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COMPANY AUDIT
Masters of Commerce
2013-2014
Semester IV
Submitted
In Partial Fulfillment of the requirements
For the Award of Degree of Masters of
Commerce - Accounts
By
Malvika Pande
(Roll number – 33)
University of Mumbai
SIES college of science arts and commerce, Nerul
CERTIFICATE
This is to certify that Malvika Pande of M.Com Accounts
Semester IV (2013-14) has successfully completed the project
of Company Audit under the guidance of Ms Nalini Tiwari
Principal :-
Project guide :-
Internal Examiner :-
External Examiner :-
DECLARATION
I Malvika Pande a student of M.com Accounts
Semester IV (2013-14) hereby declare that I have
completed the project on Company audit.
The information submitted is true and original to the
best of my knowledge.
Signature
Malvika Pande
ACKNOWLEGEMENT
I would sincerely like to give my heartfelt acknowledgement and
thanks to my parents. Any amount of thanks given to them will never
be sufficient.
I would like to thank the University of Mumbai, for introducing
MCOM (Accounts), thereby giving the student a platform to abreast
with changing business scenario, with the help of theory as a base and
practical as a solution.
I would sincerely like to thank our Principal Mrs. Rita Basu. I would
also like to thank my project guide Mr. Nalini Tiwari for her valuable
support and guidance whenever needed.
I also feel heartiest sense of obligation my library staff members &
seniors who helped in collection of Data and materials and also in this
processing as well as in drafting manuscript.
Last, but not the least, I would like to thank my friends &
colleagues for always being there.
Malvika Pande
SR.NO INDEX
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2
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GENERAL CONSIDERATION IN COMPANY AUDIT
CONSTITUTIONAL DOCUMENTS
BUY BACK OF SHARES
a) Objectives of Buy Back:
b) Resources of Buy Back
c) Conditions of Buy Back
d) Disclosures in the explanatory statement
e) Sources from where the shares will be purchased
f) Register of Securities Bought Back
g) Issue of further shares after Buy back
h) Filing of return with the Regulator
i) Prohibition of Buy Back
j) Procedure for buy back
k) Penalty
TRANSMISSION OF SHARES
SA 200 – Overall objectives of the independent auditor and the conduct of an
audit in accordance with SA
a) Scope of this SA:‐ b) Overall Objectives of the Auditor:
c) Requirements
SA 200 A – Objective and scope of Audit of Financial Statements
a) Preparation of the Financial Statements
b) Ethical Requirements Relating to an Audit of Financial Statements
c) Professional Skepticism
7
8
9
SA 230 – Audit Documentation
a) Scope of this SA
b) Nature and Purposes of Audit Documentation
c) Audit documentation serves a number of additional purposes
d) Effective Date
e) Objective
f) Definitions
g) Requirements
STATUTORY REPORT OF MMTC LTD
REFERENCES
COMPANY AUDIT
1. GENERAL CONSIDERATION IN COMPANY AUDIT
These have to be determined on a consideration of :
(a) objectives of audit;
(b) various provisions in the Companies Act, 1956, especially those concerning
accounts and audit; and
(c) the scope of the report that the auditor of a company is required to make in
pursuance of the provisions contained in section 227 of the Act.
The objectives of an audit are :
(i) Verification of statements of account so as to express an opinion;
(ii) Detection of errors and frauds; and
(iii) Prevention of occurrence of errors and frauds.
Detection and prevention of frauds and errors were originally regarded as the main
objectives of an audit.
While conducting the audit, the auditor is expected to bear in mind the possibility
of existence of a fraud or other irregularity in accounts. Nonetheless, he is not
expected to conduct the audit with the objective of discovering all frauds or
irregularities, for if that is to be done, the audit would take an unduly long time and
the cost of it would be quite out of proportion to its benefit.
Nevertheless, it is expected that the auditor would be vigilant and watchful and
whenever he comes across a circumstance which arouses his suspicion, he should
find out whether a fraud, or irregularity, in fact does exist and, if so, whether it is
sufficiently material to necessitate qualifications of the audit report.
It is generally accepted that the auditor is not an insurer and does not guarantee that
the books of account truly reflect the company’s affairs.
The auditor, thus, is principally responsible for carrying out his duties by
exercising due care and skill in consonance with the professional standards. If,
despite the fact, any fraud or irregularity in accounts remains undetected, he cannot
be held liable for the failure to detect it. Moreover, since the management is
primarily responsible for safeguarding the assets and property of the company, the
auditor, while framing his audit program, is entitled to rely upon the internal
controls in this regard instituted by the management based on a proper evaluation.
It would be observed that Companies Act, 1956 also does not contemplate that an
auditor is responsible for the detection of errors and frauds, except when they are
so material as to vitiate the opinion expressed by him that statements of account
exhibit a true and fair state of affairs.
The auditor is required to verify the final statements of account; also to check or
verify all the matters affecting them so as to ensure fully that they exhibit a true
and fair state of affairs of the business of the company. For the purpose, he may
either carry out a detailed examination of the books or relying on the internal
control measures in operation, after testing their strength, merely test the accuracy
of transaction recorded therein.
It is permissible for an auditor to verify the accuracy of transactions recorded in the
books of account by the application of test checks, if he is satisfied that the system
of internal control, in operation, is adequate and satisfactory.
2. CONSTITUTIONAL DOCUMENTS
The auditor, before commencing a company audit, shall undertake “Verification of
the constitution and powers”. This he can verify from various documents, decisions
taken in board meeting, decisions in shareholder’s meeting etc.
Any company’s functions and powers are limited to the documents on the basis of
which it has been registered. Prospectus is the most important document that the
company requires to raise capital from public. The auditor also needs to check
various transactions taken place before commencement of business eg, any
property purchased etc. thus, prior to setting any audit, the auditor shall examine
following constitutional documents :
1. Memorandum of association
2. Articles of association
3. Contracts entered into with vendors and other persons relating to purchase of
property, payment of commission etc.
4. Certificate of commencement by business
5. Certificate of registration etc.
A company, before registration, cannot enter into contract also without obtaining
Certificate of Commencement of business from the registrar of Companies.
Therefore, the auditor is required to take into account his duty to examine the
transactions entered into by the company; the dates when these were entered into
for confirming the validity. The auditor should be aware of the authority structure
of the company so as to carry out audit effectively. Section 291 empowers the
Board of Directors to exercise all such powers and undertake all such Acts, the
company is authorized to do. But, the auditor should see to it that the Board has not
done any ultra-vires Acts i.e. not exercised any power nor done any act which is
not permitted by Memorandum or Articles of the company.
3. BUY BACK OF SHARES
The provisions regulating buy back of shares are contained in Section 77A, 77AA
and 77B of the Companies Act,1956. These were inserted by the Companies
(Amendment) Act,1999. The Securities and Exchange Board of India (SEBI)
framed the SEBI(Buy Back of Securities) Regulations,1999 and the Department of
Company Affairs framed the Private Limited Company and Unlisted Public
company (Buy Back of Securities) rules,1999 pursuant to Section 77A(2)(f) and
(g) respectively.
The repurchase of outstanding shares (repurchase) by a company in order to reduce
the number of shares on the market. Companies will buy back shares either to
increase the value of shares still available (reducing supply), or to eliminate any
threats by shareholders who may be looking for a controlling stake.
A buyback allows companies to invest in themselves. By reducing the number of
shares outstanding on the market, buybacks increase the proportion of shares a
company owns. Buybacks can be carried out in two ways:
1. Shareholders may be presented with a tender offer whereby they have the option
to submit (or tender) a portion or all of their shares within a certain time frame and
at a premium to the current market price. This premium compensates investors for
tendering their shares rather than holding on to them.
2. Companies buy back shares on the open market over an extended period of time.
3.1) Objectives of Buy Back:
Shares may be bought back by the company on account of one or more of the
following reasons
i. To increase promoters holding
ii. Increase earning per share
iii. Rationalise the capital structure by writing off capital not represented by
available assets.
iv. Support share value
v. To thwart takeover bid
vi. To pay surplus cash not required by business
Infact the best strategy to maintain the share price in a bear run is to buy back the
shares from the open market at a premium over the prevailing market price.
3.2) Resources of Buy Back
A Company can purchase its own shares from
(i) Free reserves; Where a company purchases its own shares out of free
reserves, then a sum equal to the nominal value of the share so purchased
shall be transferred to the capital redemption reserve and details of such
transfer shall be disclosed in the balance-sheet or
(ii) Securities premium account; or
(iii) Proceeds of any shares or other specified securities. A Company cannot
buyback its shares or other specified securities out of the proceeds of an
earlier issue of the same kind of shares or specified securities.
3.3) Conditions of Buy Back
(a) The buy-back is authorised by the Articles of association of the Company;
(b) A special resolution has been passed in the general meeting of the company
authorising the buy-back. In the case of a listed company, this approval is
required by means of a postal ballot. Also, the shares for buy back should be
free from lock in period/non transferability. The buyback can be made by a
Board resolution If the quantity of buyback is or less than ten percent of the
paid up capital and free reserves;
(c) The buy-back is of less than twenty-five per cent of the total paid-up capital
and fee reserves of the company and that the buy-back of equity shares in
any financial year shall not exceed twenty-five per cent of its total paid-up
equity capital in that financial year;
(d) The ratio of the debt owed by the company is not more than twice the capital
and its free reserves after such buy-back;
(e) There has been no default in any of the following
i. In repayment of deposit or interest payable thereon,
ii. Redemption of debentures, or preference shares or
iii. Payment of dividend, if declared, to all shareholders within the stipulated
time of 30 days from the date of declaration of dividend or
iv. Repayment of any term loan or interest payable thereon to any financial
institution or bank;
(f) There has been no default in complying with the provisions of filing of
Annual Return, Payment of Dividend, and form and contents of Annual
Accounts;
(g) All the shares or other specified securities for buy-back are fully paid-up;
(h) The buy-back of the shares or other specified securities listed on any
recognised stock exchange shall be in accordance with the regulations made
by the Securities and Exchange Board of India in this behalf; and
(i) The buy-back in respect of shares or other specified securities of private and
closely held companies is in accordance with the guidelines as may be
prescribed.
3.4) Disclosures in the explanatory statement
The notice of the meeting at which special resolution is proposed to be passed shall
be accompanied by an explanatory statement stating -
o a full and complete disclosure of all material facts;
o the necessity for the buy-back;
o the class of security intended to be purchased under the buy-back;
o the amount to be invested under the buy-back; and
o the time-limit for completion of buy-back
3.5) Sources from where the shares will be purchased
The securities can be bought back from
(a) existing security-holders on a proportionate basis;
Buyback of shares may be made by a tender offer through a letter of offer from the
holders of shares of the company or
(b) the open market through
i. book building process;
ii. stock exchanges or
(c) odd lots, that is to say, where the lot of securities of a public company, whose
shares are listed on a recognized stock exchange, is smaller than such marketable
lot, as may be specified by the stock exchange; or
(d) purchasing the securities issued to employees of the company pursuant to a
scheme of stock option or sweat equity.
3.6) Register of Securities Bought Back
After completion of buyback, a company shall maintain a register of the
securities/shares so bought and enter therein the following particulars
a. The consideration paid for the securities bought-back,
b. The date of cancellation of securities,
c. The date of extinguishing and physically destroying of securities and
d. Such other particulars as may be prescribed
Where a company buys-back its own securities, it shall extinguish and physically
destroy the securities so bought-back within seven days of the last date of
completion of buy-back.
3.7) Issue of further shares after Buy back
Every buy-back shall be completed within twelve months from the date of passing
the special resolution or Board resolution as the case may be.
A company which has bought back any security cannot make any issue of the same
kind of securities in any manner whether by way of public issue, rights issue up to
six months from the date of completion of buy back.
3.8) Filing of return with the Regulator
A Company shall, after the completion of the buy-back file with the Registrar and
the Securities and Exchange Board of India, a return in form 4 C containing such
particulars relating to the buy-back within thirty days of such completion.
No return shall be filed with the Securities and Exchange Board of India by an
unlisted company.
3.9) Prohibition of Buy Back
A company shall not directly or indirectly purchase its own shares or other
specified securities -
(a) Through any subsidiary company including its own subsidiary companies;
or
(b) Through any investment company or group of investment companies;
3.10) Procedure for buy back
a. Where a company proposes to buy back its shares, it shall, after passing of
the special/Board resolution make a public announcement at least one
English National Daily, one Hindi National daily and Regional Language
Daily at the place where the registered office of the company is situated.
b. The public announcement shall specify a date, which shall be “specified
date” for the purpose of determining the names of shareholders to whom the
letter of offer has to be sent.
c. A public notice shall be given containing disclosures as specified in
Schedule I of the SEBI regulations.
d. A draft letter of offer shall be filed with SEBI through a merchant Banker.
The letter of offer shall then be dispatched to the members of the company.
e. A copy of the Board resolution authorising the buy back shall be filed with
the SEBI and stock exchanges.
f. The date of opening of the offer shall not be earlier than seven days or later
than 30 days after the specified date
g. The buy back offer shall remain open for a period of not less than 15 days
and not more than 30 days.
h. A company opting for buy back through the public offer or tender offer shall
open an escrow Account.
3.11) Penalty
If a company makes default in complying with the provisions the company or any
officer of the company who is in default shall be punishable with imprisonment for
a term which may extend to two years, or with fine which may extend to fifty
thousand rupees, or with both. The offences are, of course compoundable under
Section 621A of the Companies Act,1956.
4) TRANSMISSION OF SHARES
Share transmission is a mechanism by which the title to shares is devolved other
than by transfer. This is typically applicable for:
Devolution by death
Succession
Inheritance
Bankruptcy
Marriage
Ownership: On registration of the transmission of shares, the person entitled to
transmission of shares becomes the shareholder of the company and is entitled to
all rights and subject to all liabilities as such shareholder.
Method: While transfer of shares is brought about by delivery of a proper
instrument of transfer (viz, transfer deed) duly stamped and executed, transmission
of shares is done by forwarding the necessary documents (such as a notarised copy
of death certificate) to the company.
5) SA 200
Overall Objectives of the Independent Auditor and The Conduct of an Audit in Accordance with Standard s on Auditing
5.1) Scope of this SA:‐ This Standard on Auditing (SA) establishes the independent auditor’s overall
responsibilities when conducting an audit of FS in accordance with SAs.
Specifically, it sets out the overall objectives of the independent auditor, and
expains the nature and scope of an audit designed to enable the independent auditor
to meet those.
5.2) Overall Objectives of the Auditor:
In conducting an audit of financial statements, the overall objectives of the auditor
are
(a) To obtain reasonable assurance about whether the FS as a whole are free from
material misstatement, and
(b) To report on the financial statements, and communicate as required by the SAs,
in accordance with the auditor’s findings.
5.3) Requirements
i) Ethical Requirements Relating to an Audit of FS
The auditor shall comply with relevant ethical requirements, including those
pertaining to independence, relating to financial statement audit engagements.
Relevant ethical requirements ordinarily comprise the Code of Ethics issued by the
Institute of Chartered Accountants of India. The Code establishes the following as t
he fundamental principles of professional ethics relevant to the auditor
(a) Integrity;
(b) Objectivity;
(c) Independence
(d) Professional competence and due care
(e) Confidentiality; and
(f) Professional behavior.
ii) Professional Skepticism
(a)The auditor shall plan and perform an audit with professional skepticism
recognising that circumstances may exist that cause the financial statements to be
materially misstated.
(b) Professional skepticism includes being alert to, for example
• Audit evidence that contradicts other audit evidence obtained.
• Conditions that may indicate possible fraud.
iii) Professional Judgment
The auditor shall exercise professional judgment in planning and performing an
audit of financial statements. Professional judgment is essential to the proper
conduct of an audit. Professional judgment is necessary in particular regarding
decisions about:
• Materiality and audit risk.
•The nature, timing, and extent of audit procedures used to meet the
requirements of the SAs and gather audit evidence.
•Evaluating whether sufficient appropriate audit evidence has been obtained.
iv) Sufficient Appropriate Audit Evidence and Audit Risk
To obtain reasonable assurance, the auditor shall obtain sufficient appropriate audit
evidence to reduce audit risk to an acceptably low level and thereby enable the
auditor to draw reasonable conclusions on which to base the auditor’s opinion.
a)Audit evidence is necessary to support the auditor’s opinion and report. It
is cumulative in nature and is primarily obtained from audit procedures
performed during the course of the audit.
b)The sufficiency and appropriateness of audit evidence are interrelated.
Sufficiency is the measure of the quantity of audit evidence. The quantity of
audit evidence needed is affected by the auditor’s assessment of the risks of
misstatement (the higher the assessed risks, the more audit evidence is likely
to be required) and also by the quality of such audit evidence (the higher the
quality, the less may be required). Obtaining more audit evidence, however,
may not compensate for its poor quality.
c)Appropriateness is the measure of the quality of audit evidence;that is, its r
elevance and its reliability in providing support for the conclusions on which
the auditor’s opinion is based. The reliability of evidence is influenced by it
source and by its nature, and is dependent on the individual circumstances
under which it is obtained.
d)Whether sufficient appropriate audit evidence has been obtained to reduce
audit risk to an acceptably low level, and thereby enable the auditor to draw
reasonable conclusions on which to base the auditor’s opinion, is a matter of
professional judgment.
v) Conduct Of an Audit in accordance with SA’s
1. Complying with SAs Relevant to the Audit
a.The auditor shall comply with all SAs relevant to the audit. An SA is
relevant to the audit when the SA is in effect and the circumstances address
by the SA exist.
b.The auditor shall have an understanding of the entire text of an SA,
including its application and other explanatory material, to understand its
objectives and to apply its requirements properly.
c.The auditor shall not represent compliance with SAs in the auditor’s report
unless the auditor has complied with the requirements of this SA and all
other SAs relevant to the audit.
2. Objectives Stated in IndividuaI SAs
To achieve the overall objectives of the auditor, the auditor shall use the Objectives
stated in relevant SAs in planning and performing the audit, having regard to the
interrelationships among the SAs,
(a)
Determine whether any audit procedures in addition to those required by the
SAs are necessary in pursuance of the objectives stated in the SAs; and
(b)Evaluate whether sufficient appropriate audit evidence has been obtained.
3. Complying with Relevant Requirements
The auditor shall comply with requirement of an SA unless, in the circumstances
of the audit:
(a) The entire SA is not relevant; or
(b)The requirement is not relevant because it is conditional and the condition
does not exist.
4. Failure to Achieve an Objective
If an objective in a relevant SA cannot be achieved, the auditor shall evaluate
whether this prevents the auditor from achieving the overall objectives of the audit
or and thereby requires the auditor, in accordance with the SAs, to modify the
auditor’s opinion or withdraw frm the engagement. Failure to achieve an objective
represents a significant matter requiring documentation in accordance with SA 230
6) SA 200 A-
Objectives and scope of Audit of Financial Statements
The auditor’s opinion on the financial statements deals with whether the financial
statements are prepared, in all material respects, in accordance with the applicable
financial reporting framework. Such an opinion is common to all audits of
financial statements. The auditor’s opinion therefore does not assure, for example,
the future viability of the entity nor the efficiency or effectiveness with which
management has conducted the affairs of the entity.
In some cases, however, the applicable laws and regulations may require auditors
to provide opinions on other specific matters, such as the effectiveness of internal
control, or the consistency of a separate management report with the financial
statements. While the SAs include requirements and guidance in relation to such
matters to the extent that they are relevant to forming an opinion on the financial
statements, the auditor would be required to undertake further work if the auditor
had additional responsibilities to provide such opinions.
6.1) Preparation of the Financial StatementsAn audit in accordance with SAs is conducted on the premise that management
and, where appropriate, those charged with governance have responsibility:
(a) For the preparation and presentation of the financial statements in accordance
with the applicable financial reporting framework; this includes the design,
implementation and maintenance of internal control relevant to the preparation and
presentation of financial statements that are free from material misstatement,
whether due to fraud or error; and
(b) To provide the auditor with:
(i) All information, such as records and documentation, and other matters
that are relevant to the preparation and presentation of the financial
statements;
(ii) Any additional information that the auditor may request from
management and, where appropriate, those charged with governance; and
(iii) Unrestricted access to those within the entity from whom the auditor
determines it necessary to obtain audit evidence.
As part of their responsibility for the preparation and presentation of the financial
statements, management and, where appropriate, those charged with governance
are responsible for:
• The identification of the applicable financial reporting framework, in the
context of any relevant laws or regulations.
• The preparation and presentation of the financial statements in accordance
with that framework.
• An adequate description of that framework in the financial statements.
The preparation of the financial statements requires management to exercise
judgment in making accounting estimates that are reasonable in the circumstances,
as well as to select and apply appropriate accounting policies. These judgments are
made in the context of the applicable financial reporting framework.
6.2) Ethical Requirements Relating to an Audit of Financial Statements
The auditor is subject to relevant ethical requirements, including those pertaining
to independence, relating to financial statement audit engagements. Relevant
ethical requirements ordinarily comprise the Code of Ethics issued by the Institute
of Chartered Accountants of India.
The Code establishes the following as the fundamental principles of professional
ethics relevant to the auditor when conducting an audit of financial statements and
provides a conceptual framework for applying those principles;
(a) Integrity;
(b) Objectivity;
(c) Professional competence and due care;
(d) Confidentiality; and
(e) Professional behavior.
In the case of an audit engagement it is in the public interest and, therefore,
required by the Code of Ethics, that the auditor be independent of the entity subject
to the audit. The Code describes independence as comprising both independence of
mind and independence in appearance. The auditor’s independence from the entity
safeguards the auditor’s ability to form an audit opinion without being affected by
influences that might compromise that opinion. Independence enhances the
auditor’s ability to act with integrity, to be objective and to maintain an attitude of
professional skepticism.
6.3) Professional Skepticism
Professional skepticism includes being alert to, for example:
• Audit evidence that contradicts other audit evidence obtained.
• Information that brings into question the reliability of documents and
responses to inquiries to be used as audit evidence.
• Conditions that may indicate possible fraud.
• Circumstances that suggest the need for audit procedures in addition to
those required by the SAs.
Maintaining professional skepticism throughout the audit is necessary if the auditor
is, for example, to reduce the risks of:
• Overlooking unusual circumstances.
• Over generalising when drawing conclusions from audit observations.
• Using inappropriate assumptions in determining the nature, timing, and
extent of the audit procedures and evaluating the results thereof.
Professional skepticism is necessary to the critical assessment of audit evidence.
This includes questioning contradictory audit evidence and the reliability of
documents and responses to inquiries and other information obtained from
management and those charged with governance. It also includes consideration of
the sufficiency and appropriateness of audit evidence obtained in the light of the
circumstances, for example in the case where fraud risk factors exist and a single
document, of a nature that is susceptible to fraud, is the sole supporting evidence
for a material financial statement amount.
7. SA 230(REVISED)AUDIT DOCUMENTATION
7.1) Scope of this SAThis Standard on Auditing (SA) deals with the auditor’s responsibility to prepare
audit documentation for an audit of financial statements. It is to be adapted as
necessary in the circumstances when applied to audits of other historical financial
information. The specific documentation requirements of other SAs do not limit
the application of this SA. Laws or regulations may establish additional
documentation requirements.
7.2) Nature and Purposes of Audit DocumentationAudit documentation that meets the requirements of this SA and the specific
documentation requirements of other relevant SAs provides:
(a) Evidence of the auditor’s basis for a conclusion about the achievement of the
overall objective of the auditor; and
(b) Evidence that the audit was planned and performed in accordance with SAs and
applicable legal and regulatory requirements.
7.3) Audit documentation serves a number of additional purposes, including the following:
♦ 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, and to discharge their review
responsibilities in accordance with Proposed SA 220 (Revised)1.
♦ 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 in
accordance with SQC 1.
♦ Enabling the conduct of external inspections in accordance with applicable
legal, regulatory or other requirements.
7.4) Effective DateThis SA is effective for audits of financial statements for periods beginning on or
after April 1, 2009.
7.5) ObjectiveThe objective of the auditor is to prepare documentation that provides:
(a) A sufficient and appropriate record of the basis for the auditor’s report; and
(b) Evidence that the audit was planned and performed in accordance with SAs and
applicable legal and regulatory requirements.
7.6) DefinitionsFor purposes of the SAs, the following terms have the meanings attributed below:
(a) Audit documentation – The record of audit procedures performed, relevant
audit evidence obtained, and conclusions the auditor reached (terms such as
“working papers” or “workpapers” are also sometimes used).
(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) Audit processes;
(ii) SAs and applicable legal and regulatory requirements;
(iii) The business environment in which the entity operates; and
(iv) Auditing and financial reporting issues relevant to the entity’s industry.
7.7) Requirements
1) Timely Preparation of Audit Documentation
The auditor shall prepare audit documentation on a timely basis.
2) Form, Content and Extent of Audit Documentation
The auditor shall prepare audit documentation that is sufficient to enable an
experienced auditor, having no previous connection with the audit, to understand:
(a) The nature, timing, and extent of the audit procedures performed to comply
with the SAs and applicable legal and regulatory requirements;
(b) The results of the audit procedures performed, and the audit evidence obtained;
and
(c) Significant matters arising during the audit, the conclusions reached thereon,
and significant professional judgments made in reaching those conclusions.
3) Departure from a Relevant Requirement
If, in exceptional circumstances, the auditor judges it necessary to depart from a
relevant requirement in a SA, the auditor shall document how the alternative audit
procedures performed achieve the aim of that requirement, and the reasons for the
departure.
4) Matters Arising after the Date of the Auditor’s Report
If, in exceptional circumstances, the auditor performs new or additional audit
procedures or draws new conclusions after the date of the auditor’s report, the
auditor shall document:
(a) The circumstances encountered;
(b) The new or additional audit procedures performed, audit evidence
obtained, and conclusions reached, and their effect on the auditor’s report;
and
(c) When and by whom the resulting changes to audit documentation were
made and reviewed.
5) 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 auditor’s report.
After the assembly of the final audit file has been completed, the auditor shall not
delete or discard audit documentation of any nature before the end of its retention
period.
In circumstances other than those envisaged in paragraph 13 where the auditor
finds it necessary to modify existing audit documentation or add new audit
documentation after the assembly of the final audit file has been completed, the
auditor shall, regardless of the nature of the modifications or additions, document:
(a) The specific reasons for making them; and
(b) When and by whom they were made and reviewed.
STATUTORY REPORT OF MMTC LIMITED
REFERENCES
www.icai.org
www.caclubindia.com
www.mca.gov.in
www.knowledgebible.com
www.icaiknowledgegateway.org
www.investopedia.com
www.managementparadise.com