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SQC – 1 “Quality Control for Firms that Perform Audits & Reviews of Historical Financial Information, and Other Assurance & Related Services Engagements” All firms to have system of quality control that provides reasonable assurance that: (a) Firm & personnel comply with professional standards, regulatory & legal requirements, and (b) Reports issued by firm or partners are appropriate in the circumstances. Leadership Responsibilities for Q. C. (a) Promote internal culture w.r.t.: essential of quality in engagements. Compliance with professional standards, regulatory/ legal requirements. Issue of reports appropriate in circumstances. (b) Require CEO/ managing partner to assume ultimate responsibility for QC. (c) Recognise & reward high quality work.
Ethical requirements
Independence
Client Acceptance/Continuance
Human Resources
policies/ Establish Establish policies & Policies & procedures should Establish procedures to enable: procedures to policies/ of reasonable assure that Communication reasonable assure that procedures to independence requirements to Firm & personnel clients are accepted/ personnel & others. reasonable comply with relevant ethical requirements of Identification of circumstances continued only assure that: threatening independence. where: Integrity. Take appropriate action for Firm has Objectivity. elimination of threats / Client integrity has sufficient Professional withdrawal from engagement. been considered. competence & due Resolution of breaches of personnel with Firm is competent care. independence. capabilities, to perform Confidentiality. Maintenance of independence of competence & personnel engagement w.r.t. Professional commitment Engagement partners to provide behaviour. capability, time & firm with relevant information to ethical resources. about client. principles; & Prompt notification of threats to firm can comply with ethical Responsibility independence. Accumulation & communication requirements. of engagement of relevant information to If any issue raised, partner clearly appropriate personnel. document how it Other Points: defined & Firm should obtain Annual resolved. communicated written confirmation as to Establish Policies to him/ her. compliance with independence w.r.t. withdrawal from requirements. and Create policies to reduce engagement Familiarity threat: e.g. rotation communication of engagement partner atleast requirements, if every seven years in case of circumstances warrant. audit of listed entities.
Engagement Performance
Monitoring
Establish policies/ procedures to reasonable assure w.r.t.: Compliance with professional standards. Compliance with laws/ regulations. Engagement partner issues reports appropriate in the circumstances. Important aspects of engagement performance: Supervision. Review. Consultation. Differences of opinion. Engagement Q. C. review. Engagement documentation.
Establish Policies & procedures to reasonable assure that QC policies/ procedures are: Relevant. Adequate. Operating effectively. Complied with in practice. It also includes on going consideration & evaluation of QC system, periodic inspection of completed Assignments.
SA – 210 (Revised) – “Agreeing the Terms of Engagement” Beginning of Audit
During the Course of Audit
Initial audit Engagement
Limitations Imposed by
Mngt. request for changes in terms
Recurring Audit
No Limitations Imposed Determine requirements w.r.t.:
mngt.
(a) Revision of terms of Engagement; & Ascertain existence of Preconditions
(b) Remind the entity of existing terms
Determine its effect on Level of Assurance
&
reasonable
Justification
Do not accept unless required by law Exist
Accept Audit
Not Exist
Discuss matter with mngt.
Do not accept audit in case of: (a) Unacceptable F.R. Framework; or (b) Mngt. does not agree with responsibilities
Required
Send New Engagement Letter
Not Required
No Further Duty
Auditor Satisfied
Record New Terms in Engagement Letter
Not Satisfied
Do not Accept the changes
Mngt. not permit the auditor to continue Withdraw & Report to appropriate authority
SA – 230 (Revised) – Audit Documentation General concepts
Specific Documentation
Meaning: Record of: Audit procedures performed Relevant audit evidence obtained, &
Documentation of
Documentation of
Documentation of
Discussion
Departure from a relevant
matters arising after the Date
requirement
of Auditor’s Report
Conclusions reached Purpose: includes the following: Assist in Planning and performance of Audit. Direction, supervision & Review of work.
Significant
Matters
To fix accountability.
Discussed with Mngt.
Record for future reference.
And TCWG.
Quality control review and inspections
Conduct of external inspections. Nature: documentation must provide for: Sufficient and appropriate record of the basis for auditor’s report. Evidence that the audit was planned and performed in accordance with SAs & other regulatory requirements.
discussion
took
Reasons
for
the
departure.
When and with whom the
Circumstance encountered. New
or
additional
Alternative procedures
procedures
performed,
performed.
audit evidence obtained, conclusions reached, and
place.
their effect on the auditor’s
How the auditor address
report.
the inconsistency (if any detected discussion)
during
When and by whom the changes
to
audit
documentation were made and reviewed.
SA 240 (Revised) – The Auditor’s Responsibilities Relating to Fraud in an Audit of Financial Statements Meaning and Nature of Fraud
Management Duties
Auditor’s Responsibilities
Meaning:
To Prevent Detect Fraud
To
Intentional
Act
involving use of deception to
and
obtain an unjust or illegal
Mngt. must have an
advantage.
commitment
obtain
reasonable
assurance that F.S. as a whole are free from material Misstatements.
to
Auditor is concerned with Fraud
create an culture of
Maintain an attitude of
that
honesty and Ethical
Professional Skepticism
causes
Material
Risk assessment Procedures & responses to Assessed Risks
(a) Enquiries Mngt & Others: w.r.t.: Assessment of risk of material misstatement. Procedure to identify Fraud. Communication to TCWG and Employees. (b) Enquiring TCWG: w.r.t. Undertaking of their supervisions process. Their knowledge of fraud.
Misstatement.
behavior.
Misstatement may result from:
Circumstances Misstatement
(c) Evaluation of identified unusual and unexpected Fraudulent
Financial
indicate
existence
of
material
(d) Evaluate whether information obtained indicates fraud
Reporting. Misappropriation of Assets
relationships.
Consider whether such a misstatement is an indication
risk factor.
of Fraud. If Fraud identifiedDue to Inherent limitations there is always an unavoidable risk of material misstatement in F.S. due to Fraud.
Determine responses to address assessed Risk of material Communicate Mngt.
to
&TCWG
Auditor unable to complete the engagement.
(and to Regulatory .
Risk of Material Misstatements
and
due to Management Fraud is
authorities,
higher than due to Employee
required by Law)
Fraud.s
Enforcement if
Consider the Possibility of withdrawing. If withdraw: Discuss with Mngt & TCWG.
Misstatement due to fraud at:
F.S. level and
at assertion Level.
SA 250 (REVISED) “CONSIDERATION OF LAWS AND REGULATION IN AN AUDIT OF F.S.” Auditor’s Responsibilities
Specific Responsibilities w.r.t.
Basic Responsibilities
Regulation
Regulations
Legal & Regulatory
having a direct
not affect amount and
identified
effect
disclosures in F.S. but
Suspected
Framework applicable
determination of
by Entity with that Framework.
Laws
which
and
fundamental
disclosures
in F.S.
To
that do
compliance
material amount
&
may
Sufficient
&
Appropriate audit Evidence To ensure compliance
Compliance
be to
To perform Limited Procedures: Inquiring of Mngt; & Inspecting Correspondance with relevant Licensing / Regulatory authority
Material
F.S. Obtain understanding of
Circumstances in which it is occurred.
auditor.
Mngt. Q/D
Evaluate
Circumstances
Consider the Effect
possible effects on F.S. with
Mngt. & TCWG legal
advice wherever
compliance or suspected non-compliance have been disclosed to
Q/A
Unable to Conclude due to Limitation imposed by
the Act.
Obtain
Obtain Written Representation that all instances of non-
Auditor Report
required
Indicators considered by Auditor Regularity & Enforcement Authorities
/ Effect on
Discuss To identify instances of non compliance.
To TCWG
is
with
operating aspects.
obtain
in
case any Non-
Law
on
Other
Procedure
Obtain general understanding of
Compliance
&
Reporting responsibilities
Auditor
Matters involving noncompliance. If TCWG is involved, communicate to Higher Level, if any Otherwise, obtain Legal Advice
If required by Law Investigations by regulatory bodies. Payment of fines or penalties. Payments for unspecified services to consultants, related parties etc. Excessive Sales commissions or agent’s fees. Purchasing at prices significantly above or below market price. Unusual payments in cash. Unusual payments towards legal and retainership fees. Payments without proper exchange control documentation. Existence of an information system which fails, to provide an adequate audit trail or sufficient evidence. Unauthorised transactions or improperly recorded transactions. Adverse media comment.
SA 260 (Revised) – “Communication with TCWG” Meaning Management TCWG
TCWG:
of &
Persons
with responsibility for overseeing the strategic directions &
obligations
related
to
Accountability.
Auditor’s Responsibilities
Determine
the
appropriate person to (a) Auditor’s
made.
in relate to F.S. Audit (b) Planned scope & timing
Need
of audit (c) Significant findings from
to
communicate
with
Governing body, if
Person
: with
executive for
conduct of entity’s
in
managing the entity, the matters need not be
communicated
again.
responsibility
audit w.r.t.
in writing when oral
Size,
adequate.
Accounting Policies Accounting Estimates I.C.
on timely basis
Evaluate adequacy of
environment, & legal structure of entity.
If not adequate, evaluate its
effect,
on
Requirements
of
respective
law
specifying written communication with TCWG in a prescribed form.
purpose of the audit.
the
Other
misstatement.
to compliance of ethical requirements regarding
control
audits the entity’s general purpose F. S.
auditor’s assessment of
Matters. (d) Statement with respect
structure,
purpose F.S., whether the auditor also
Matters discuss with Mngt. significant
operating
In the case of an audit of special
communication for the
Material weakness in
If all of TCWG are involved
responsibility
operation
subgroup.
Factors affecting Mode of Communication
communication is not
whom communicate is
communicates with Management
Matters to be communicated
Communication Process
the risks of material
Expectations arrangements
of
TCWG,
made
for
including periodic
meetings or communications with the auditor. The amount of ongoing contact and dialogue the auditor has with TCWG. Significant changes in the membership of a governing body.
independence.
Important Question: Write short note on: Factors Governing mode of communication of auditor with TCWG. (4/5 Marks)
SA-265 “Communicating Deficiencies in Internal Control to TCWG & Management Meaning of deficiency in internal control
(a) Inability of I.C to prevent detect
&
Auditor’s Responsibilities
Communication of deficiencies in Internal Control
Identification of deficiencies in Internal Control
correct
misstatement ; or (b) Absence
of
control
Determine whether individually or in combination they constitute significant deficiencies
Mode of communication
Content of communication
necessary to Prevent, detect
&
correct
In writing
misstatements
(a) Description of deficiencies (b) Explanation
of
their
potential effect To TCWG
To Mngt.
(c) Sufficient information to explain that
Significant deficiencies
Significant deficiencies and other deficiencies
purpose
is
to
express an opinion I. C. is evaluated to design further audit procedures
SA 299 “Responsibility of Joint Auditors” Division of work
By Mutual discussion On basis of identifiable units or specified areas
If not possible – with respect to followings: Assets/Liabilities; or Income/Expense; or Period
Co-ordination
If one auditor comes to know a matter relevant for other, he should communicate it immediately in writing to other joint auditor before submission of report.
Responsibilities of Joint Auditors
Separate
Joint & several
Generally – a Single Report
For work allocated
for work not divided for
joint
decision
w.r.t. N, T, E of audit procedure. for matters brought to knowledge of all by any one of them and on which they all
Work should not be divided for Imp. areas
agree. Disclosure requirements in F.S.
Proper documentation of work divided
Reporting
Compliance of audit report with statutory requirement
If
disagree
-
Separate Report No one is bound by Majority.
SA 300 (Revised) – Planning in an audit of Financial Statements Preliminary Engagement Activities
(a) Procedures required by SA -
Planning
Establishment of Audit Strategy.
Documentation
Development of Audit Plan.
Audit Plan.
220 w.r.t. continuous of Client
Changes
relationship. (b) Evaluate
Audit Strategy.
compliance
with
Ethical Requirements (SA-220) (c) Understanding
of terms
Engagement (SA-210)
Identify the Characteristics
of Engagement.
of
Ascertain
Reporting
Objectives.
Significant factors to direct.
Consideration of result of Preliminary
Engagement
Activities.
NTE of Procedures to be performed.
N,T,E of Risk Assessment Procedures (SA-315) N,T,E of furthers Audit Procedures (SA-330) Other Planned Audit Procedure.
in
Audit
Strategy and Audit Plan and the Reasons for the change
SA – 315 (Revised) – Identifying and Assessing the Risk of Material Misstatements through understanding the Entity and Its Environment. Risk Assessment Procedures
Understanding of Entity & its Environment
Identification and Assessment of Risk
Documentation
of Material Misstatement.
Auditor shall obtain understanding of:
understanding of entity &
a) Relevant Industry, Regulatory and
To Identify and asses the risk
of
material
misstatement.
a. Inquiry of mngt.& others b. Analytical Procedures c. Observation & Inspection
understanding c) Identified & Assessed risks of Material
For the purpose auditor shall:
The way Entity is structured & how it is financed Application
b) Key elements of
Misstatement
Ownership & Governance structure
and
classes of
disclosures.
Its Operations
c) Selection
for
Transaction, Account Balances &
b) Nature of Entity including.
Types of investments It Includes
a) Financial statement Level b) Assertion level
other External Factors
its environment
a) Discussion
Procedures to obtain an
of
Accounting Policies & reasons for changes thereto.
(a) Identify risks (b) Assess & Evaluate the identified risks. (c) Relate identified risk to what go wrong at assertion level. (d) Likelihood of misstatement.
d) Entity objectives & Strategies & those business risks that may result in increase risk of material misstatements. e) Measurement & review of Financial Performance. f) Internal control relevant to audit.
Risk require special consideration (a) Risk of fraud (b) Risk related to recent significant Economic, Accounting & other Developments. (c) Complexity of Transactions. (d) Transactions with Related Parties (e) Significant Unusual Transaction
SA 320 (Revised) “Materiality in Planning and Performing an Audit” Concept of Materiality
Subject of auditor Judgement; and subject to discussion present in F. R. Framework If F. R. Framework does not include a discussion, following can be referred: (a) Misstatements including omissions expected to influence the economic decision of users. (b) Size or nature of misstatement & the surrounding circumstances. (c) Common financial information needs of the users as a group. Judgement of materiality provides a basis for: (a) Determination of NTE of R. A. P. (b) Identifying and assessing risk of material misstatements. (c) NTE of further audit procedures.
Performance Materiality
Auditor’s Duties
the amount set by auditor at
(a) Upon establishing the overall
less than materiality for F.S as a whole to
reduce
to
an
appropriately low level the probability that the aggregate of the uncorrected and undetected misstatement exceeds materiality for the F. S. as a whole
audit strategy, the auditor shall determine the materiality for the F. S. as a whole. (b) Determine the materiality level for specific transactions for which misstatements of lower amount be expected to influence the economic decisions of users. (c) Determine the performance materiality for purpose of assessing the risk of material misstatements. (d) Revise materiality and performance materiality wherever required as audit progresses.
SA – 330 “Responses to assessed Risks” Tests of Controls
Substantive Procedures
Sufficiency & Appropriate of Audit Evidence
Procedures designed to
Procedures designed to detect material
evaluate the operating
misstatements at assertion level. It
effectiveness of controls
comprises of:
(e.g. Inquiry)
a) Test of details ( of classes of transactions, Account Balances and
Obtain audit evidences
Disclosures); and
Not obtained
Draw
Obtain further
conclusions
audit evidence
& report
b) Substantive Analytical Procedures
w.r.t.
Obtained
accordingly Not able to
Application of controls
Substantive Procedures.
collect
Consistency of application By whom & by what means they applied
Closing Process
the
audit
evidences Material
weaknesses
identified Communicate to Mngt. & TCWG – on timely basis
Qualified opinion or
Reconciling F.S.
Evaluate
Significant Risks the
Procedures that
Disclaimer of
with
are specifically
Opinion
underlying
responsive to
Accounting
that risk needs
Records
to be applied
Examine Material Journal Entries & other adjustments made during the course
of
preparing the F.S.
SA 402 (Revised) – Audit Considerations relating to an Entity Using a Service Organisation Auditor’s Objective
Auditor’s considerations
Obtaining understanding of services provided by service Organisation
To
obtain
The
an
understanding of nature
The user auditor shall obtain an understanding of
and
of
how user entity uses the services of a service
service provided by the
organization in the user entity operation,
service
including:
significance
organization
(a) Nature of service provided by the service
user’s entity internal
organization and the significance of those
control relevant to the
services to the user entity.
sufficient
to
(b) The
nature
and
materiality
of
the
transactions processed or financial reporting
risk
processes affected by service organizations.
material
misstatement.
(c) The degree of interaction between activities
To design and perform audit
procedures
responsive
to
risks.
those
shall
evaluate
the
design
and
implementation of relevant controls of user entity that relate to the services provided by service organization. The user auditor shall determine whether a sufficient provided by service organization and their effect on the user entity internal control relevant to the audit has been obtained. If user auditor is unable to obtain a sufficient understanding
identify and assess the of
auditor
understanding of nature and significance of services
and their effect on the
audit,
user
of service organizations and those of the user entity. (d) The nature of relationship between user
from the user entity, the user auditor shall obtain that understanding from one or more of following procedures: (a) Obtaining a Type 1 or Type 2 Report, if available. (b) Contacting the service organization, through the user entity, to obtain the sufficient information. (c) Visiting the service organization. (d) Using another auditor to perform procedures that will
entity and the service organization.
provide the necessary information about the relevant controls at the service organsition.
User Auditor: An auditor who audits and Reports on the financial statements of a user entity. User Entity: An Entity that uses a service organization and whose financial statements are being audited. Type 1 Report: Report on the description and design of internal controls at a service organization. Type 2 Report: Report on the description, design and operating effectiveness of controls at a service organsation.
SA 450 “Evaluation of Misstatements Identified during the Audit Identification/Accumulation of Misstatements
Meaning of Misstatements Difference between: (a) the amounts, classification, presentation or
Communicate to management
Determine whether any revision
& request them to correct.
required in Audit Strategy/Plan.
disclosure of a reported financial statement item, and (b) the amount, classification, presentation or disclosure that is required for the item to be in accordance of financial reporting framework.
Management corrects
Management refuses
Perform
Understand the reason for
Additional
Procedures Uncorrected
misstatement:
Misstatements
accumulated by auditor but not corrected.
determine
to whether
not making the corrections Determine the materiality
misstatements remain.
If
material,
communicate
uncorrected
misstatement and their effect on his opinion to TCWG
with
a
request
that
uncorrected
misstatements be corrected. Not corrected Obtain
a
written
representation
from
management/TCWG w.r.t their believing that effect of uncorrected misstatements are immaterial.
SA – 510 (Revised) “INITIAL AUDIT ENGAGEMENTS – Opening Balances” Meaning of Initial Audit Engagement: An Engagement in which F. S. for prior period are not audited or were audited by predecessor auditor. Meaning of Opening balance – A/c balance that exist at beginning of period & also includes disclosures exists at beginning of period.
Audit Procedures
Audit Conclusion & Reporting
Opening Balance Consistency of Read most recent F.S. and auditor report thereon.
Accounting Policies
Modification in Predecessor Auditor’s Report
Obtain S.A. audit evidence w.r.t. existence of any material misstatement by Determining correct b/f of prior period closing balance. Determining application
their effect on current Period financial statements. If misstatement exists in Current Period F.S. communicate to Mngt & TCWG.
Unable
sufficient & appropriate
properly accounted
/
effect of
Audit
disclosed
in
modification
Evidence
current year F. S.
Policies Inconsistency
Modification
exists
relevant & material for
Changes
Qualified /
w.r.t.
In assessing risk
consistent
of material
application
misstatement in
or
Current period
Properly
F.S.
accounted disclosed
Qualified / Adverse Report
remains
Current Period F.S.
or not
properly
Disclaimer
for changes.
&
Appropriate
Evidence
disclosure
Contain material
Modification in Predecessor Auditor’s Report
misstatements not
obtain
Audit
accounting &
to
Evaluate the
of appropriate accounting policies. If any misstatement detected perform additional procedures to determine
Accounting
Sufficient Obtain
Consistency of
Opening Balance
Modify Current Year or
Audit Report accordingly
SA – 530 (Revised) “AUDIT SAMPLING” Meaning of Audit Sampling
Sampling risk
Sample Selection Methods
Auditor’s Duties
Duties Application
of
audit
Risk that auditor’s conclusion based on a
Sample design, size and selection of
Random Selection
procedures to < 100 % of
sample may be different from the conclusion
items
Systematic Selection
items within a population
if the entire population were subjected to
Monetary Unit Perform audit procedures
same audit procedure.
Sampling Haphazard Selection
Evaluation of results of audit Test of controls
Controls
are
more
effective
than
they
actually are
Tests of details
Material
misstatements
does not exist when in fact
Affects audit effectiveness and is more likely to lead to an inappropriate audit opinion.
it does.
Controls
are
less
Material
effective
than
they
exists when in fact it does
actually are
Block Selection
sampling
not
misstatement
Affects audit efficiency as it would lead to additional
work
to
establish
conclusions were incorrect.
that
initial
SA – 550 (Revised) “Related Parties” Meaning of Party (RP)
A RP as defined in applicable FRF (AS 18). OR Where applicable FRF establishes minimal or no RP requirements: a. A person/entity having control / influence,
significant over
reporting entity; b. Entity over which reporting entity has control / significant influence, and c. Entity under common control with reporting entity, through: • Common controlling ownership • Owners
Auditor’s Procedures
Related
who
are
close family members • Common key Mngt.
General Duties Obtain
Relation
Auditor’s Procedures in case of
FRF establishes accounting &
identification of unidentified / undisclosed
Disclosure for RP
RP or RP transaction
a. Promptly communicate relevant info to
a. To
Identify, Assess & Respond to
recognize
Fraud Risk factors
Risk of Material Misstatement.
other members of engagement team. b. Where FRF establishes RP requirements: • Request mgt to identify all transactions
conclude
whether F.S. in so far as they are affected by those relations
and
transactions
with newly identified RP for further
relationships
Transactions
have
and
• Inquire reason for failure of entity’s controls
been
disclosed as per FRF.
to
identify/disclose
RP
relationships & transactions.
appropriately accounted for and
c. Perform
appropriate
substantive
audit
procedures relating to newly identified RP
achieve • true
evaluation.
Evaluate Whether the Identified RP
and
fair
Obtain WR from Mngt./TCWG
presentation
w.r.t.
and
• Disclosure to auditor the
• not misleading.
identity of RP of which they are aware; and • Appropriate accounting & disclosure as per FRF.
identified RP.
relationship
Relationship & Transactions. Perform audit procedures to
or significant RP transactions. d. Re - consider risk that other RP or significant RP transactions may exist that mgt
has
not
previously
identified/
disclosed. e. If
non-disclosure
by
mgt
of
• Nature of RP
and
Transactions:
b. To
• Name
Specific procedures in case an
understanding of RP
Documentation
appears
intentional, evaluate implications for audit.
Risk assessment Procedures and Responses to assessed Risk w.r..t Related party RAP & Related Activities (as per SA 315 & SA 240)
Understanding the Entity’s relationship and Transactions
RP
a. SA 315 & SA 240(R) require Engagement Team discussion. b. Auditor to inquire management regarding: • Identity of entity’s RP, changes from prior period. • Nature of relationships between entity and RP. • Type & purpose of transactions with RP during the period. c. Perform appropriate RAPs to obtain understanding whether managements has established controls to: • Identify, account for & disclose RP relationships & transactions. • Authorise & approve significant transactions/arrangements with RP. • Authorise & approve significant transactions/arrangements outside normal course of business.
Maintaining Alertness for RP Information when Reviewing Records/Documents
Responses to Assessed Risks
Design and Perform further audit procedures to obtain SAAE about assessed Risk of material Misstatements
Identifying Fraud risk factors Domination of mgmt by a single
a. Auditor to remain alert when inspecting records / documents: Wrt arrangements / information indicating existence of RP relationships or transactions. Not previously identified or disclosed to auditor. b. If auditor identifies significant transactions outside entity’s normal course of business: Inquire of management about: • Nature of these transactions, and • Whether RP could be involved.
person or small group of persons without compensating controls is
of
dominant
has
vetoed
significant
business decisions taken by
• Significant to
transactions RP
for
are final
approval.
significant
RP
Transactions outside Entity’s Normal
or TCWG regarding business proposal initiated by RP. • Transactions involving the RP rarely
Assertions that RP Transactions were conducted on terms equivalent to Transaction. Arm Length Transaction: Transaction conducted on such terms & conditions;
• No/ little debate among mgmt
are
/
those prevailing in an arm Length
mgmt or TCWG.
referred
unidentified
course of Business.
influence: • RP
of
undisclosed RP or RP transaction. Identified
a fraud risk factor. Indicators
Identification
independently
reviewed / approved.
As between a willing buyer and willing seller; Who are unrelated; and Acting independently and pursuing their own best interests.
SA – 570 (Revised) “Going Concern” Mngt. Responsibilities
Auditor’s Duties.
entity’s
To obtain sufficient appropriate audit evidence about the
For this purpose auditor is required to
ability to continue as a
appropriateness of management’s use of going concern
a) Cover the same period as that used by management.
going concern.
assumption
b) Consider whether management has considrerd all
Asses
the
relevant information of which auditor is aware.
General purpose F.S.
Identified events that cast significant doubt.
are prepared on a going concern
basis
Request management to make its assessment of entity’s
unless
Perform additional procedures
ability to continue as going concern.
management intends to
Evaluating management plans for future.
liquidate the entity or to cease operation.
In case F.S. are not prepared
on
going
concern basis, the fact would
need
to
be
appropriately disclosed.
Going concern
Going
Mngt.
Consider the reliability of cash flow forecast.
Assumption
Concern
unwilling to
Considering
Appropriate but
Assumption
make its
Material Uncertainty
Inappropriate
assessment
exists
availability
of
additional
facts
or
information since the date of management assessment. Requesting
written
representations
from
Mngt.
regarding their plans for future action and the
Determine whether
Adverse
Consider the
F.S. Makes relevant
Opinion
implications
disclosure
on Auditor’s Report
Yes
No
EOM
Q/A
feasibility of these plans
SA – 600 “Using the Work of Another Auditor” Applicability: In situation where an auditor (principal auditor - PA), reporting on the financial information of an entity, uses the work of another auditor (other auditor OA) w.r.t. to the financial information of one/more components (Division, Branch subsidiary, J. V. etc.), included in the financial information of the entity. Non applicability: (a) Joint auditors
(b) Auditor’s relationship with a predecessor auditor.
Principal Auditor’s Procedures
1. Consider the professional competence of Other Auditor, if Other Auditor is not a member of ICAI. 2. Visit component and examine books of account, if essential. 3. Obtain sufficient appropriate evidence, that work of Other Auditor is adequate for Principal Auditor's purposes. 4. Discuss audit procedures applied by Other Auditor. 5. Review a written summary of Other Auditor’s procedures and findings through questionnaires/checklist. 6. Consider significant findings of Other Auditor: Discuss audit findings with OA and Mgt. of component. Perform supplemental tests if necessary. 7. In case Other Auditor is not a professionally qualified
Documentation
Reporting
liaison/co-
1.Express a qualified /
audited by Other Auditor
ordination between Principal
and their significance to the
and Other auditor.
disclaimer of opinion because of scope
1. Components whose FS are
financial information of the entity as a whole.
1. Sufficient
2. Principal auditor may require Other Auditor to answer a
2. Names of the other auditors. 3. Any conclusions reached
detailed questionnaire. 3. Other
Auditor
that individual components
coordinate
are not material.
Auditor:
4. Procedures
performed
regarding components.
with
should Principal
Adhering to time-table. Bringing to the attention of PA any significant
6. Manner of dealing with
finding.
Modified Report of Other Auditor
while
finalising
foreign country:
Principal Auditor’s Report.
If Principal Auditor concludes
that
he
cannot use the work of Other Auditor;
sufficient
additional
procedures
regarding
FI of the component audited by OA. 2. Report
Compliance with relevant statutory requirements. Respond
limitation:
PA unable to perform
5. Conclusions reached.
auditor - for instance, where a component is situated in
Procedures mentioned above assume added importance.
Coordination
to
questionnaire.
detailed
clearly
should division
state of
responsibility between PA and OA.
SA 610 (Revised) “Using the Work of Internal Auditors” Meaning
&
scope
of
Internal Audit Function
Relationship between Internal
Audit
Function & External Meaning: an
Conclusions regarding the evaluation & adequacy of
Determine
Auditor
Appraisal activity.
work.
Established/ provided. As a service to entity. Also include examining, evaluating & monitoring adequacy / effectiveness of Internal Control.
Role & objectives of internal
audit
Adequacy of Internal Audit
If Adequate, consider
Work for External Auditor’s
its effect on N, T, E of
Purpose
External
function determined by Mgt/ TCWG. Not
withstanding
Degree of autonomy /objectivity, internal
independent
of
entity.
for
responsibility audit
opinion,
and that
Ob j ecti vit y
of
int ernal
Using Specific Work of Internal auditor
t he
Nature of specific
a udit
work performed by
functi on;
Internal Auditor.
T echni cal compet enc y of i nt er nal audit ors;
whi ch
the
responsibility
not reduced by use of work of internal
i nt er nal
au dit ors wor ks; an d communi cati on b et ween
auditors.
auditor’s
Procedures.
Professi onal care wit h
External auditor has sole
Audit procedures performed on internal auditor work.
By evaluating the following
audit function is not Scope of Internal Audit: Monitoring of I. C. Examination of financial & operating information. Review of operating activities. Review of compliance with laws & regulations. Risk management. Governance.
Documentation
External Auditor’s Procedures w.r.t. Evaluation of Internal Audit Function
au dit ors au dit or.
&
Assessed Risk
of
material
subjectivity
the work to determine its adequacy: Work was performed by IA having adequate technical training & proficiency. Work
was
properly
supervised,
reviewed & documented.
Misstatement. Degree
Evaluate & perform audit procedures on
of in
evaluation of audit i nt er nal
evidence by internal
ext er nal
auditor.
Adequate audit evidence obtained by Internal auditor. Conclusions reached are appropriate & Internal Auditor reports are consistent with results of work. Exceptions/ unusual matters disclosed by Internal Auditor are properly resolved.
SA 720 (Revised) - THE AUDITOR’S RESPONSIBILITY IN RELATION TO OTHER INFORMATION IN DOCUMENTS CONTAINING AUDITED FINANCIAL STATEMENTS Purpose: Auditor is not required to express an opinion on other information in documents containing audited F.S. (Ex. Annual Report), however, auditor reads the pother information because credibility of F.S. may be undermined by Material inconsistencies between the audited financial statements and other information. Auditor’s Procedures:
Make appropriate arrangements with Management & TCWG to obtain the other information prior to the date of auditor report & Read the information so obtained. If Information is not available prior to date of auditors report, read the other information as soon as practicable.
Materi al I n co nsist enci es identi fi ed i n Ot her info rmatio n
Mat eri al Misstat ement of Fa cts fi nd out. Missta temen t of Facts : Other informa ti on that is unr elat ed t o matt ers app ea ri ng i n
Prior to the Date of auditor’s Report
Revisi on
of
a udit ed
F.S .
b ecomes
Subsequent to the Date of auditor’s Report
Revisi on
of
ot her in for mati on
nec essar y
b ut
M ngt. refus es
n ec essar y
is
Revisi on of au dit e d
Revisi o n of
fi na nci al stat eme nt s
ot h er
becomes necessa r y
info rmatio n
b ut
is necess ar y
M ngt. refus es
Th e
Au dit or s hall co mmun i cat e
shall
this matt er to T CW G; and
Audit or
s hall
mo di f y
t he
opi ni on
in
Audit or
but
au dit ed
F.S.
that
is
corr ectl y
state d
Discuss the matter with Management Request management to consult with a qualified third party and auditor shall consider the advice received.
mana gement r efuses.
Audit o r con cl u des exist en ce o f
follo w t he
mat eri al misstat ement of facts,
r el ev ant
but
wit hdraw
r eq uir e me
co rr ect.
aud i t or’ s rep ort
fr om
nts of S A
d es cri bi n g
enga ge ment
i n cl u de
in
the the
a ccor dance wit h
i n con si st en ci e s;
r el ev ant SA.
or
t he
5 60
ma na gement
r efu ses
to
Audit o r sh all n oti f y his concern t o those ch ar g ed wit h go vern an ce an d ta ke t he ap p r opri at e a ctio n.