONSIBILITY

To

MANAGEMENT/

TCWG

SEC

143(12)

IN CARO,2016 NOT ABLE TO CONTINUE

REFER CHART REFER

CHART

The auditor is also

required to report as

per Clause (x) of

Paragraph 3 of

CARO, 2016,

Whether any fraud

by the company or

any fraud on the

company by its

officers or

employees has been

noticed or reported

during the year; If

yes, the nature and

the amount involved

is to be indicated.

The auditor shall:

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;

Consider whether it is appropriate to withdraw

from the engagement; and

If the auditor withdraws:

Discuss with the appropriate level of

management and those charged with

governance, the auditor’s withdrawal from the

engagement and the reasons for the

withdrawal; and

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

auditor’s withdrawal from the engagement and

the reasons for the withdrawal.

No liability of auditor [Section 143(13)]

•An auditor shall not be deemed to be guilty for breach of any of his duties by reason of his reporting any matter to the Central Government if such reporting is done in good faith.

Provisions applicable to other auditors [Section 143(14)]

•The provisions w.r.t. reporting of fraud shall mutatis mutandis apply to -

•(a) the cost accountant conducting cost audit under section 148; or

•(b) the company secretary in practice conducting secretarial audit under section 204.

Punishment for non-compliance [Section

143(15)]

•(a) Minimum Fine: Rs. 1 lakh

•(b) Maximum Fine: Rs. 25 lakh.

SA 250 CONSIDERATION OF LAWS AND REGULATIONS IN AN AUDIT OF FINANCIAL

STATEMENTS

Audit procedures when noncompliance is identified or suspected

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 auditor’s opinion.

The following matters, it may also be an indication of non-compliance with laws and regulations:

Investigations by regulatory organizations and government departments or payment of fines or penalties.

Payments for unspecified services or loans to consultants, related parties, employees or government employees.

Sales commissions or agent’s fees that appear excessive in relation to those ordinarily paid by the entity or in its industry or to the services actually received.

Purchasing at prices significantly above or below market price.

some laws or regulations have a direct effect on the

financial statements

The auditor’s responsibility isto obtain sufficient appropriateaudit evidence aboutcompliance with the provisionsof those laws and regulations.

1.The auditor shall obtain a generalunderstanding of:

2.1- The legal and regulatoryframework applicable to the entityand the industry or sector in which theentity operates; and

3.2- How the entity is complying withthat framework.

Other laws or regulations are to be complied with by

management but do not have a direct effect on an entity’s

financial statements

The auditor’s responsibility islimited to undertaking specifiedaudit procedures to helpidentify non-compliance withthose laws and regulations thatmay have a material effect onthe financial statements.

1.The auditor shall perform thefollowing audit procedures to identifyinstances of non-compliance

2.1- Inquiring of management; and

3.2- Inspecting correspondence, ifany, with the relevant licensing orregulatory authorities.

Unusual payments in cash, purchases in the form of cashiers’ cheques payable to bearer or transfers to numbered bank accounts.

Unusual payments towards legal and retainership fees.

Unusual transactions with companies registered in tax havens.

Payments for goods or services made other than to the country from which the goods or services originated.

Payments without proper exchange control documentation.

Existence of an information system which fails, whether by design or by accident, to provide an adequate audit trail or sufficient evidence.

Unauthorized transactions or improperly recorded transactions.

Adverse media comment

Non-Compliance Reporting

To those charged with governance

In the auditor’s report

In CARO,2016 To regulatory and enforcement authorities

Unless all of those charged with governance are involved in management of the entity, the auditor shall communicate as soon as practicable with those charged with governance matters involving non-compliance with laws and regulations that come to the auditor’s attention.

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.

Modify the Audit Report

as per SA 705.

Example - If non-

compliance belongs to

Statutory Dues as per

Clause VII.

Auditor shall determine whether the auditor has a responsibility to report the identified or suspected non-compliance to parties outside the entity.

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SA 260 COMMUNICATION WITH THOSE CHARGED WITH GOVERNANCE

The Role of Communication

Understanding matters related to the audit in context, and in developing a constructive

working relationship, while maintaining the auditor’s independence and objectivity.

Obtain Relevant Information from TCWG to understand the Entity

Understand the TCWG responsibility relating to Financial reporting to reduce the

ROMM.

Auditor does not relieve from his responsibility if management communicated the same

information to TCWG.

OBJECTIVE OF COMMUNICATION

MATTERS TO BE COMMUNICATED

Auditor Responsibility

Planning, Scope and Timing

Obtain Relevant Information

Provide Observation on Timely

Basis

Effective Communication between

Auditor and TCWG

1- The Auditor’s Responsibilities in Relation to

the Financial Statement Audit – SA 200

linking

2- Planned Scope and Timing of the Audit

3- Significant Findings from the Audit

4- Auditor Independence

5- Significant difficulties, if any, encountered

during the audit

Significant difficulties encountered during the audit may include such

matters as:

a. Significant delays by management, the unavailability of entity personnel, or

unwillingness by management to provide information necessary for the auditor to

perform the auditor’s procedures.

b. An unreasonably brief time within which to complete the audit.

c. Extensive unexpected effort required to obtain sufficient appropriate audit evidence.

d. The unavailability of expected information.

e. Restrictions imposed on the auditor by management.

f. Management’s unwillingness to make or extend its assessment of the entity’s ability

to continue as a going concern when requested

The Communication Process

- Form , Timing and Content

- In Written

- If Communication Process is not Effective – Effect on FS and appropriate

action

Documentation

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