Flowcharts of ISAs [PDF]

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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.