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1 MPVijayKumarFCA
Refresher:StandardsonAuditing
MPVijayKumar FCA
2 MPVijayKumarFCA
INSURANCE !!
Theviewsexpressedarethoseofthepresenterand,therefore,donotnecessarilyrepresenttheviewsofeithertheCounciloranyCommittee(s)/Board(s)oftheCounciloftheInstituteofCharteredAccountantsofIndia(ICAI).
• Theslidedeckshouldbeunderstoodincontextofthespeakerpresentation
• E&OE
3 MPVijayKumarFCA
AuditingStandards
• Standards on Quality Control (SQCs)
• Engagement Standards -• Standards on Auditing (SA)• Standards on Review Engagements (SREs)§ Standards on Assurance Engagements(SAEs)§ Standards on Related Services (SRSs)
4 MPVijayKumarFCA
AuditingStandards
• Engagement Standards - These are classified into followingcategories
• 100 – 999 Standards on Auditing (SAs)• 100 – 199: Introductory Matters• 200 - 299: General Principles & Responsibilities• 300 – 499: Risk Assessment & Response to Assessed Risks• 500 – 599: Audit Evidence• 600 – 699: Using Work of Others• 700 – 799: Audit Conclusions & Reporting• 800 – 899: Specialised Areas
§ 2000 – 2699: Standards on Review Engagements (SREs)§ 3000 – 3699: Standards on Assurance Engagements(SAEs)§ 4000 – 4699: Standards on Related Services (SRSs)
5 MPVijayKumarFCA
S.No Reference Titleofthestandard Effectivedate
1 SQC1QualityControlforFirmsthatperformauditandreviewsofHistoricalFinancialInformation,andotherAssuranceandrelatedServiceEngagements
1stApril2009
2 SA200 OverallObjectivesoftheIndependentAuditorandtheConductofanAuditinAccordancewithStandardsonAuditing 1stApril2010
3 SA210 AgreeingtheTermsofAuditEngagement 1stApril2010
4 SA220 QualityControlforanAuditofFinancialStatements 1stApril2010
5 SA230 AuditDocumentation 1stApril2009
6 SA240 TheAuditor'sResponsibilitiesRelatingtoFraudinanAuditofFinancialStatements 1stApril2009
7 SA250 ConsiderationofLawsandRegulationsinAnAuditofFinancialStatements 1stApril2009
8 SA260(R) CommunicationwithThoseChargedwithGovernance 1stApril2017
9 SA265 CommunicatingDeficienciesinInternalControltoThoseChargedwithGovernanceandManagement 1stApril2010
10 SA299 ResponsibilityofJointAuditors 1stApril1996
6 MPVijayKumarFCA
S.No Reference Titleofthestandard Effectivedate
11 SA300 PlanninganAuditofFinancialStatements 1stApril2008
12 SA315IdentifyingandAssessingtheRisksofMaterialMisstatementsthroughUnderstandingtheEntityanditsEnvironment
1stApril2008
13 SA320 MaterialityinPlanningandPerforminganAudit 1stApril2010
14 SA330 TheAuditor'sResponsetoAssessedRisks 1stApril2008
15 SA402 AuditConsiderationsRelatingtoEntitiesUsingServiceOrganisations 1stApril2010
16 SA450 EvaluationofMisstatementsidentifiedDuringtheAudit 1stApril2010
17 SA500 AuditEvidence 1stApril2009
18 SA501 AuditEvidence—SpecificConsiderationsforSelectedItems 1stApril2010
19 SA505 ExternalConfirmations 1stApril2010
20 SA510 InitialAuditEngagements– OpeningBalances 1stApril2010
7 MPVijayKumarFCA
S.No Reference Titleofthestandard Effectivedate
21 SA520 AnalyticalProcedures 1stApril2010
22 SA530 AuditSampling 1stApril2009
23 SA540 AuditingAccountingEstimates,IncludingFairValueAccountingEstimatesandRelatedDisclosures 1stApril2009
24 SA550 RelatedParties 1stApril2010
25 SA560 SubsequentEvents 1stApril2009
26 SA570(R) GoingConcern 1stApril2017
27 SA580 WrittenRepresentations 1stApril2009
28 SA600 UsingtheWorkofAnotherAuditor 1stApril2002
29 SA610(R) UsingtheWorkofInternalAuditors 1stApril2016
30 SA620 UsingtheWorkofanAuditor’sExpert 1stApril2010
8 MPVijayKumarFCA
S.No Reference Titleofthestandard Effectivedate
31 SA700(R) ForminganOpinionandReportingonFinancialStatements 1stApril2017
32 SA701 CommunicatingKeyAuditMattersintheIndependentAuditor’sReport 1stApril2017
33 SA705(R) ModificationstotheOpinionintheIndependentAuditor'sReport 1stApril2017
34 SA706(R) EmphasisofMatterParagraphsandOtherMatterParagraphsintheIndependentAuditor'sReport 1stApril2017
35 SA710 ComparativeInformation- CorrespondingfiguresandComparativefinancialstatements 1stApril2011
36 SA720TheAuditor’sResponsibilityinRelationtoOtherInformationinDocumentsContainingAuditedFinancialStatements
1stApril2010
37 SA800 SpecialConsiderations-AuditsofFinancialStatementsPreparedinAccordancewithSpecialPurposeFramework 1stApril2011
38 SA805SpecialConsiderations-AuditsofSinglePurposeFinancialStatementsandSpecificElements,AccountsorItemsofaFinancialStatement
1stApril2011
39 SA810 EngagementstoReportonSummaryFinancialStatements 1stApril2011
40 SRE2400(R) EngagementstoReviewHistoricalFinancialStatements 1stApril2016
9 MPVijayKumarFCA
S.No Reference Titleofthestandard Effectivedate
39 SA810 EngagementstoReportonSummaryFinancialStatements 1stApril2011
40 SRE2400(R) EngagementstoReviewHistoricalFinancialStatements 1stApril2016
41 SRE2410 ReviewofInterimFinancialInformationPerformedbytheIndependentAuditoroftheEntity 1stApril2010
42 SAE3400 TheExaminationofProspectiveFinancialInformation 1stApril2007
43 SAE3402 AssuranceReportsonControlsAtaServiceOrganization 1stApril2011
44 SA3420 AssuranceEngagementstoReportontheCompilationofProFormaFinancialInformationIncludedinaProspectus 1stApril2016
45 SRS4400 EngagementstoPerformAgreed-uponProceduresRegardingFinancialInformation 1stApril2004
46 SRS4410(R) CompilationsEngagements 1stApril2016
GeneralClarificationsissued
47 GeneralClarifications(GC)- AASB/2/2004onSA210
48 GeneralClarifications(GC)- AASB/1/2004onSA620
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200-299:GeneralPrinciplesandResponsibilities• SA200(Revised)“OverallObjectivesoftheIndependentAuditorandtheConductofanAuditinAccordancewithStandardsonAuditing”
• SA210(Revised),“AgreeingtheTermsofAuditEngagements”
• SA220(Revised),“QualityControlforanAuditofFinancialStatements”
• SA230(Revised)“AuditDocumentation”
11 MPVijayKumarFCA
200-299:GeneralPrinciplesandResponsibilities
• SA240(Revised)“TheAuditor’sResponsibilitiesRelatingtoFraudinanAuditofFinancialStatements”
• SA250(Revised)“ConsiderationofLawsandRegulationsinanAuditofFinancialStatements”
• SA260(Revised)“CommunicationwithThoseChargedwithGovernance”
• SA265“CommunicatingDeficienciesinInternalControltoThoseChargedWithGovernanceandManagement”
• SA299(AAS12),“ResponsibilityofJointAuditors”
12 MPVijayKumarFCA
300-499:RiskAssessmentandResponsetoAssessedRisks
• SA300(Revised),“PlanninganAuditofFinancialStatements”•
• SA315,“IdentifyingandAssessingtheRisksofMaterialMisstatementthroughUnderstandingtheEntityandItsEnvironment”
• SA320(Revised),“MaterialityinPlanningandPerforminganAudit”
• SA330“TheAuditor’sResponsestoAssessedRisks”
• SA402(Revised)“AuditConsiderationsRelatingtoanEntityUsingaServiceOrganisation”
• SA450,“EvaluationofMisstatementsIdentifiedDuringtheAudit”
13 MPVijayKumarFCA
500-599AuditEvidence
• SA500(Revised)“AuditEvidence”
• SA501(Revised)“AuditEvidence—SpecificConsiderationsforSelectedItems”
• SA505(Revised)“ExternalConfirmations”
• SA510(Revised)“InitialAuditEngagements– OpeningBalances”
• SA520(Revised),“AnalyticalProcedures”
14 MPVijayKumarFCA
500-599AuditEvidence
• SA530(Revised),“AuditSampling”
• SA540(Revised)“AuditingAccountingEstimates,IncludingFairValueAccountingEstimates,andRelatedDisclosures”
• SA550(Revised)“RelatedParties”
• SA560(Revised)“SubsequentEvents”
• SA570(Revised)“GoingConcern”
• SA580(Revised),”WrittenRepresentations”
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600-699:Usingworkofothers• SA600(AAS10),“UsingtheWorkofAnotherAuditor”
• SA610(Revised)“UsingTheWorkofInternalAuditors”
• SA610(Revised),UsingtheWorkofInternalAuditors
• SA620(Revised)“UsingtheWorkofanAuditor’sExpert”
16 MPVijayKumarFCA
700-799:AuditConclusionsandReporting• SA700(Revised),ForminganOpinionandReportingonFinancialStatements
• SA705,ModificationstotheOpinionintheIndependentAuditor’sReport
• SA706“EmphasisofMatterParagraphsandOtherMatterParagraphsintheIndependentAuditor’sReport”
• SA710(Revised)“ComparativeInformation—CorrespondingFiguresandComparativeFinancialStatements”
• SA720“TheAuditor’sResponsibilityinRelationtoOtherInformationinDocumentsContainingAuditedFinancialStatements”
17 MPVijayKumarFCA
800-899:Specialpurpose
• SA800“AuditsofFinancialStatementsPreparedinAccordancewithSpecialPurposeFrameworks”
• SA805“SpecialConsiderations—AuditsofSingleFinancialStatementsandSpecificElements,AccountsorItemsofaFinancialStatement”
• SA810“EngagementstoReportonSummaryFinancialStatements”
18 MPVijayKumarFCA
2000-2699:StandardsonReviewEngagements
• SRE2400(Revised),EngagementstoReviewHistoricalFinancialStatements
• SRE2410“ReviewofInterimFinancialInformationPerformedbytheIndependentAuditoroftheEntity”
19 MPVijayKumarFCA
3000:36909:StandardsonAssuranceEngagements• 3000-3399ApplicabletoAllAssuranceEngagements• 3400-3699SubjectSpecificStandards
• SAE3400(AAS35),“TheExaminationofProspectiveFinancialInformation”
• SAE3402,“AssuranceReportsonControlsataServiceOrganisation”
• SAE3420,AssuranceEngagementstoReportontheCompilationofProformaFinancialInformationIncludedinaProspectus
20 MPVijayKumarFCA
4000-4699:StandardsonRelatedServices• SRS4400(AAS32),“EngagementstoPerformAgreed-uponProceduresRegardingFinancialInformation”
• SRS4410(Revised),CompilationEngagements
21 MPVijayKumarFCA
SQC
• SQC1,“QualityControlforFirmsthatPerformAuditandReviewsofHistoricalFinancialInformation,andotherAssuranceandRelatedServicesEngagements”
22 MPVijayKumarFCA
SA200OverallObjectivesoftheIndependentAuditor&ConductofanAuditinAccordancewithSAs
EffectiveforAuditsoffinancialstatementsforperiodsbeginningonorafterApril1,2010
23 MPVijayKumarFCA
Overview• Introduction
• Scope• Anauditoffinancialstatements(FS)• Effectivedate
• OverallObjectivesoftheAuditor• Definitions• Requirements&Application
• EthicalrequirementsRelatingtoAuditofFS• Professionalskepticism• Professionaljudgment• SufficientandAppropriateAuditEvidence(SAAE)• ConductofanAuditinAccordancewithSAs
24 MPVijayKumarFCA
Scope• Establishesindependentauditor’soverallresponsibilitieswhenconductinganauditofFS
• Overallobjectiveofauditor• Nature&scopeofauditdesignedtomeetthoseobjectives
• ExplainsScope,authority&structureofSAs• SetsoutGeneralresponsibilitiesoftheauditor• ObligationtocomplywithSAs
25 MPVijayKumarFCA
AnAuditofFinancialStatements• AuditenhancesdegreeofconfidenceinFS• ExpressionofopiniononpreparationofFSinaccordancewithapplicableFRF
• Doesnotensure:• futureviabilityofentity• efficiency&effectivenessofmanagement
• SAsdonot• imposeresponsibilitiesonmanagement/TCWG• overrideL&R
26 MPVijayKumarFCA
ReasonableAssurance• SAsrequireauditortoobtainreasonableassurance.
• ObtainSAAEtoreduceauditrisktoanacceptablylowlevel.
• Absoluteassurancenot possiblebecauseofinherentlimitationsofaudit
• Materialitytobeappliedatplanningaswellasperformance
27 MPVijayKumarFCA
OverallObjectiveoftheAuditor
• ObtainreasonableassurancewhetherFSasawholearefreefrommaterialmisstatementwhetherduetofraud/error
• ReportonFSandcommunicateasrequiredbySAs
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ConductofAuditinAccordancewithSAs
• ComplywithallSAsrelevanttoaudit• SAisrelevantwhen
• thatSAisineffect&• circumstancesaddressedbySAexist
• HaveanunderstandingoftheentiretextofSA
• Do not represent compliance with SAs inaudit report unless auditor complies withSA 200 & other SAs relevant to audit
29 MPVijayKumarFCA
SA210AgreeingtheTermsofAuditEngagements
EffectiveforAuditsoffinancialstatementsforperiodsbeginningonorafterApril1,2010
30 MPVijayKumarFCA
OverviewofSA210• Introduction
• Scope• EffectiveDate
• Objective• Definitions• Requirements
• PreconditionsforanAudit• AgreementonAuditEngagementTerms• RecurringAudits• Acceptance of a Change in the Terms of the Audit Engagement• Additional considerations in Engagement Acceptance
• Application and Other Explanatory Material on these aspects• Appendices
31 MPVijayKumarFCA
Scope
• DealswithAuditor’sresponsibilitiesinagreeingthe termsofauditengagement(ToAE) withmgt &TCWG
• Includesestablishingthatpreconditionsforauditarepresent.
32 MPVijayKumarFCA
Auditor’sObjectiveAccept/ContinueAuditEngagementonlywhen
Basisonwhichengagementistobeperformedhasbeenagreed
Establish Confirm
Existenceofpreconditionsforaudit
CommonunderstandingofToAEbetweenauditor,
mgt&TCWG
AND
33 MPVijayKumarFCA
PreconditionsforAudit
Determine Obtain
AcceptabilityofFRF Mgtagreementthatitunderstandsitsresponsibility
PreparationofFSinaccordancewithapplicableFRF
InternalControlsnecessarytoprepareFSfreeofmaterialmisstatement
Allrelevantinfo&unrestrictedaccesstoauditor
34 MPVijayKumarFCA
AgreementonAuditEngagementTerms
• AgreetheToAE withMGT/TCWG.
• AgreedToAE shallinclude:• Objective&scopeofauditofFS.• Auditor’sresponsibilities.• Management’sresponsibilities.• IdentificationofapplicableFRF.• Expectedform&contentofreport.• A statement that these may undergo change due to circumstances.
• If L & R prescribe ToAE in details:• Written Engagement Letter may not be necessary for above.
35 MPVijayKumarFCA
AcceptanceofChangeinTermsDonotagreetochangeifnoreasonablejustificationforit.
• IfToAE arechanged:• AuditorandMGTshallagreeonnewterms,and• recordnewtermsinengagementletterorothersuitableformofwrittenagreement.
• IfunabletoagreewithchangedToAE ANDnotpermittedbyMGTtocontinue:
• WithdrawifpermittedunderL&R;and• DetermineneedtoreporttootherpartiessuchasTCWG/regulators/owners
36 MPVijayKumarFCA
SA220QualityControlFor
AnAuditofFinancialStatements
EffectiveforAuditsoffinancialstatementsforperiodsbeginningonorafterApril1,2010
37 MPVijayKumarFCA
OverviewofSA220• Introduction
• Scope• Effectivedate
• Objective• Definitions• Requirements&Application
• Leadershipresponsibilitiesforqualityonaudits• Relevantethicalrequirements• Acceptance&continuanceofclientrelationship&auditengagements
• Assignmentofengagementteams• Engagementperformance• Monitoring• Documentation
38 MPVijayKumarFCA
Scope
• Dealswith:• SpecificresponsibilitiesoftheauditorregardingQualityControl(QC)proceduresforanauditofFS
• ResponsibilitiesofengagementQCreviewer
• Shouldbereadinconjunctionwithrelevantethicalrequirements
• PresumesthatfirmissubjecttoSQC1
39 MPVijayKumarFCA
QCSystem&RoleofEngagementTeam
• ResponsibilityofAuditFirm• ImplementQCsystemthatprovidesreasonableassurance:
• Firm&itspersonnelcomplywithprofessionalstandards®ulatory&legalrequirements
• Reportsissuedbyfirm/engagementpartnersareappropriateinthecircumstances
• ResponsibilityofEngagementTeam• ImplementapplicableQCprocedures
• Providefirmwithrelevantinfowrt QCsystemrelatingtoIndependence
40 MPVijayKumarFCA
RelyonFirmQC
EngagementTeamentitledtorelyonfirm’sQCunlessinformationprovidedbyfirmorotherpartiessuggestsotherwise:
41 MPVijayKumarFCA
Auditor’sObjectiveImplementQCprocedures
AtEngagementLevel
ThatprovideReasonableAssurance
Auditcomplieswithprofessionalstandards&legalrequirements
Auditreportissuedisappropriateinthecircumstances&
42 MPVijayKumarFCA
SA230AuditDocumentation
EffectiveforauditsoffinancialstatementsforperiodsbeginningonorafterApril1,2009
43 MPVijayKumarFCA
OverviewofSA230• Introduction
• Scope• EffectiveDate
• Objective
• Definitions
• Requirements• TimelyPreparationofAuditDocumentation• DocumentationoftheAuditProceduresPerformedandAuditEvidenceObtained
• AssemblyoftheFinalAuditFile
• ApplicationandOtherExplanatoryMaterial
44 MPVijayKumarFCA
Scope
Scope
Tobeadaptedtoauditsofotherhistoricalfininfo
DealswithAuditor’sresponsibilitytoprepareauditdoxforanauditofFS
SpecificdoxrequirementsofotherSAsdonotlimitapplicationofthisSA
L&Rmayestablishadditionalrequirements
45 MPVijayKumarFCA
Objective
Sufficient&Appropriaterecordofbasisforauditor’sreport
Evidencethatauditwasplannedandperformed
inaccordancewithSAs&L&R
Preparedocumentationthatprovides
46 MPVijayKumarFCA
AssemblyofFinalAuditFile• Timely basis after date of audit report
• Set policy in terms of SQC 1• Within 60 days (SQC 1)
• Changes permitted:• Deleting/ discarding superseded dox.• Sorting, collating, cross referencing working papers• Signing off on completion checklists re file assembly• Documentation of discussion with engagement team beforedate of audit report
47 MPVijayKumarFCA
• Nodeletion/discardingpermittedafterfinalassemblyexceptforexampletoclarifyexistingdoxarisingfrominternal/externalinspections
• Documentspecificreasonsformakingthem
• When&bywhommade/reviewed
• Retentionperiod–7yearsfromdateofauditreport
48 MPVijayKumarFCA
OwnershipofDocumentation• UnlessotherwisespecifiedbyLorR,auditdocumentationisthepropertyoftheAuditor.
• Mayathisdiscretion,makeportionsof,orextractsfrom,auditdocumentationavailabletoclients,provided:
• suchdisclosuredoesnotunderminethevalidityoftheworkperformed,or,
• inthecaseofassuranceengagements,doesnotunderminetheindependenceofauditor/hispersonnel.
49 MPVijayKumarFCA
SA240TheAuditor’sResponsibilityRelatingtoFraud
inanAuditofFinancialStatements
Effectiveforauditsoffinancialstatementsforperiodsbeginningonorafter1stApril,2009
50 MPVijayKumarFCA
OverviewofSA240• Introduction
• Scope• EffectiveDate
• Objectives• Definitions• Requirements
• Professionalskepticism• DiscussionamongtheEngagementTeam• Riskassessmentproceduresandrelatedactivities• IdentificationandAssessmentofRisksofmaterialmisstatementduetofraud• ResponsestotheAssessedRisksofmaterialmisstatementduetofraud• Evaluationofauditevidence• Auditorunabletocontinuetheengagement• ManagementRepresentations• Communicationwiththosechargedwithgovernanceandmanagement• CommunicationstoRegulatoryandEnforcementauthorities• Documentation
• ApplicationandOtherExplanatoryMaterialontheseaspects• Appendices
51 MPVijayKumarFCA
Scope
• Dealswithauditor’sresponsibilitiesrelatingtofraudinauditoffinancialstatements
• ExpandsonhowSA315andSA330,aretobeappliedinrelationtorisksofmaterialmisstatementduetofraud.
52 MPVijayKumarFCA
ResponsibilityforFraudPrevention&Detection
1. Thosechargedwithgovernance• Oversightofmanagementpolicies• Considerpotentialformanagementoverrideofcontrols• Considerpotentialformanagement’sinappropriateinfluenceonfinancialreporting
2. Management• Establishproperpolicies• Emphasisonethicsandhonesty
53 MPVijayKumarFCA
ResponsibilityofAuditor
• Obtainreasonableassurancethatfinancialstatementsarefreeofmaterialmisstatements.
• Subjectto:• Inherentlimitationsofaudit
• Fraud– deliberatelyconcealed,sodifficulttodetect
• ButexerciseProfessionalSkepticism.
54 MPVijayKumarFCA
Auditor’sObjectives
1. Identifyandassessriskofmaterialmisstatementsduetofraud
2. ObtainSAAEaboutassessedrisks
3. Respondappropriatelytoidentified/suspectedfraud
55 MPVijayKumarFCA
ProfessionalSkepticism• Requiresongoingquestioningof:
• Whetherinfo.&auditevidenceobtainedsuggestpossibilityofmaterialmisstatementduetofraud.
• Donottakeclientintegrityandhonestyforgranted
• Documentsmaybeacceptedasgenuineifnocontraryindications,butwhenindoubt,may:
• Confirmdirectlywith3rdparty
• Engageexperttoassessauthenticity
• Investigate-responsetoinquiriesisinconsistent
56 MPVijayKumarFCA
SA250ConsiderationofLawsandRegulationsinanAuditofFinancialStatements
EffectiveforauditsoffinancialstatementsforperiodsbeginningonorafterApril1,2009
57 MPVijayKumarFCA
OverviewofSA250• Introduction
• Scope• Effectivedate
• Objectives• Definition• Requirements
• TheAuditor’sconsiderationofcompliancewithLawandRegulation(L&R)
• Auditprocedureswhennon-complianceisidentifiedorsuspected• Reportingofidentifiedorsuspectednoncompliance• Documentation
• ApplicationandOtherExplanatoryMaterial
58 MPVijayKumarFCA
Scope• Dealswithauditor’sresponsibility:
• toconsiderL&RwhenperformingauditofFS.
• Doesnotapplyto:• assuranceengagementswheretesting&reportingoncompliancewithL&Risthespecificobjective.
59 MPVijayKumarFCA
WhatisNonCompliance?
• Actsofomissionorcommission
• eitherintentionalorunintentional• whicharecontrarytotheprevailingLorR
• Doesnotincludepersonalmisconduct(unrelatedtobusinessactivitiesofentity)byTCWG,Mgt.,employeesoftheentity.
60 MPVijayKumarFCA
MGT.ResponsibilityforCompliancewithL&R• MGTresponsible
• UnderoversightofTCWG
• PoliciesandProcedures:• Monitorlegalrequirements• Ensureeffectivenessofoperatingprocedures• Instituting/OperatingappropriatesystemsofInternalcontrols• Developing/publicising/following/monitoringofCodeofconduct• Employeetraining• Engagelegaladvisors• MaintainregisterofsignificantL&R&recordofcomplaints
61 MPVijayKumarFCA
Auditor’sResponsibility• Auditor responsible for obtaining reasonable assurance that FS takenas a whole are free from Material Misstatement, whether by fraudor error
• SA assists auditor in identifying material misstatements in FS due tonon-compliance
• Auditor is not, responsible for preventing non compliance andcannot be expected to detect non- compliance with all L & R
• Factors increasing the risk of not detecting the non- compliance:• Inherent limitations of audit• Some L&R relate to operations, no impact on FS and are not captured by entity’s
information system• Deliberate concealment of non compliance, e.g., collusion, forgery• Non compliance - Ultimate determination is a matter of court of law.
62 MPVijayKumarFCA
Responsibilityw.r.t.differenttypesofL&R
TypesofL&R
ObtainSAAEregcompliance
Undertakespecifiedprocedurestohelp
identifynon-compliancethatmayimpactFS
Exerciseprofessionalskepticism
A BDirecteffectonmaterialamounts&disclosuresinFS
Fundamentalimpactonoperations&GoingConcern
63 MPVijayKumarFCA
SA260CommunicationwithThoseChargedwith
Governance
EffectiveforauditsoffinancialstatementsforperiodsbeginningonorafterApril1,2009
64 MPVijayKumarFCA
OverviewofSA260• Introduction
• Scope• Effective Date
• Objectives• Definitions• Requirements
• Those Charged with Governance• Matters to be Communicated• The Communication Process• Documentation
• Application and Other Explanatory Material
65 MPVijayKumarFCA
Deals with Auditor’s responsibility to
communicate with TCWG in an audit of FS
Provides a framework
for auditor’s Communication
with TCWG,and identifies some specific
matters to be communicated
may also be applicable to audits of other
historical financial information
This SA does not preclude the auditor fromcommunicating any other matters to TCWG
Scope
66 MPVijayKumarFCA
CommunicateclearlywithTCWGresponsibilitiesofauditorandplannedscopeandtimingofaudit
ProvideTCWGwithtimelyobservations–significantandrelevantinoverseeingfinalreportingprocess
ObtainfromTCWGinformationrelevanttoaudit
Promoteeffectivetwo-waycommunicationbetweenauditorandTCWG
Auditor’s Objectives
67 MPVijayKumarFCA
MatterstobeCommunicated
Auditor’sresp inrelationtoFSaudit
PlannedScopeandtimingof
audit
Significantfindings
fromtheaudit
68 MPVijayKumarFCA
Documentation• Matterscommunicatedorally:
• Documentmatters;and
• alsowhenandtowhommatterwerecommunicated.
• MattersCommunicatedinwriting–• retainacopyofthecommunication.
69 MPVijayKumarFCA
SA265CommunicatingDeficienciesinInternalControltoThoseChargedwithGovernance&Management
EffectiveforAuditsoffinancialstatementsforperiodsbeginningonorafterApril1,2010
70 MPVijayKumarFCA
OverviewofSA265• Introduction
• Scope• EffectiveDate
• Objective• Definitions• Requirements• Application&OtherExplanatoryMaterial
• Determination of whether Deficiencies in Internal Controlhave been identified
• Significant Deficiencies in Internal Control• Communication of Deficiencies in Internal Control
71 MPVijayKumarFCA
Scope• Dealswithauditor’sresponsibilityto:
• Communicate appropriately with TCWG/ MGT Deficiencies in ICIdentified by auditor in audit
• Doesnotimposeadditionalresponsibilitywrt:• ObtaininganunderstandingofInternalcontrolsand• Designing & performing Tests of Controls over and above thatrequired by SA 315 & SA 330
• Does not override SA 260.
• Specifies which deficiencies need to be communicated toTCWG/Mgt.
72 MPVijayKumarFCA
Auditor’sObjective
• CommunicateappropriatelytoTCWG&Mgt:
• DeficienciesinICidentifiedduringaudit,and
• Thatinhisprofessionaljudgmentaresufficientlyimportanttomerittheirattentions.
73 MPVijayKumarFCA
Definitions
Deficiency in IC
Control designed/ implemented/ operated in a way
Fails to prevent/ detect & correct misstatements in FS on timely basis
Control necessary to prevent/ detect & correct misstatement in FS on timely basis
Is missing
OR
74 MPVijayKumarFCA
MainRequirements• Determinewhetherdeficiency(s)inICidentified.
• IfdeficienciesinICidentified,determine:• whetherindividually/incombinationtheyconstitutesignificantdeficiencies.
• communicateinwritingsignificantdeficienciesinICidentifiedtoTCWGonatimelybasis.
• communicatetoMGTatappropriatelevelonatimelybasis:
• Inwriting,significantdeficienciesinIC.• OtherdeficienciesinIC.
75 MPVijayKumarFCA
SA299ResponsibilityofJointAuditors
EffectiveforallauditsrelatingtoaccountingperiodsbeginningonorafterApril1,1996
76 MPVijayKumarFCA
ScopeoDealswithauditor’sprofessionalresponsibilitiesasjointauditors.
oDoesnotcoversituationscoveredunderSA600.
77 MPVijayKumarFCA
DivisionofWork• Bymutualdiscussion:
• Usuallyintermsofauditofidentifiableunits/specifiedareas.
• Wheresuchdivisionnotpossible– intermsofassets/liabilities/income/expenditure,etc.
• Criticalareascoveredbyallauditors.
• Documentthedivision&communicatetoclient.
78 MPVijayKumarFCA
RelationshipamongJointAuditors• EachJointAuditorresponsibleonlyforworkallocated,whetherornotseparatereportthereforismade.
• EachJointAuditorjointlyandseverallyresponsiblefor:• undividedwork.
• nature,timing,extentofauditprocedures.
• compliancewithdisclosurerequirements.
• auditreportcompliancewithstatuterequirements.
• matterbroughttonoticeofallbyanyoneofthem,andonwhichthereisanagreement.
79 MPVijayKumarFCA
Reporting• Normally,jointauditorsareabletoarriveatanagreedreport.
• Ifdisagreement,then:• eachoneofthemshouldexpresshisopinionthroughaseparatereport.
• ajointauditorisnot boundbymajorityviewregardingmatterstobecoveredinthereportandshouldexpresshisopinioninaseparatereport.
80 MPVijayKumarFCA
SA300PlanninganAuditofFinancialStatements
EffectiveforauditsoffinancialstatementsforperiodsbeginningonorafterApril1,2008
81 MPVijayKumarFCA
OverviewofSA300• Introduction
• Scope• Effective Date
• Objective• Requirements
• Involvement of Key Engagement Team Member• Preliminary Engagement Activities• Planning Activities• Documentation• Additional Considerations in Initial Audit
Engagements• ApplicationandOtherExplanatoryMaterialontheseAspects
• Appendix
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Scope&ObjectiveSCOPE• DealswithAuditor’sresponsibilitytoplanauditofFS.• Itisframedinthecontextofrecurringaudits.• Additionalconsiderationsidentifiedforinitialauditengagements.
Auditor’sObjectivePlananauditsothatengagementisperformedinaneffectivemanner.
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Requirements1. InvolveKeyEngagementTeamMembersinplanning
2. PreliminaryEngagementActivities• PerformproceduresrequiredbySA220reg.Clientacceptance,etc.
• Evaluatecompliancewithethicalrequirementsincludingindependence.
• EstablishunderstandingoftermsofengagementasperSA210
3. PlanningActivities• Establishoverallauditstrategy
• Developanauditplan
• Updateandchangeoverallauditstrategyandauditplanasnecessary
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Documentation• Overallauditstrategy:
• Necessary for proper planning & communicating significant matters to audit team.
• Auditplan:• Record of proper planning & review of audit
procedures for approval before use.
• Significantchangestooverallauditstrategy/auditplanandreasonsforchanges:
• Reflects appropriate response to these changes.
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AdditionalConsiderationsinInitialAuditEngagements
• Before starting initial audit engagement:• Perform procedures required under revised SA 220 – client
acceptance, etc.• Communicating with predecessor auditor.
• Additional matters to consider in Audit Strategy andAudit Plan:
• Any major issues discussed with management.• Audit procedures necessary regarding opening balances.• Other procedures required by firm’s QC system.
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SA315IdentifyingandAssessingtheRiskofMaterial
MisstatementsthroughUnderstandingtheEntity&ItsEnvironment
EffectiveforauditsoffinancialstatementsforperiodsbeginningonorafterApril1,2008
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OverviewofSA315• Introduction
• Scope• Effective Date
• Objective• Definitions• Requirements
• Risk Assessment Procedures and Related Activities• The Required Understanding of the Entity and Its Environment, includingInternal Control
• Identifying and Assessing the Risks of Material Misstatement• Material Weakness in Internal Control• Documentation
• Application and other Explanatory Material on these Aspects• Appendices
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Scope• Auditor’sresponsibilitytoidentify&assessrisksofmaterialmisstatementsinfinancialstatements.
• Throughunderstanding:• theentity.
• itsenvironment.
• itsinternalcontrols.
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Objective– oftheAuditor
Identify&assessriskofmaterialmisstatements
Understandtheentity
Financialstatement&Assertionlevel
Design&implementresponsestoassessedrisk
Entity’senvironment
Entity’sinternalcontrols
Fraud Error
Reducerisktoacceptablylowlevel
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RiskAssessmentProcedures(RAP)– Need
RAPEstablishframeworkofreferencefor:• AssessingriskofmaterialmisstatementsinFS.• Establishingandassessingcontinuedrelevanceofestablishedmaterialitylevels.
• Evaluatingappropriatenessofaccountingpolicies-selection&application,disclosures.
• Identifyingareasneedingspecialauditconsideration.• Developingexpectationswrt AnalyticalProcedures.• Respondingtoassessedriskofmaterialmisstatements.• Evaluatingsufficiency&appropriatenessofauditevidence.
However,RAPbythemselves,donotprovideSAAEonwhichtobasetheauditopinion
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RAPs– Types
Information from discussion among engagement team
Information from previous engagements & other audits
– significant changes that have occurred
Informationfromclientacceptanceorcontinuanceprocess
Informationfromotherengagementsdonefortheentity
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5ComponentsofInternalControl1. ControlEnvironment
2. Entity’sRiskAssessmentProcess
3. InformationSystemandCommunication
4. ControlActivitiesrelevanttoAudit
5. MonitoringofControls
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SA320MaterialityinPlanning&PerforminganAudit
EffectiveforAuditsoffinancialstatementsforperiodsbeginningonorafterApril1,2010
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OverviewofSA320• Introduction
• Scope• MaterialityintheContextofanAudit• EffectiveDate
• Objective• Definition• Requirements
• DeterminingMaterialityandPerformanceMaterialitywhenPlanningtheAudit
• RevisionastheAuditProgresses• Documentation
• ApplicationandOtherExplanatoryMaterialontheseaspects
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SCOPE
ThisSADealswith
SA450Explains
Auditor’sresponsibility
ToApplytheconceptofmateriality
Inplanning&performingauditofFS
Applicationofmateriality
Identifiedmisstatements
onaudit
Evaluatingeffectof
Uncorrectedmisstatements
onFS
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MaterialityintheContextofanAudit
• FinancialReportingFrameworksoftendiscuss“materiality”incontextofpreparation&presentationofFSe.g.
• Misstatementsarematerialifinaggregate/individuallymayinfluenceeconomicdecisionsofusers.
• Auditor’sdeterminationofmaterialityisamatterofprofessionaljudgement
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Auditor’sObjective
• Conceptofmaterialityisappliedbytheauditorin:
• planningandperformingaudit,• evaluatingeffectofidentifiedmisstatementsonauditandofuncorrectedmisstatements,ifany,onFSand
• formingtheopinionintheauditor’sreport.
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DocumentationDocumentationRequirements
• MaterialityfortheFSasawhole.
• Ifapplicable,thematerialitylevelorlevelsforparticularclassesoftransactions,accountbalancesordisclosures
• Performancemateriality.
• Anyrevisionofaboveduringaudit
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SA330TheAuditor’sResponsestoAssessedRisks
EffectiveforauditsoffinancialstatementsforperiodsbeginningonorafterApril1,2008
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OverviewofSA330• Introduction
• Scope• Effective Date
• Objective• Definitions• Requirements
• Overall responses• Audit Procedures Responsive to the Assessed Risk of
material Misstatement at the Assertion level• Adequacy of Presentation & disclosures• Evaluating the sufficiency & appropriateness of audit
evidence• Documentation
• Application&OtherExplanatoryMaterialontheseAspects
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Scope&ObjectiveSCOPE• DealswithAuditor’sresponsibilityto:
• design & implement responses to risk of material misstatements identified & assessed in accordance with SA 315.
AUDITOR’SOBJECTIVE• ObtainSAAEabouttheassessedriskofmaterialmisstatement:
• through designing & implementing appropriate responses to risks.
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Definitions• SubstantiveProcedures
• AuditProceduresdesignedtodetectmaterialmisstatementsatassertionlevel.Theseinclude:
• Testsofdetails– classesoftransactions/accountbalances/disclosures
• Substantiveanalyticalprocedures
• TestsofControls• AuditProcedureforevaluatingoperatingeffectivenessofcontrolsinpreventing/detecting&correctingmaterialmisstatementatassertionlevel
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OverallResponses• Auditorrequiredtodesign&implementoverallresponses toaddressriskofmaterialmisstatementatFinancialStatementlevel.
• Theseinclude:• Emphasizingonprofessionalskepticism• Assigningmoreexperienced/skilledstafforexperts• Moresupervision• Incorporateunpredictabilityinauditprocedures• Generalchangestonature,timing&extentofauditprocedures
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SA402AuditConsiderationsRelatingtoanEntityUsinga
ServiceOrganisation
EffectiveforAuditsoffinancialstatementsforperiodsbeginningonorafterApril1,2010
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OverviewofSA402• Introduction
• Scope• Effectivedate
• Objectives
• Definitions
• Requirements• Obtaining an Understanding of the Services provided by a ServiceOrganisation, including Internal Control
• Responding to the Assessed Risks of Material Misstatement• Type 1 and Type 2 Reports that Exclude the Services of a Sub-serviceOrganisation
• Fraud, Non-Compliance with Laws and Regulations and UncorrectedMisstatements in Relation to Activities at the Service Organisation
• Reporting by the User Auditor
• Application & Other Explanatory Material on these aspects
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Scope• DealswithAuditor’sResponsibilitytoobtainSAAE
• whenclientusesservicesofoneormoreServiceOrganizations(SO).
• ItexpandsonhowtoapplySA315&SA330insuchsituations
• Natureandextentofworktobeperformedbyuserauditordependson:
• nature&significanceofthoseservicestouserentityand• relevanceofthoseservicestotheaudit.
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Auditor’sObjectivesObtain Design & Perform
Understanding of services of SO
Nature &significance
Effect on Internal controls relevant to audit
Risk Responsive Audit procedures
Sufficient to identify & assess
Risk of Material
Misstatements
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ReportingbyUserAuditor• Modifiedopinionif:
• UnabletoobtainSAAEregardingservicesofSOrelevanttoauditofuserentity’sFS
• DonotrefertoworkofserviceauditorinunmodifiedauditorreportunlessrequiredbyL&R
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SA450EvaluationofMisstatementsIdentified
DuringtheAudit
EffectiveforAuditsoffinancialstatementsforperiodsbeginningonorafterApril1,2010
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OverviewofSA450• Introduction
• Scope• EffectiveDate
• Objective• Definitions• Requirements
• AccumulationofIdentifiedMisstatements• ConsiderationofIdentifiedMisstatementsastheAuditProgresses• Communication&CorrectionofMisstatements• EvaluatingtheEffectofUncorrectedMisstatements• WrittenRepresentation• Documentation
• ApplicationandOtherExplanatoryMaterialontheseaspects
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Scope• Dealswithauditor’sresponsibilitytoevaluateeffectof:
• Identifiedmisstatementsonauditand
• Uncorrectedmisstatement(ifany)onFS
• Auditor’sopinionasperSA700influencedby:• evaluationofimpactofuncorrectedmisstatementsonFSasperSA320.
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Auditor’sObjective
Evaluate:
• Effectofidentifiedmisstatementsonaudit AND
• Effectofuncorrectedmisstatements(ifany)onFS
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DefinitionsMisstatementDifferencebetweenamount,classification,presentation,disclosuresofreportedFSitemvis-à-vis:
• requirementsofFRF• includesadjustmentsasarenecessary,inauditor’sjudgment,toprovideTrue&Fairview
• canarisefromfraud/error
UncorrectedMisstatements• Misstatementsaccumulatedbyauditorduringtheauditand• thathavenotbeencorrected.
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MainRequirements• AccumulationofIdentifiedMisstatements
• auditorneedtoaccumulatemisstatementsidentifiedduringtheaudit,otherthanthosethatareclearlytrivial
• CommunicationandCorrectionofMisstatements• auditorneedtocommunicateonatimelybasisallmisstatementsaccumulatedduringauditwithappropriatelevelofmgt.unlessprohibitedbylaworregulation.
• auditorshallrequestmgt.tocorrectthosemisstatements
• EvaluatingeffectofUncorrectedMisstatements• auditorshalldeterminewhetheruncorrectedmisstatementsarematerial,individuallyorinaggregate.
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SA500AuditEvidence
EffectiveforauditsoffinancialstatementsforperiodsbeginningonorafterApril1,2009
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OverviewofSA500• Introduction
• Scope• Effectivedate
• Objective• Definitions• Requirements
• Sufficient Appropriate Audit Evidence (SAAE)• Information to be used as audit evidence• Selecting items for testing to obtain audit evidence• Inconsistency/doubts over reliability of audit evidence
• Application and Other explanatory Material on theseAspects
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Scope
Explainswhatis Dealswith
AuditEvidencewrt auditofFS
Auditor’sResponsibility
ToDesign&PerformauditprocedurestoobtainSAAE
Drawreasonableconclusionstobaseauditopinion
SA500isapplicabletoallAuditEvidence
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ObjectiveoftheAuditor
• Design&performauditprocedures:• insuchawaythat• enablehimtoobtainSAAE
• tobeabletodrawreasonableconclusions• onwhichtobasetheauditor’sopinion
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ProceduresforObtainingAuditEvidenceInspection
Observation
Confirmation
Re-calculationRe-performance
AnalyticalProcedures
Inquiry
Inquiry alone, ordinarily, does not provide SAAE
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Inconsistency/Doubts
• Ifauditevidenceobtainedfromonesourceisinconsistentwiththatobtainedfromanother;
OR
• auditorhasdoubtsoverreliabilityofinformationtobeusedasauditevidence
Then• auditorshalldeterminewhatmodified/additionalauditproceduresarenecessarytoresolvethematter
AND
• shallconsidereffectofthematter,ifany,onotheraspectsoftheaudit.
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SA501AuditEvidence– SpecificConsiderations
forSelectedItems
EffectiveforAuditsoffinancialstatementsforperiodsbeginningonorafterApril1,2010
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OverviewofSA501• Introduction
• ScopeofthisSA
• EffectiveDate
• Objective
• Requirements&Application• Inventory
• Litigation&Claims
• SegmentInformation
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Scope
• DealswithspecificconsiderationsbyauditorinobtainingSAAEw.r.t.certainaspectsof:
• Inventory• Litigation&claims• Segmentinformation
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Auditor’sObjectives
Inventory Litigation&Claims
SegmentInfo
Existence&
ConditionCompleteness
Presentation&disclosureinaccordancewithFRF
ObtainSAAE
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Inventory
Auditor’sProcedures
Attendanceatphysicalinventorycounting
Auditinventoryrecords
Evaluatemgtinstructions&proceduresforrecording
&controllingresults
Observeperformanceofmgtprocedures
InspectinventoryPerformtestcounts
Recordsaccuratelyreflectactualinventorycountresults
AND
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Litigation&Claims
• Inquiry– ofmanagement&otherswithintheentity
• Review– minutesofmeetingsofTCWG,communicationbetweenentity&externallegalcounsel
• Review– legalexpensesaccount
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SegmentinformationObtainSAAErepresentation&disclosureofsegmentinfoinaccordancewithapplicableFRF:• Obtainunderstandingofmethodsusedbymgt indeterminingsegmentinfo
• EvaluatingwhethersuchmethodsarelikelytoresultindisclosureinaccordancewithapplicableFRF;and
• Whereappropriate,testingapplicationofsuchmethods
• Performinganalyticalproceduresorotherauditproceduresappropriateinthecircumstances
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SA505ExternalConfirmations
EffectiveforAuditsoffinancialstatementsforperiodsbeginningonorafterApril1,2010
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OverviewofSA505• Introduction
• Scope• External Confirmation Procedures to Obtain AE
• Objective• Definitions• Requirements & Applications
• External Confirmation Procedures• Mgt refusal to allow auditor to send confirmation request• Results of external confirmation procedures• Negative confirmations• Evaluating audit evidence
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Scope• Dealswithauditor’suseofexternalconfirmationprocedures(ECP)toobtainAuditEvidenceinaccordancewithSA330&SA500
• Doesnotcoverinquirieswrt litigations&claims.
• ImportanceofECPasauditevidencerecognizedinotherSAse.g.SA330,SA240,SA500
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Auditor’sObjective
• WhenusingECPs,
• Istodesign&performsuchprocedurestoobtainrelevant&reliableauditevidence
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ExternalConfirmationProcedures
Maintain control over EC Requests including:
1 Determining info to be requested/ confirmed
2 Selecting appropriateconfirming party
3 Designing confirmation requests
4 Sending requests including follow-up requests to confirming party
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SA510InitialAuditEngagements-OpeningBalances
EffectiveforAuditsoffinancialstatementsforperiodsbeginningonorafterApril1,2010
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OverviewofSA510• Introduction
• Scope• Effectivedate
• Objective• Definitions• Requirements
• AuditProcedures• AuditConclusionsandReporting
• ApplicationandOtherExplanatoryMaterialontheseaspects
• Appendix:IllustrationsofAuditors’Report
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Scope&ObjectiveSCOPE• Deals with auditor’s responsibility relating to openingbalances (OB):
• when conducting Initial Audit Engagement
OBJECTIVE§ Obtain SAAE in respect of OB about whether:
- OB contain material misstatements affecting current period FSand
- Appropriate accounting policies have been consistently appliedOR changes have been properly accounted for and adequatelypresented & disclosed in FS.
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Definitions• InitialAuditEngagement– AnengagementinwhichPriorPeriodFS
• Notaudited;or• Auditedbyapredecessorauditor.
• OpeningBalances– AccountingBalancesexistingatthebeginning
• Closingbalancesofpriorperiod– Reflecttheeffectofpriorperiodtransactionsandevents,andaccountingpoliciesapplied
• Disclosureofaccountsi.e.,contingencyandcommitments
• Predecessorauditor– Theauditorfromdifferentauditfirm
• AuditedFSinthepriorperiod• Replacedbycurrentauditor.
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AuditConclusionsandReportingQualifiedorDisclaimer
• UnabletoobtainSAAEwrt OB.
QualifiedorAdverse
• OBcontainmisstatements:• ThatmateriallyaffectcurrentFS,and
• Effectnotproperlyaccountedforordisclosed.
• Accountingpoliciesnotconsistentlyapplied.
• Accountingpolicieschanges notproperlyaccountedordisclosed.
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SA520ANALYTICALPROCEDURES
EffectiveforAuditsoffinancialstatementsforperiodsbeginningonorafterApril1,2010
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OverviewofSA520• Introduction
• Scope• Effectivedate
• Objectives• Definition• Requirements&Application
• Substantiveanalyticalprocedures• Analyticalproceduresthatassistwhenforminganoverallconclusion
• Investigatingresultsofanalyticalprocedures
• Appendix
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Scope• Dealswithauditor’suseofanalyticalprocedures(AP)as:
• substantiveanalyticalprocedures(SAPs)AND
• proceduresneartheendofaudittohelpinforminganoverallconclusiononFS
• SA315dealswithuseofAPsasriskassessmentprocedures
• SA330includesrequirements&guidancewrt nature,timing,extentofauditprocedures(includingAP)inresponsetoassessedrisks
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Auditor’sObjectives
OBTAIN DESIGN&PERFORM
Relevant&reliableauditevidencewhenusingSAPs
APsneartheendofauditwhenformingoverallconclusionwhetherFSareconsistentwithauditor’sunderstandingoftheentity
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MAINREQUIREMENTSSubstantiveAnalyticalProcedures• WhendesigningandperformingSAPs,auditorshall:
• DeterminesuitabilityofparticularSAPs• Evaluatereliabilityofdata• Developexpectationofrecordedamounts/ratios• Determineamountofanydifferenceofrecordedamountsvsexpectedvalues
APsthatAssistWhenForminganOverallConclusion• auditorshalldesignandperformAPsnearendofauditthatassisttheauditorwhenforminganoverallconclusionasto
• whethertheFSareconsistentwithauditor’sunderstandingofentity.
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SA530AUDITSAMPLING
EffectiveforauditsoffinancialstatementsforperiodsbeginningonorafterApril1,2009
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OverviewofSA530• Introduction
• Scope• EffectiveDate
• Objective• Definitions• Requirements
• SampleDesign,SizeandSelectionofItemsforTesting• PerformingAuditProcedures• NatureandCauseofDeviationsandMisstatements• ProjectingMisstatements• EvaluatingResultsofAuditSampling
• ApplicationandOtherExplanatoryMaterial• Appendices
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Scope• SAApplieswhenauditorhasdecidedtouseauditsamplinginperformingauditprocedures
• SAdealswithauditor’suseofstatisticalandnon-statisticalsamplingwhen-
• SA530complementsSA500
Designingandselectingauditsample
Performingtestsofcontrolsandtestsofdetails
Evaluatingresultsfromsample
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Objective
• ObjectiveofAuditorwhenusingAuditSamplingis:
• Toprovideareasonablebasistodrawconclusionsaboutpopulationfromwhichsampleisselected
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SampleDesign,SizeandSelectionofItemsSampleDesignoWhendesigningauditsample,Consider
• Purposeofauditprocedure• Characteristicsofpopulation
SampleSize• Shouldbesufficienttoreducesamplingrisktoacceptablylowlevel
SelectionofItems• Insuchawaythateachunithaschanceofselection
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Performingauditprocedures
• Performauditprocedures,appropriatetothepurpose,oneachitemselected.
• Ifauditprocedurenotapplicabletoselecteditem,performprocedureonreplacementitem
• Ifunabletoapplyauditprocedures/alternativeprocedures,toselecteditem,treatthatitemas
• adeviationfromtheprescribedcontrol,inthecaseoftestsofcontrols,or
• amisstatement,inthecaseoftestsofdetails
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SA540AuditingAccountingEstimates,IncludingFairValueAccountingEstimates,andRelatedDisclosures
EffectiveforauditsoffinancialstatementsforperiodsbeginningonorafterApril1,2009
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OverviewofSA540o Introduction
• Scope• Effectivedate
o Objectiveso Definitions
• Requirements• RiskAssessmentProceduresandRelatedActivities• IdentifyingandAssessingtheRisksofMaterialMisstatement• ResponsestotheAssessedRisksofMaterialMisstatement• FurtherSubstantiveProcedurestoRespondtoSignificantRisk• EvaluatingtheReasonablenessoftheAccountingEstimates(AE),andDetermining
Misstatements• DisclosuresRelatedtoAccountingEstimates• IndicatorsofPossibleManagementBias• WrittenRepresentations• Documentation
o ApplicationandOtherExplanatoryMaterialo Appendix
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Scope
Scope
ExpandsonapplicationofSA315SA330andotherrelevantSAs
inrelationtoAE
Dealswithauditor’sresponsibility
wrt AE,fairvalueAEAndrelateddisclosures
IncludesrequirementandguidanceonmisstatementsofindividualAE,
andindicatorsofpossiblemanagementbias
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SomeExamples§ AccountingEstimates
• Allowancefordoubtfulaccounts• Inventoryobsolescence• Warrantyobligations• Depreciationmethodorassetusefullife• Provisionagainstthecarryingamountofaninvestment• Outcomeoflongtermcontracts• FinancialObligations/Costsarisingfromlitigationsettlementsandjudgments
§ FairValueAccountingEstimates• Complexfinancialinstruments,whicharenottradedinanactiveandopen
market• Share-basedpayments• Propertyorequipmentheldfordisposal• Certainassetsorliabilitiesacquiredinabusinesscombination,includinggoodwill
andintangibleassets• Transactionsinvolvingtheexchangepartieswithoutmonetaryconsideration
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Objective
• ObtainSAAEincontextofapplicableFRFthat:• AEincludingfairvalueAEintheFSarereasonable
AND
• relateddisclosuresintheFSareadequate
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RiskAssessmentProceduresandRelatedActivities
Auditortoobtainunderstandingof:
RequirementsofapplicableFRFrelevanttoAE,includingrelated
disclosures
Howmgt identifiestransaction,eventsandconditionsgivingrisetotheneedforAEtobedisclosedintheFS
Howmgt makesAEandunderstandingofthedataonwhichtheyarebased
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SA550RelatedParties(RP)
EffectiveforAuditsoffinancialstatementsforperiodsbeginningonorafterApril1,2010
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OverviewofSA550Ø Introduction
• Scope• EffectiveDate
ØObjectivesØDefinitionsØRequirements
• RiskAssessmentProceduresandRelatedActivities• IdentificationandAssessmentoftheRisksofMaterialMisstatementAssociated
withRelatedPartyRelationshipsandTransactions• ResponsestotheRisksofMaterialMisstatementAssociatedwithRelatedParty
RelationshipsandTransactions• EvaluationoftheAccountingforandDisclosureofIdentifiedRelatedParty
RelationshipsandTransactions• WrittenRepresentations• CommunicationwithThoseChargedwithGovernance• Documentation
ØApplication&OtherExplanatoryMaterialontheseaspects
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Scope
• DealswithAuditor’sresponsibilities:• regardingRPrelationshipsandtransactionswhenperformingauditofFS.
• ExpandsonapplicationofSAs315,330,240wrt:• risksofmaterialmisstatementsassociatedwithRPrelationshipsandtransactions.
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ResponsibilitiesofAuditorPerformprocedurestoidentify,assessandrespondtoriskofmaterialmisstatementonaccountoffailuretoaccountfor/discloseRPrelationship,transactionandbalancesaslaiddownbyFRF.o EvaluatepresenceoffraudriskfactorsasperSA240.o EvenIfFRFestablishesminimalornorequirements–
• concludewhetherFSachieveatrue&fairview;and
• arenotmisleading
oAuditor’sinabilitytodetectmaterialmisstatementsisgreaterincaseofRPrelationship/Transactions.
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Auditor’sObjectives• ObtainanunderstandingofRPrelationships&transactions(irrespectiveofwhetherFRFestablishesRPrequirements)sufficienttobeableto:oRecognizefraudriskfactors.oConcludewhetherFS:
§ achieveatrueandfairpresentationand§ arenotmisleading.
• WhereFRFestablishesRPrequirements:oObtainSAAEaboutwhether:
§ RPrelationships&transactionsappropriatelyidentified,accountedfor&disclosedinFSinaccordancewithFRF.
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RiskAssessmentProcedures(RAPs)&RelatedActivities
RiskAssessmentProcedures&
RelatedActivities(SA315&SA240)
UnderstandingtheEntity’sRP
Relationships&Transactions
MaintainingAlertnessforRPInformationwhenreviewing
Records/Documents
SharingRPInformationwithEngagement
Team
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SA560SubsequentEvents(SE)
EffectiveforauditsoffinancialstatementsforperiodsbeginningonorafterApril1,2009
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Overview• Introduction
§ Scope§ Effectivedate
• Objectives• Definitions• Requirements
§ EventsoccurringbetweenthedateoftheFinancialStatementsandthedateoftheAuditor’sReport
§ FactsWhichBecomeKnowntotheAuditorAftertheDateoftheAuditor’sReportbutBeforetheDatetheFinancialStatementsareIssued
§ FactsWhichBecomeKnowntotheAuditorAftertheFinancialStatementshavebeenIssued
• ApplicationandOtherExplanatoryMaterial
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Scope
• DealswithAuditor’sresponsibilitiesrelatingtoSEinauditofFS.
• TwotypesofSE:• TYPE1:provideevidenceofconditionsthatexistedatdateofFS
• TYPE2:provideevidenceofconditionsthataroseafterdateofFS.
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Objectives
DateofFS
DateofAuditreport
DotheseSErequireadjustmentof/disclosureinFS
ObtainSAAE
FactsthatwouldhaveledtoamendedARifknownatdateofAR
Respondappropriately
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Definitions• DateofFS
• DateofendoflatestperiodcoveredbyFS
• DateofApprovalofFSDateonwhich• CompletesetofFSincludingtherelatednotesprepared;and• AppropriatepersonsassertresponsibilityforabovecompletesetofFS.
• DateofAuditor’sReport• DateofARonFSinaccordancewithSA700• CannotbebeforeSAAEobtainedtoformopinion• CannotbeearlierthanthedateofapprovalofFS
• DateofIssuanceofFS• WhenAR&auditedFSmadeavailableto3rdparties
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Definition– SubsequentEvents
(1)Eventsoccurringbetween:• ThedateofFS;andthedateofAR
AND(2)FactsthatbecomeknowntoauditorafterdateofAR.
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SA570GoingConcern(GC)
EffectiveforauditsoffinancialstatementsforperiodsbeginningonorafterApril1,2009
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OverviewofSA570§ Introduction
• Scope• EffectiveDate
§ Objectives
§ Requirements• RiskAssessmentProceduresandRelatedActivities• EvaluatingManagement’sAssessment• PeriodBeyondManagement’sAssessment• AdditionalAuditProcedureswhenEventsorConditionsareIdentified• AuditConclusionsandReporting• UseofGoingConcernAssumptionAppropriatebutaMaterialUncertaintyExists
• UseofGoingConcernAssumptionInappropriate• ManagementUnwillingtoMakeorExtendItsAssessment• CommunicationwithThoseChargedwithGovernance• SignificantDelayintheApprovaloftheFinancialStatements
§ Application&OtherExplanatoryMaterialontheseAspects
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Scope
DealswithAuditor’sresponsibilityinAuditofFS
Wrt management’suseofGCAssumption
InthePreparation&PresentationofFS
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ResponsibilitiesofManagement• GC- afundamentalprincipleinpreparationofFinancialStatements
• ManagementtomakeaspecificassessmentofGCAssumption
• Judgmentaboutinherentlyuncertainfutureoutcomeofevents/conditions
• Period- atleast12monthsfromdateofFS• Basedon– Informationavailableatparticularpointoftime• Affectedby– Size&Complexityofentity,Nature&Conditionofbusiness
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ResponsibilitiesofAuditor
Obtain SAAE about appropriatenessof management’s use of GCassumption AND
Conclude whether there is materialuncertainty about entity’s ability tocontinue as GC
AbsenceofanyreferencetoGCuncertaintyinAuditor’sreport
nottobeviewedasguaranteeastoentity’sabilitytocontinueasGC
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Auditor’sObjective
§ ObtainSAAE:• aboutappropriatenessofuseofGCAssumptioninpreparation&presentationofFS.
§ Conclude,basedonauditevidence:• whetheramaterialuncertaintyexiststhatmaycastsignificantdoubtonentity’sabilitytocontinueasGC.
§ Determine• implicationsfortheauditor’sreport.
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SA580WrittenRepresentations
EffectiveforauditsoffinancialstatementsforperiodsbeginningonorafterApril1,2009
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OverviewofSA580o Introduction
• Scope• WrittenRepresentations(WR)asAuditEvidence• EffectiveDate
o Objectiveso Definitionso Requirements
• ManagementfromwhomWRRequested• WRaboutManagement’sResponsibilities• OtherWR• DateofandPeriod(s)CoveredbyWR• FormofWR• DoubtastotheReliabilityofWRandRequestedWRNotProvided
o Application&OtherExplanatoryMaterialontheseAspects
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Scope
DealswithAuditor’sResponsibilitytoobtainWRfrom
Management TCWG(whereappropriate)
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WRasAuditEvidence
• WRarenecessaryauditevidence:• butdonotprovideSAAE.
• WRdonotdiluteauditor’sresponsibilitytoobtainotherauditevidenceformatterscoveredbyWR.
• IfMgt.modifiesordoesnotproviderequestedWR-
• possibilityofexistenceofoneormoresignificantissues.
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Auditor’sObjectives
Supportotherauditevidence
ObtainWRthatMgt/TCWGhavefulfilledtheirresponsibilitiesreg:
PreparationoftheFSandCompletenessofinfo.providedtoauditor
Respondappropriatelyto:WRprovided,or
Mgt/TCWGrefusaltoprovideWR
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WRrequiredaboutManagement’sResponsibilities§ PreparationoftheFS:
§ CompliancewithapplicableFRF.
§ InformationProvided&completenessoftransactions:§ HasprovidedallrelevantinformationandaccessasagreedintermsofAuditEngagement.
§ Alltransactionsrecorded&reflectedinFS.
§ Descriptionofmanagement’sresponsibilitiesinWR§ Management’sresponsibilitiesshallbedescribedinWRinthemannerinwhichtheseresponsibilitiesdescribedintermsofauditengagement
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SA600UsingtheWorkofAnotherAuditor
EffectiveforallauditsrelatingtoaccountingperiodsbeginningonorafterApril1,2002
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Introduction
• Establishesstandardsforapplicationinsituationswhereauditorusestheworkofanotherauditor.
• Doesnotcover:• Jointaudits.• Relationshipwithpredecessorauditor.
• Considerhowotherauditor’sworkaffectstheaudit.
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DefinitionsPrincipalAuditor(PA):• Auditorresponsibleforfinancialinformation(FI)ofanentitywhenitincludesFIofoneormorecomponentsauditedbyanotherauditor.
OtherAuditor(OA):• Auditor,otherthanPA,whoisresponsibleforreportingonFIofacomponentwhichisincludedinFIauditedbythePA.
Component:• Division,branch,subsidiary,jointventure,associatedenterpriseoranyotherentitywhoseFIisincludedinFIauditedbyPA.
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PA’sProcedures• ConsidertheprofessionalcompetenceofOA,ifOAisnotamemberofICAI.
• Visitcomponentandexaminebooksofaccount,ifessential.
• Obtainsufficientappropriateevidence,thatworkofOAisadequateforPA'spurposes.
• DiscussauditproceduresappliedbyOA.
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PA’sProcedures• ReviewawrittensummaryofOA’sproceduresandfindingsthroughquestionnaires/checklist.
• ConsidersignificantfindingsofOA:• discussauditfindingswithOAandMgt.ofcomponent.• performsupplementaltestsifnecessary.
• IncaseOAisnotaprofessionallyqualifiedauditor- forinstance,whereacomponentissituatedinforeigncountry:
• Proceduresmentionedaboveassumeaddedimportance.
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DocumentationComponentswhoseFSareauditedbyOAandtheirsignificancetothefinancialinformationoftheentityasawhole.
• Namesoftheotherauditors.• Anyconclusionsreachedthatindividualcomponentsarenotmaterial.
• Proceduresperformedregardingcomponents.• Conclusionsreached.• MannerofdealingwithModifiedReportofOAwhilefinalising PA’sReport.
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Co-ordinationBetweenAuditors
• Sufficientliaison/co-ordinationbetweenPAandOA.• PAmayrequireOAtoansweradetailedquestionnaire.
• OAshouldcoordinatewithPA:• adheringtotime-table.• bringingtotheattentionofPAanysignificantfinding.• compliancewithrelevantstatutoryrequirements.• respondtodetailedquestionnaire.
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ReportingConsiderations
• Expressaqualified/disclaimerofopinionbecauseofscopelimitation:
• ifPAconcludesthathecannotusetheworkofOAand• PAunabletoperformsufficientadditionalproceduresregardingFIofthecomponentauditedbyOA.
• ReportshouldstateclearlydivisionofresponsibilitybetweenPAandOA.
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SA610UsingtheWorkofInternalAuditors
EffectiveforAuditsoffinancialstatementsforperiodsbeginningonorafterApril1,2010
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OverviewofSA610Introduction
• Scope• EffectiveDate
§ Objectives§ Definitions§ Requirements
• DeterminingWhetherandtoWhatextenttousetheworkoftheInternalAuditors
• UsingSpecificWorkoftheInternalAuditors• Documentation
§ ApplicationandOtherExplanatoryMaterial
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Scope
1. DealswithExternalAuditor’sresponsibility:a) Regardingtheworkofinternalauditorsb) Whenexternalauditorhasdeterminedin
accordancewithSA315that• internalauditfunctionislikelytoberelevanttoaudit
2. Doesnotdealwith caseswhereinternalauditorsprovidedirectassistancetoexternalauditorsincarryingoutauditprocedures
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RelationshipbetweenInternalAuditFunction&ExternalAuditor
§ Role&objectivesofinternalauditfunctiondeterminedbyMgt/TCWG.
§ IrrespectiveofDegreeofautonomy/objectivity,internalauditfunctionisnot independentofentity.
§ externalauditorhassoleresponsibilityforauditopinion,and
• thatresponsibilitynotreducedbyuseofworkofinternalauditors.
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Auditor’sobjectives
Ifexternalauditordeterminesinternalauditfunctionlikelytoberelevanttoaudit,heneedstodetermine:
• whether&towhatextenttousespecificworkofinternalauditors;and
• Ifso,whethersuchworkisadequateforexternalauditpurpose.
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UsingSpecificWorkofIAEvaluatetheworktodetermineitsadequacywhether:
• WorkwasperformedbyIAhavingadequatetechnicaltraining&proficiency.
• Workwasproperlysupervised,reviewed&documented.
• AdequateauditevidenceobtainedbyIA.• Conclusionsreachedareappropriate&IAreportsareconsistentwithresultsofwork.
• Exceptions/unusualmattersdisclosedbyIAareproperlyresolved.
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SA620UsingtheWorkofAnAuditor’sExpert
EffectiveforAuditsoffinancialstatementsforperiodsbeginningonorafterApril1,2010
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OverviewofSA620• Introduction
• Scope• Theauditor’sresponsibilityfortheauditopinion• Effectivedate
• Objectives• Definitions• Requirements&Application
• Determiningtheneedforanauditor’sexpert• Nature,timing&extentofauditprocedures• Competence,capabilities&objectivityoftheauditor’sexpert• Obtaininganunderstandingoffieldofexpertiseofauditor’expert• Agreementwiththeauditor’sexpert• Evaluatingtheadequacyoftheauditor’sexpert’swork• Referencetotheauditor’sexpertinauditreport
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ScopeofSA
Auditor’sresponsibilities
Individualororganisation’s work
AuditorusesthisworkinobtainingSAAE
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ResponsibilityforAuditOpinion
• Auditopinionissoleresponsibilityofauditor
• Thatresponsibilitynotreducedbyuseofworkofauditor’sexpert
• Nonetheless,IfrequirementsofthisSAarefollowed&auditorconcludesexpert’sworkisadequate,hemayacceptthatworkasSAAE.
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Auditor’sObjectives
Determine
Whethertouseworkof
auditor’sexpert
Ifyes,whetherthatworkisadequate
forauditor’spurposes
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Competence,Capabilities&ObjectivityofAuditor’sExpert• Evaluatecompetence,capability&objectivityofexpert
• IfExternalexpert- inquireintointerestsandrelationshipsthatthreatenobjectivity
• Competence• nature&levelofexpertise
• Capability• abilitytoexercisecompetenceincircumstancesofengagement
• Objectivity• possibleeffectsthatbias/conflictofinterest/influenceofothersmayhaveonprofessional/businessjudgment
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SA700ForminganOpinion&ReportingonFinancial
Statements
EffectiveforAuditsoffinancialstatementsforperiodsbeginningonorafterApril1,2012
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OverviewofSA700§ Introduction
• Scope• EffectiveDate
§ Objectives§ Definitions§ Requirements
• ForminganopiniononFS• Formofopinion• Auditor’sreport• SupplementaryinformationpresentedwithFS
• ApplicationandOtherExplanatoryMaterial• Appendix- IllustrativeFormatsofAuditorReport
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Scope• Dealswithauditor’sresponsibilitytoformanopinionontheFS
• Alsodealswithform&contentofauditor’sreportissuedasaresultofanauditofFS
• Modifiedopinion,EMP,OMPdealtwithbySA705&706• SA700writtenincontextofgeneralpurposeFS
• FSunderspecialpurposeframeworkdealtbySA800&SA805
• Itpromotesconsistencyinauditreports
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Auditor’sObjectives
• FormanopiniononFSbasedonevaluationofconclusionsdrawnfromauditevidence
AND• Express clearlythatopinionthroughawrittenreportthatalsodescribesthebasisforopinion
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ForminganOpiniononFS
• WhetherFSarepreparedinallmaterialrespectsinaccordancewithapplicableFRF
• Toformthisopinion,auditorneedstoconcludewhetherhehasobtainedreasonableassurancethatFSasawholearefreeofmaterialmisstatements(fraud/error)
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FormofOpinion
• UNMODIFIEDOPINION:• AuditorconcludesFSarepreparedinallmaterialrespectsasperapplicableFRF
• MODIFIEDOPINION(dealtbySA705):• Basedonauditevidence,auditorconcludesFSasawholenotfreefrommaterialmisstatements OR
• AuditorunabletoobtainSAAEthatFSasawholearefreefrommaterialmisstatements
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Auditor’sReport
• Shallbeinwriting• Writtenreportencompassesreportsissued:• inhardcopyformatAND• usingelectronicmedium
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TitleAddresseeIntroductoryParaMgt ResponsibilityforFSParaAuditor’sResponsibilityParaAuditor’sOpinionOtherReportingResponsibilities
SignatureoftheAuditor
DateoftheAuditor’sReport
PlaceofSignature
AuditReportforAudits
ConductedinAccordancewithSAs
ELEMENTS
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SA705ModificationstotheOpinioninthe
IndependentAuditor’sReport
EffectiveforAuditsoffinancialstatementsforperiodsbeginningonorafterApril1,2012
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OverviewofSA705• Introduction
• Scope• EffectiveDate
• Objective• Definitions• Requirements&applications
• Circumstanceswhenmodificationofauditor’sopinionisrequired
• Determiningtypeofmodificationtoauditopinion• Form&contentofauditreportwithmodifiedopinion
• CommunicationwithTCWG
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Scope
• DealswithAuditor’sresponsibilitytoIssueanappropriatereportincircumstanceswhen:§ InforminganopinionasperSA700,Auditorconcludesthatamodificationtoauditor’sopinionisnecessary
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TypesofModifiedOpinions
Qualified Adverse Disclaimer
Natureofmattergivingrisetomodification
Auditor’sjudgmentrepervasivenessofeffects/possibleeffectsofmatteronFS
WhetherFSaremateriallymisstated
InabilitytoobtainSAAEleadingtopossiblematerialmisstatementinFS
AffectingFactors
AND
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Auditor’sObjective
• Expressclearlyanappropriatelymodifiedopinionthatisnecessarywhenauditor:
• CONCLUDES (basedonauditevidenceobtained)thatFSareasawholenotfreefrommaterialmisstatements
OR• UNABLE toobtainSAAEtoconcludethatFSasawholearefreeofmaterialmisstatements
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DeterminingtheTypeofModificationtoAuditor’sOpinion
NatureofMatterGivingRiseto
theModification
Auditor’sJudgmentaboutthePervasivenessoftheEffectsor
PossibleEffectsontheFSMaterialbutNot
PervasiveMaterialand
PervasiveFSarematerially
misstatedQualifiedopinion
Adverseopinion
InabilitytoobtainSAAE
Qualifiedopinion
Disclaimerofopinion
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SA706EmphasisofMatterParagraphsandOtherMatterParagraphsintheIndependentAuditor’sReport
EffectiveforAuditsoffinancialstatementsforperiodsbeginningonorafterApril1,2012
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OverviewofSA706• Introduction
• Scope• Effectivedate
• Objective• Definitions• Requirements&Application
• Emphasisofmatterparagraphs• Othermatterparagraphs• CommunicationwithTCWG
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Scope&Auditor’sObjectives
• DealswithAdditionalcommunicationinauditreport(AR)
• Whenauditorconsidersitnecessarytodrawusers’attentionto:
• Matter/spresentedordisclosedinFSthatareofsuchimportancethattheyarefundamentaltousers’understandingofFS
OR• Matter/sotherthanthosepresented/disclosedinFSthatarerelevanttousers’understandingofaudit/auditor’sresponsibilities/AR
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EMPinAuditReport
• MattersfundamentaltounderstandingofFS• AuditorshouldhaveobtainedSAAEthatmatterisnotmateriallymisstatedinFS
• EMPtoreferonlytoinfopresented/disclosedinFS
• WidespreaduseofEMPreduceseffectivenessofauditor’scommunicationofsuchmatters
• MoreinfoinEMPthanFSmayimplymatternotadequatelypresenteddisclosedinFS
• Thus,EMPlimitedtomatterpresented/disclosedinFS
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OMPinAuditReport
• IncludeifnotprohibitedbyL&R• Useheading“OtherMatter”/otherappropriateheading
• Placement:• immediatelyafterOpinionpara&EMPor• elsewhereifOMPisrelevanttoOtherReportingResponsibilitiessection
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SA710ComparativeInformation– CorrespondingFigures
andComparativeFinancialStatements
EffectiveforAuditsoffinancialstatementsforperiodsbeginningonorafterApril1,2011
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Overview§ Introduction
• Scope• Effectivedate
§Objectives§Definitions§ Requirements&Application
• Auditprocedures• Auditreporting
§ Appendix:Illustrativeauditor’sreports
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Definition- ComparativeInformation
Amountsanddisclosures
IncludedinFS
Inrespectofoneormorepriorperiods
InaccordancewithapplicableFRF
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Scope• Dealswithauditor’sresponsibilitiesrelatingtocomparativeinfoinauditofFS
• WhenpriorperiodFSwereauditedbyanotherauditororwerenotaudited:
• RequirementsofSA510wrt openingbalancesalsoapply
• NatureofComparativeInfo:• DependsuponapplicableFRF.• Twoapproaches:
• Correspondingfigures• ComparativeFS
• ApproachoftenspecifiedbyL&R• Mayalsobespecifiedbytermsofengagement
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CorrespondingFiguresvisavisComparativeFS– Auditreportingdifferences
CorrespondingFigures ComparativeFSAuditor’s opinion on FSrefers to current periodonly
Auditor’s opinion refers toeach period for which FSare presented
SA710separatelycoversauditreportingforbothtypesofapproaches
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Auditor’sObjectivesOBTAIN REPORT
SAAE
Whethercomparativeinfo(CI)includedinFShasbeenpresented
inallmaterialrespectsinaccordancewithrequirementsofapplicableFRF
Inaccordancewithauditor’sreportingresponsibilities
and
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SA720TheAuditor’sResponsibilitiesinRelationtoOtherInformationinDocumentsContaining
AuditedFinancialStatements
EffectiveforAuditsoffinancialstatementsforperiodsbeginningonorafterApril1,2010
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OverviewofSA720• Introduction
• Scope• Effectivedate
• Objective• Definitions• Requirements
• ReadingOtherInformation(OI)• MaterialInconsistencies• MaterialMisstatementofFact
• Application&OtherExplanatoryMaterialontheseaspects
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Scope• Dealswithauditor’sresponsibilitywrt otherinformation(OI)indocumentscontaining:
• auditedFSandauditor’sopinionthereon.
• Unlessanyspecificrequirementinanengagement:• Auditor’sopiniondoesnotcoverOI.• AuditorhasnospecificresponsibilitytodeterminewhetherOIisproperlystated.
• BUT,needtoreadtheOI since:• inconsistenciesofOIvis-a-visauditedFSunderminesthecredibilityoftheauditedFS.
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Auditor’sObjective
• Respondappropriately:§wheresuchotherinformationcouldunderminecredibilityofauditedFSandAuditReport.
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DefinitionsOtherInformation(OI)§ Financial&non-financialinformation,Includedbylaw/regulation/custom,indocumentscontainingauditedFSandAuditReport.Examples:
• Reportbymanagement/TCWG.• Financialsummaries/highlights.• Financialratios.• Selectedquarterlydata.
• Doesnotinclude:• Pressrelease/transmittalmemorandumaccompanyingthedocumentscontainingauditedFS.
• Informationcontainedinanalystbriefings.• Informationonentity’swebsite.
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DefinitionsInconsistency• OIthatcontradictsinformationcontainedinauditedFS.
• Mayraisedoubtabout:• auditconclusionsdrawnfromauditevidenceobtainedearlier.
• basisofauditopiniononFS.
MisstatementofFact• OIthatis:
• unrelatedtoauditedFSand• incorrectlystated/presented.
• MayunderminecredibilityofauditedFS.
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MainRequirementsReadingOI• ReadOItoidentifymaterialinconsistenciesvis-a-visauditedFS.
• Makeappropriatearrangementswithmgt/TCWGtogetOIbeforedateofAuditReport:§ Helpstimelyresolutionofpossiblematerialinconsistency/misstatementoffacts.
§ AgreementwithmanagementastotimeofavailabilityofOI.§ Ifnotpossiblebefore,thengetOI,assoonaspracticable.
MaterialInconsistencies• Itmaterialinconsistenciesidentified:
§ DeterminewhetherauditedFSorOIneedsrevision
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StandardonQualityControl(SQC)1QualityControlforFirmsthatPerformAudits&ReviewsofHistoricalFinancialInformation,andOtherAssurance&
RelatedServicesEngagements
EffectiveforallEngagementsrelatingtoaccountingperiodbeginningonorafterApril1,2009
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Objective
• Firm’s responsibility for its system of quality control for:• Audits and reviews of historical financial information
• Other assurance and related services engagements
Note:• QualitycontrolresponsibilityoffirmpersonnelforspecificengagementssetoutinotherStandards,
e.g., SA 220.
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Parameters
SQC1istobereadinconjunctionwith
• TheCharteredAccountantsAct,1949• CodeofEthics• OtherrelevantpronouncementsofICAI
Collectivelyknownas“theCODE”.
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SystemofQualityControl
Allfirmsshouldestablishasystemofqualitycontrolthatprovidesreasonableassurancethat:
• Firm&itspersonnelcomplywithprofessionalstandards,regulatory&legalrequirements.
• Reportsissuedbyfirmorpartnersareappropriateinthecircumstances.
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Definitions
• Engagementdocumentation• Engagementpartner• Engagementquality
controlreview• Engagementqualitycontrol
reviewer• Engagementteam• Firm• Inspection• Listedentity
•Monitoring• Networkfirm• Network• Partner• Personnel• Professionalstandards• Reasonableassurance• Staff• Suitablyqualified
externalperson
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ElementsofSystemofQualityControl
1. Leadershipresponsibilitiesforquality
2. Ethicalrequirements
3. Clientacceptance/continuance
4. Humanresources
5. Engagementperformance
6. Monitoring
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Documentation
§ DocumentQCpolicies&procedures
§ Communicatetoallfirmpersonnel:• descriptionofQCpolicies• objectivestobeachievedtherefrom• allresponsibleforquality• allexpectedtocomply
§ ObtainfeedbackonQCsystemfrompersonnel
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SA800SpecialConsiderations– AuditofFinancialStatements
PreparedinAccordancewithSpecialPurposeFrameworks
EffectiveforAuditsoffinancialstatementsforperiodsbeginningonorafterApril1,2011
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OverviewofSA800§ Introduction
• Scope
• Effectivedate
§ Objective
§ Definitions
§ Requirements&Applications• considerationswhenacceptingtheengagement• considerationswhenplanning&performingtheaudit• forminganopinion&reportingconsiderations
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ScopeofSA800• DealswithspecialconsiderationsintheapplicationofotherSAs:
• ToauditofFSpreparedinaccordancewithaspecialpurposeframework(SPF)
• WritteninthecontextofcompletesetofFSpreparedinaccordancewithaSPF
• DoesnotoverriderequirementsofotherSAs;
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Auditor’sObjectiveAddressappropriatelyspecialconsiderationsrelevantto:
• Engagementacceptance
• Engagementplanning&performance
• Formingopinion&reportingonFS
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EngagementAcceptance- Considerations• Obtainunderstandingof:
• PurposeforwhichFSareprepared• Intendedusers• Stepstakenbymgt todeterminethatapplicableFRFisacceptable
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Planning&PerforminganAudit–Considerations• DeterminewhethertheapplicationofSAsrequirespecialconsiderationsincircumstancesoftheengagement
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ForminganOpinion&ReportingConsiderationsApplySA700(R)Also:• DescribethepurposeforwhichFSareprepared&intendedusers
• Ifmgt hasachoiceofFRFsinthepreparationofFS:• Explanationofmgt’s responsibilityfortheFSmakereferencetoitsresponsibilityfordeterminingacceptabilityofapplicableFRF.
• EvaluatewhetherFSadequatelydescribetheFRFapplied• IncludeEmphasisofMatterparatoalertusersreapplicationofspecialpurposeFRF
• FSmaynotsuitableforanotherpurpose
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SA805SpecialConsiderations– AuditsofSingleFS&SpecificElements,AccountsorItemsofFS
Effectiveforauditsofsinglefinancialstatementsorofspecificelements,accountsoritemsforperiods
beginningonorafterApril1,2011
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Overview• Introduction
• Scope• Effectivedate
• Objective
• Definitions
• Requirements&Application• Considerationswhenacceptingtheengagement• Considerationswhenplanning&performingtheaudit• Forminganopinionandreportingconsiderations
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Scope• SA 805 deals with special considerations in applicationof Other SAs to:
• Audit of single financial statements (SFS)• Specific element/account/ item of FS (EFS)
• IT DOES NOT:• Apply to the report of component auditor• Override the requirements of other SAs• Deal with all special considerations that may be relevant inthe circumstances of the engagement
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Auditor’sObjective• Addressappropriatelyspecialconsiderationsrelevantto:
• Acceptanceoftheengagement• Planning&performanceofthatengagement• Forminganopinion&reportingonSFS&EFS
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ApplicationofSAs• SA200requirescompliancewithallSAsrelevanttoaudit
• ThisappliestoauditofSFSeveniftheauditoralsoauditsthecompleteFS.
• IfauditornotalsoengagedtoauditthecompleteFS,considerthepracticabilityofauditofSFSinaccordancewithSAs.
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AcceptabilityofFRF§ AuditortodetermineacceptabilityofFRF(SA210)
§ ConsiderwhetherFRFincludesallrequirementsrelevanttopreparationofSFS/EFS
§ ForauditofSFS,determine:• WhetherapplicationofFRFwillresultinpresentationthatprovidesadequatedisclosurestoenableintendeduserstounderstandinfoconveyedinSFSand
• EffectofmaterialtransactionsandeventsoninfoconveyedinSFS
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FormofOpinion• ExpectedformofopiniondependsuponapplicableFRF&applicableL&R
• Communicateexpectedformofreport– SA210• Considerwhetherexpectedformofopinionisappropriateinthecircumstances
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Planning&PerformanceConsiderations
• AdaptallSAsasnecessaryintheauditofSFS• CarefulconsiderationofrelevanceofeachSAisnecessary
• WhenauditingSFSinconjunctionwithfullFS,auditevidenceobtainedaspartofauditoffullFSmaybeusefulBUTauditorneverthelessneedstoplan&performauditofSFStoobtainSAAE
• SomeitemsfromcompleteFSmaybeinterrelatedwithEFS
• Auditorwouldneedtoperformproceduresonsuchinterrelateditems
• MaterialityofSFS<materialityforfullFS
• AffectsNatureTimingExtentofauditprocedures
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FormingOpinion&Reporting-Considerations• ApplySA700,asnecessary.• IfalsoengagedtoreportonfullFS,expressseparateopiniononeachengagement.
• IfauditedSFSpublishedwithentity’sauditedfullFS,presentationofSFSshouldbeclearlydifferentiatedfromfullFS.
• DonotissueauditreportonSFSuntilsatisfiedwiththedifferentiation.
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SA810EngagementstoReporton
SummaryFinancialStatements
Effectiveforauditsofsinglefinancialstatementsorofspecificelements,accountsoritemsforperiodsbeginningonorafterApril1,2011
255 MPVijayKumarFCA
OverviewofSA810• Introduction
• Scope• Effectivedate
• Objectives• Definitions• Requirements&Application
• Engagementacceptance• Natureofprocedures• Formofopinion• Timingofworkandeventssubsequenttothedateofauditor’sreport• Auditreportonsummaryfinancialstatements• Restrictionondistributionoruse• Comparatives• Unauditedsupplementaryinformationpresentedwithsummaryfinancialstatements
• Otherinformationindocumentscontainingsummaryfinancialstatements• Auditorassociation
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Scope• Dealswithauditor’sresponsibilities:
• Whenundertakingengagementtoreportonsummaryfinancialstatements(SFS)
• DerivedfromFSauditedinaccordancewithSAbythatsameauditor
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Objectives
DETERMINEAPPROPRIATENESS
FORMOPINIONONSFS
EXPRESSTHEOPINIONCLEARLY
OfacceptingtheengagementtoreportonSFS
Basedonevaluationofconclusionsdrawnfromevidenceobtained
Throughwrittenreportthatalsodescribesbasisfor
thatopinion
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EngagementAcceptance• AuditorshallOrdinarily accepttheengagementtoreportonSFSonlywhen:
• AlsoengagedtoconductauditinaccordancewithSAsofthoseFSfromwhichtheseSFShavebeenderived.
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BeforeAcceptingtheEngagement
DETERMINEwhetherappliedcriteriaareacceptable
OBTAINmgt agreementthatitacknowledges&understandsitsresponsibilities
AGREEwithmgt theformofopiniontobeexpressedonSFS
Donotacceptengagementif:• criteriaareunacceptableOR• unabletoobtainmgt agreementunlessrequiredbyL&R
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SRE2400EngagementstoReviewFinancialStatements
EffectiveforreviewsoffinancialstatementsforperiodsbeginningonorafterApril1,2010.
261 MPVijayKumarFCA
OverviewofSRE2400• Introduction• Objective of a Review Engagement• General Principles of a Review Engagement• Scope of a Review• Moderate Assurance• Terms of Engagement• Planning• Work Performed by Others• Documentation• Procedures and Evidence• Conclusions and Reporting• Effective Date• Appendices
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PurposeofSRE2400Establishstandards&provideguidance
ReviewofFinancialStatements
Practitioner’sprofessionalresponsibilities
Form&contentofreviewreport
Nottheauditoroftheentity
Ifauditorperformsreviewofinterimfinancialinformation,applySRE2410
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ObjectiveofaReviewEngagementEnablethepractitioner
ToState
OnbasisofProcedures
Attention
BelieveFSarenotprepared
inallmaterialrespectsinaccordancewith
applicableFRF
NEGATIVEASSURANCE
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GeneralPrinciples• ComplywithICAICodeofEthics.• ConductreviewinaccordancewiththisSRE.• Exerciseprofessionalskepticismwhile:
• Planningreview.• Performingreview.
• Obtainsufficientappropriateevidence:• Forexpressingnegativeassurance.• Primarilythroughinquiry&analyticalprocedures.
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ScopeofReview• ReferstoReviewproceduresdeemednecessaryincircumstancestoachieveobjectivesofreview.
• Proceduresshouldbedeterminedhavingregardtorequirementsof:
• ThisSRE.
• Relevantprofessionalbodies.
• Legislation®ulation.
• Termsofengagement.
• Reportingrequirements.
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TermsofEngagement• AgreeToE withtheclient:
• Engagementletter.
• Othersuitableformofcontract.
• Sendtoclientanengagementletterdocumentingkeytermsofappointment:
• Confirmspractitioner’sacceptanceofappointment.
• Avoidsmisunderstandingsreg.objectives&scope.
• Clarifiespractitioner’sresponsibility.
• Assistsinplanningthereview.
• ClarifiesFormofreporttobeissued.
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RevisedSRE2400Engagementsto
ReviewHistorical FinancialStatements
EffectiveforReviewsofFSforperiodsbeginningonorafterApril1,2016
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AttheOutset...• ThereisnoconceptualchangeinrevisedSRE2400• ContinuestoapplytopractitionerswhoareNOT statutoryauditorsofclient,iftheyundertake:
• Reviewoffullhistorical financialstatements• Reviewofinterimfinancialstatements/information
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NeedforRevision....• Makingclearthedistinguishingfeaturesofareviewengagement
• Promoteclarityamongusersaboutthenatureofreview
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EnhancedGuidance/Updations
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LimitedAssurance.....TermintroducedinrevisedSRE2400
• InlinewithconceptsofreasonablevslimitedassuranceinFrameworkforAssuranceEngagements
• Helpsbetterexplainnatureofareviewengagement
§ Applicationoflimitedproceduresvisavisafullfledgedaudit
• Normally,limitedtoinquiriesandanalyticalprocedures
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SufficientAppropriateEvidence(SAE)• Existingconcept
• Reiteratedinvariousparastohighlightthat:
• SAEisimportantforreachingbasisofconclusionandreportasenvisagedbytheStandard
• Evidencegatheringisasmuchanessentialelementofareviewengagement
• Reviewisnota“procedurebased”(or“checkbox”)engagement
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PerformingtheReviewEngagementReiterates:• Considerationandroleofprofessionaljudgmentwrt whatotherprocedurestouse
• Inadditiontoanalyticalprocedures/inquiry,incaseswheresoconsiderednecessarybythepractitioner
• Importanceofcohesionbetweenknowledgeofentity&itsenvironment,FRF&professionaljudgment
• Todesign&performprocedurestofocusonareaswherematerialmisstatementsarelikelytoarise
• Todesign&performotherprocedures,whererequired
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Reporting• ElementsbroughtinlinewithSA700.Includes:
• Introduction• Management’sResponsibility• Practitioner’sResponsibility• Descriptionofreview&itslimitations• Conclusions
• ConceptsbroughtinfromSA705&SA706:• Modificationto“conclusions”• EmphasisofMatter• OtherMatters
• MannerofReporting• Nochange,same“Negative”Reporting
• “Nothinghascometoourattention........”
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OtherRevisions• Expresslyincludednow:
• Donotacceptreviewengagementifnotsatisfiedthatreviewwouldbeappropriateinthecircumstances
• Engagementpartnerto
– possesscompetenceinassuranceskillsandtechniques,&competenceinfinancialreporting,appropriatetothecircumstances
– Takeresponsibilityforengagementteam–collectivelyhavecompetence&capabilities
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ObjectivesofthePractitioner
ObtainLIMITEDAssurance
Report&Communicate
FSarefreeofMaterialMisstatement OnFSasawhole
Inquiry AnalyticalProcedures
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SRE2410ReviewofInterimFinancialInformation
PerformedbytheIndependentAuditoroftheEntity
EffectiveforreviewsofinterimfinancialinformationforperiodsbeginningonorafterApril1,2010
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OverviewofSRE2410• Introduction• General Principles of a Review of IFI• Objective of an Engagement to Review IFI• Agreeing the Terms of the Engagement• Procedures for a Review of IFI• Evaluation of Misstatements• Management Representations• Auditor’s Responsibility for Accompanying Information• Communication• Reporting the Nature, Extent & Results of Review of IFI• Documentation• Effective date• Appendices
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InterimFinancialInformation• Financialinformation:
• Prepared&presentedinaccordancewithapplicablefinancialreportingframework.
• Compriseseitheracompleteorcondensedsetoffinancialstatements.
• Foraperiodthatisshorterthanentity’sFY.
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SREApplicationMatrix
ReviewofFinancialStatements
ReviewofInterimFinInfo
Independentauditor SRE2400 SRE2410Otherpractitioner SRE2400 SRE2400
Why separate SRE 2410 for Independent Auditors?
• For audit engagements, independent auditor would have obtainedunderstanding of entity and its environment including internal control.
• For reviewing IFI he updates this understanding through inquiry &analytical procedures.
• Other practitioner does not ordinarily have the same level of understanding.• Need for different inquiries & procedures
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GeneralPrinciplesofReviewofIFI• ComplywithethicalrequirementsapplicabletoauditofannualFSofentity.
• Implementqualitycontrolproceduresapplicabletoindividualengagement.
• Plan&performengagementwithattitudeofprofessionalskepticism.
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ObjectiveofEngagementtoReviewIFI• Enable auditor to express a conclusion whether
• On the basis of the review
• Anything has come to auditor’s attention
• That causes auditor to believe
• That IFI is not prepared in all material respectsin accordance with applicable FRF.
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AgreeingtheTermsofEngagement• Auditor&clientshouldagreeonToE.
• ToE ordinarilyrecordedinengagementletter.
• Helpsavoidsmisunderstandingswrt:• natureofengagement.• objectiveandscopeofreview.• management’sresponsibilities.• auditor’sresponsibilities.• assuranceobtained.• natureandformofreport.
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SAE3400TheExaminationofProspectiveFinancial
Information(PFI)
Effectiveinrelationtoreportsonprojections/forecastsissuedonorafterApril1,2007
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Introduction- I• Establishesstandardsonengagementstoexamineandreporton:
• PFI• examinationproceduresforbestestimateandhypotheticalassumptions
• PFIcanbeintheformof:• forecastor• projectionor• combinationofboth.
• NotapplicabletoexaminationofPFIexpressedingeneralornarrativeterms.
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Introduction- II• Obtain sufficient appropriate evidence on:
• reasonableness of management’s best-estimateassumptions.
• hypothetical assumptions are consistent withthe purposes of information.
• PFI prepared properly on basis of assumptions.
• properly presented and adequate disclosure ofall material assumptions.
• consistent with historical financial statements.
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AcceptanceofEngagement• Beforeacceptingengagementconsider:
• theintendeduseoftheinformation.
• information- generalorlimiteddistribution.
• thenatureoftheassumptions,i.e.best-estimatesorhypotheticalassumptions.
• theelementstobeincludedininformation.
• theperiodcoveredbyinformation.
• Notacceptorwithdrawfromengagementif:• Assumptionsareclearlyunrealistic.
• BelievesthatPFIwillbeinappropriateforitsintendeduse.
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KnowledgeofBusiness• Obtain sufficient level of knowledge of business toevaluate all significant assumptions:
• internal controls over the system used to prepare PFI.
• documentation supporting management’s assumptions.
• extent to which statistical, mathematical and computer-assisted techniques used.
• methods used to develop and apply assumptions.
• accuracy of PFI prepared in prior periods.
• Consider the extent to which reliance on the entity’shistorical financial information is justified.
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PeriodCovered• ConsidertheperiodoftimecoveredbyPFI:
• moreLength- AssumptionsMoreSpeculative.
• notextendbeyondthetimeforwhichmanagementhasreasonablebasisforassumptions.
• RelevantFactors:
• operatingcycle.
• degreeofreliabilityofassumptions.
• needsofuserslike,preparedinconnectionwithapplicationforloanorforissueofsecurities.
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ExaminationProcedures- IFactorsindeterminationofnature,timing,extentofexaminationprocedures:
• knowledgeobtainedduringpreviousengagements.
• management’scompetence.
• likelihoodofmaterialmisstatement.
• extenttowhichPFIisaffectedbythemanagement’sjudgment.
• sourcesofinformation.
• stabilityofentity’sbusiness.
• engagementteam’sexperience.
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ExaminationProcedures- II• Whenhypotheticalassumptionsused:
• allsignificantassumptionstakenintoconsideration.• consistentwithpurposeandrealistic.
• Focusonareassensitivetovariationandmaterial.
• Ifengagementforindividualcomponent,considerinterrelationshipofothercomponents.
• ObtainwrittenrepresentationsfromMgt.regarding:• intendeduseofPFI.• completenessofsignificantassumptions.• mgt’s acceptanceofresponsibilityforPFI.
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PresentationandDisclosure• Considerrequirementsofstatutes,regulationsandprofessionalpronouncements.
• Alsoconsiderwhether:• presentationisinformativeandnotmisleading.• accountingpoliciesandassumptionsareclearlydisclosedinnotestoPFI.
• dateofpreparationisproperlydisclosed.• basisofestablishingpointsinarangeisclearlyindicated.
• adequacyofdisclosureifanychangeintheaccountingpolicy.
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Documentation• Documentmattersimportantinprovidingevidence:
• TosupporthisreportonexaminationofPFI;and
• thatsuchexaminationwascarriedoutinaccordancewiththisSAE.
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Reporting- I• ThereportoftheAuditorshouldcontainthefollowing:
• titleandAddressee.• identificationoftheprospectivefinancialinformation.• referencetoapplicableStandardsonAuditing.• managementresponsibilities.• whenapplicable,areferencetopurposeand/orrestricteddistribution.
• statementthatexaminationproceduresincludedexamination,onatestbasis.
• statementofnegativeassurance.• opinionwhetherPFIproperlypreparedonbasisofassumptionsandpresentedinaccordancewithrelevantfinancialreportingframework.
• appropriatecaveatsconcerningachievabilityofresults.• dateofreport,PlaceofsignatureandSignature.
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Reporting- II1. Qualified/Adverse opinionorwithdrawfromengagement,if
auditorbelievesthat:
• presentationanddisclosureofthePFIisnotadequate.
2. Adverseopinionorwithdrawfromengagement,ifauditorbelievesthat:
• oneormoresignificantassumptionsdonotprovideareasonablebasisforthePFI
3. Disclaimer ofopinionorwithdrawfromengagement,if:
• examinationisaffectedbyconditionsthatprecludeapplicationofprocedure(s)considerednecessaryincircumstances.
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SAE3402AssuranceReportsonControlsat
AServiceOrganisation
Effectiveforserviceauditors’assurancereportscoveringperiodsbeginningonorafter1stApril,2011
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OverviewofSAE3402• Introduction• Objectives• Definitions• Requirements
• FrameworkforAssuranceEngagements
• Ethicalrequirements
• Management&TCWG
• Acceptance&continuance
• Assessingsuitabilityofcriteria
• Materiality
• ObtainingunderstandingofSO’ssystem
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OverviewofSAE3402(contd.)• Obtainingevidenceredescription
• Obtainingevidenceredesignofcontrols
• Obtainingevidencereoperatingeffectivenessofcontrols
• Workofinternalauditfunction
• Writtenrepresentations
• Otherinformation
• Subsequentevents
• Documentation
• PreparingSA’sassurancereport
• Othercommunicationresponsibilities
• Applicationguidance(onaboveaspects)• Appendices
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Introduction• ReportforusebyUEandUA
• OncontrolsatSO
• ProvidesaservicetoUE
• ThatserviceislikelytoberelevanttoUE’sICFR• Matterofprofessionaljudgment
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SAE3402dealsONLYwith….• Assertion-basedengagements
• Reasonableassurance
• Assuranceconclusionwordeddirectlyintermsofsubjectmatter&criteria
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ApplicabilityofSAE3402
• Appliesonlyifinrespectofsuitabledesignofcontrols,SOis:
• Responsible• Otherwisemakesanassertion
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DoesNotApplyto……….• ReportingonwhethercontrolsatSOoperatedasdescribed
• ReportingonlyoncontrolsatSOotherthanthoserelatedtoaservicerelatedtoUE’sICFR
• ReportingonUE’stransactionbalancesmaintainedbySO
• AUPreportoncontrolsatSO
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SOAuditor’sObjectivesObtainreasonableassurance
DescriptionofsystemasgivenbySO
Report
Controlobjectiveswereachieved
Throughoutspecifiedperiod
Fairlypresentsthesystem
Asdesigned&implemented
Controlsrelatedtocontrolobjectives
Suitablydesigned
Controlsoperatedeffectively
Toprovidereasonableassurance
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SAE3420AssuranceEngagementstoReportontheCompilationofPro
FormaFinancialInformationIncludedinaProspectus
EffectiveforassurancereportsdatedonorafterApril1,2016
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ScopeofSAE3420• Reasonable assurance engagements to report of Proforma financial information (PFI)
• As prepared by a responsible party (Client)
• To be included in a prospectus
• Applies where such reporting is:
• Required by securities laws
• Generally accepted practice
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Whatis“PFI”?
• Financialinformationshowntogetherwithadjustmentstoillustratetheimpactofanevent/transactiononunadjustedfinancialinformation
• Asiftheeventhadoccurredorthetransactionhadbeenundertakenatanearlierdateselectedforpurposesoftheillustration.
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Whatis“ApplicableCriteria”
• CriteriausedbyclientwhencompilingPFI
• Maybeestablishedbylaw/regulation,etc
• Ifnotsoestablished,developedbyclient
• PFItobeaccompaniedbyadequatedisclosuresregardingcriteria
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Whatis“ProFormaAdjustments”?
AdjustmentstoUnadjustedFinancialInfo
Illustratetheimpactofasignificanteventor
transaction
NecessaryforPFItobecompiledonbasisconsistentwithapplicableFRF
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ResponsibilityforPFI
Preparation/Compilation
• Client
Reportingthereon
• Practitioner
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PurposeofPFIincludedinProspectus• Illustrateimpactofsignificantevent/transactiononunadjustedinformation
• PFIdoesnotrepresententity’sactualfinancialposition,financialperformanceorcashflows
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PFICompilationProcessofClient
Presentsproforma infowithaccompanyingdisclosures
Makesproforma adjustments
Extractsunadjustedfinancialinfofromsource
Identifiessourceofunadjustedinfotobeused
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NatureofAssuranceExpressedbyPractitioner
ReasonableAssuranceunderSAE3420
AssesswhethercriteriausedincompilingPFIprovidesreasonablebasisforpresentingsignificanteffectsdirectlyattributabletoevent
Obtainsufficientappropriateevidence:• Relatedproformaadjustmentsgiveappropriateeffecttothosecriteria
• Resultingproformacolumnreflectsproperapplicationofthoseadjustmentstounadjustedfinancialinfo
Practitioner does not:• Update/reissueanyearlierreports/opinionsonanyhistoricalfinancialinfousedincompilingPFI
• Perform an audit or review of the financial info used in compiling PFI
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SRS4400EngagementstoPerformAgreed- uponProcedures
regardingFinancialInformation
EffectiveforallagreeduponproceduresengagementsbeginningonorafterApril1,2004
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Introduction• Establishesstandardsonauditor’sprofessionalresponsibilitieswithregardto:
• performAgreed-uponProcedures(AUP)onFinancialInformation(FI).
• form&ContentofreportofAUPengagements.
• Reportoffactualfindingsbasedon:
• specifiedproceduresperformedonspecifiedsubjectmatterofspecialelements,accountsoritemsofFS.
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Objectives
• Tocarryoutproceduresofauditnaturetowhichtheauditor,theentityandanyappropriatethirdpartieshaveagreed;and
• Toreportonfactualfindings.
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GeneralPrinciples• ComplywithCodeofEthicsissuedbyICAI.
• Wheretheauditorisnotindependent:• astatementtothateffectshouldbemadeinreportoffactualfindings.
• ConductAUPengagementinaccordancewith:• thisSRS;and• termsofengagement.
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DefiningTermsofEngagement-I• Ensurethatthereisclearunderstandingofagreedprocedures,conditionsofengagementwith:
• representativesofentity.• otherspecifiedpartieswhowillreceivecopiesofreport.
• Mattersagreedincludes:• natureofengagement.• statedpurposeforengagement.• identificationofFItowhichAUPapplied.• nature,timingandextentofspecificprocedurestobeapplied.
• limitationsondistributionofreport.
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DefiningTermsofEngagement-II
• Sendengagementletter:• listingofprocedurestobeperformed.• restrictionsondistributionofreport.
• IfAUPbetweenregulator/industryrepresentatives,thenauditormaynotbeabletodiscussprocedureswithallpartieswhowillreceivereport.
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PlanningandDocumentation
• Plantheworksothataneffectiveengagementwillbeperformed.
• Documentmatterswhichareimportantinprovidingevidence:
• tosupportthereportoffactualfindings.
• thatengagementwascarriedoutinaccordancewiththisSRSandtermsofengagement.
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ProceduresandEvidence
• PerformAUPandusetheevidenceobtainedasbasisforreportoffactualfindings.
• Proceduresappliedinclude:• Inquiryandanalysis
• Re-computation,comparisonandotherclericalaccuracychecks
• Observation
• Inspection
• obtainingconfirmations
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Reporting- I
• Describethepurposeandagreed-uponproceduresofengagement.
• Reportoffactualfindingsshouldcontain:• TitleandAddressee.• IdentificationofspecificFI/non-FItowhichAUPhavebeenapplied.
• Statementthatproceduresperformedwerethoseagreeduponwithrecipient.
• StatementthatengagementperformedinaccordancewithStandardsapplicabletoAUPengagements.
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Reporting- II• IdentificationofthepurposeofAUP.• ListingofspecificAUPperformed.• Descriptionoffactualfindingsincludingsufficientdetailsoferrorsandexceptionsfound.
• Statementthatproceduresperformeddonotconstituteeitheranauditorareviewandassuch,noassuranceisexpressed.
• Statementthathadtheauditorperformedadditionalprocedures,auditorreview,othermattersmighthavecometolight.
• Statementthatreportisrestrictedtospecifiedparties.• Statementthatreportdoesnotextendtoentity’sFStakenasawhole.• Dateofreport.• Placeofsignature.• Auditor’ssignature
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REVISEDSRS4410COMPILATIONENGAGEMENTS
EffectiveforcompilationengagementsundertakenafterMarch31,2016
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OverviewofSRS4410(R)• Introduction• Objective• Definitions• Requirements&Application
• ConductofcompilationengagementasperSRS4410• Ethicalrequirements• Professionaljudgement• Engagementlevelqualitycontrol• Engagementacceptance&continuance• CommunicationwithTCWGandmanagement• Performingtheengagement• Documentation• Practitioner’sreport
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COMPILATIONENGAGEMENT
REPORTSasrequiredbythisSRS
InaccordancewithanAPPLICABLEfinancialreportingFramework(FRF)
ASSISTmanagementinpreparation&presentationoffinancialinformationoftheentity
PractitionerappliesACCOUNTING&FINANCIALREPORTING Expertise
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BasicPremiseofCompilationEngagements
Notanassuranceengagement• norequirementtoverifyaccuracy&completenessofinfoprovidedbymanagement
• norequirementtogatherevidencetoexpressauditopinion/reviewconclusion
Managementretainsresponsibilityfor• financialinfo• basisonwhichitisprepared&presented
SRS4410doesnot:• imposeresponsibilityonmgt/TCWG
• overrideL&Rwrtresponsibilityofmgt/TCWG
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ValueofCompilationEngagement
Compilationperformed
inaccordancewithSRS4410
Applicationofexpertise
inaccounting&financialreporting
CompliancewithStandards• includesethicalstandards
Clearcommunicationofnature&extentof
practitioner’sinvolvement
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ApplyingSRS4410– Conditions
Practitionerengagedtocompile
HISTORICALfinancialinformation
ProvideaREPORTforengagementinaccordancewithSRS
4410
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Iflaws&RegulationsdonotmandateSRS4410– Considerations
FinancialinformationrequiredbyL&R?• Requiredtobepubliclyfiled?
Externalpartieslikelytoassociatepractitioner’snamewithfinancialinfo?• Riskthatlevelofassociationwillbemisunderstood
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CompliancewithSQC1• Appliestofirmwrt itscompilationengagements
• BUT,deficiencyinfirm’sQCsystemdoesnotnecessarilymean:
• Engagementnotcarriedoutinaccordancewithprofessionalstandardsandlegal®ulatoryrequirements
OR
• Practitioner’sreportwasnotappropriate
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Practitioner’sGuidetoAuditof
SmallEntities
PLEASE REFER TO ICAI PUBLICATION
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Personal1slide
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Mytakeonwindsofchange?• Datais connectedfromthesourcetotheledgerviacloud-basedapplications. Accounting
is morphingintowhateconomists call "interactionjobs", wheretechnicalknowledgeis assumedand highervalueisappliedtoaperson'sabilitytointeractwithinternalandexternal clients,identifyproblems,comeupwithalternativesolutions,determinewhichareaffordableatthis pointintime andcommunicateandinfluenceto deliver an outcome.
• Thesuccessfulaccountantsofthefuturewillbestrongcommunicators,possessgreaterITskillscombinedwithstrategicvisionandtheywillbedevotedtoongoingprofessionaldevelopment.Globalisation isthefutureofaccountingasmoreandmorebusinessesrequirereal-timemanufacturingandinformation,mobilemarketingandonlinetools,includingthecloud,toexpandtheircustomerbaseinternationally.Thusaccounting,auditingandfinanceprofessionalswithknowledgeofinternationalstandardsandregulationswillthrive.
• ICAIisgearedtothisrealityand30overseaschaptersofICAIisatestimonyapartfromembracingInternationalaccountingandassurancestandards. IndianCharteredAccountants,thankstotherigoroustrainingandenviableforwardlookingcurriculum,possessrightinsightsandforesight toovercomechallengesandmakethebestuseoftheopportunities.
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M P Vijay Kumar [email protected]