AUDIT REPORT (10-12 Marks) PART 1



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AUDIT REPORT CHAPTER


ƌĂŶĐŚĐĐŽƵŶƚƐƐĞĐϭϮϴ
















 if proper books of account relating to the transactions effected at the

branch office are kept at that office and proper summarised returns
periodically are sent by the branch office to the company

Branch Audit

 Where a company has a branch office, the accounts of that office

shall be audited either by the auditor appointed for the company
(herein referred to as the company's auditor) under this Act or by
any other person qualified for appointment as an auditor of the
company under this Act and appointed as such under section 139,
 where the branch office is situated in a country outside India, the
accounts of the branch office shall be audited either by the
company's auditor or by an accountant or by any other person duly
qualified to act as an auditor of the accounts of the branch office in
accordance with the laws of that country
 It may be noted that the branch auditor shall prepare a report on
the accounts of the branch examined by him and send it to the
auditor of the company

Definitions

 Principal auditor means the auditor with responsibility for reporting

on the financial information of an entity when that financial
information includes the financial information of one or more




components audited by another auditor.

 Other auditor means an auditor, other than the principal auditor,

with responsibility for reporting on the financial information of a
component which is included in the financial information audited
by the principal auditor.

 Component means a division, branch, subsidiary, joint venture,

associated enterprises or other entity whose financial information is
included in the financial information audited by the principal auditor

SA 600 – Using the work of another auditor

Where another auditor has been appointed for the component, the
principal auditor would normally be entitled to rely upon the work of such
auditor unless there are special circumstances to make it essential for
him to visit the component and/or to examine the books of account
and other records of the said component
Further, it requires that the principal auditor should perform procedures
to obtain sufficient appropriate audit evidence, that the work of the other
auditor is adequate for the principal auditor's purposes,
PROCEDURE TO BE PERFORMED

(a) advise the other auditor of the use that is to be made of the other
auditor's work and report and make sufficient arrangements for co-
ordination of their efforts at the planning stage of the audit.

(b) The principal auditor would inform the other auditor of matters such
as are as requiring special consideration, procedures for the
identification of inter -component transactions that may require
disclosure and the time-table for completion of audit; and

(c) advise the other auditor of the significant accounting, auditing and
reporting requirements and obtain representation as to compliance
with them.

(d) review a written summary of the other auditor’s procedures and

findings which may be in the form of a completed questionnaire or
check-list

(e) The principal auditor may also wish to visit the other auditor

(f) Other procedures, which depends upon NTE of engagement and

competence of other auditor, that P Auditor will review by going




through the previous audit work of the other auditor.

SA 299 (JOINT AUDIT)

This Standard deals with the special considerations in carrying out audit
by joint auditors

the engagement partner and other key members of the engagement

team from each of the joint auditors should be involved in planning the
audit

the joint auditors should jointly establish an overall audit strategy which
helps in planning

before the commencement of the audit, the joint auditors should discuss
and develop a joint audit plan (matters to be kept in mind)

(a) identify division of audit areas and

(b) identify common audit areas;

(c) ascertain the reporting objectives of the engagement;

(d) consider and communicate among all joint auditors the factors
that are significant in directing the engagement team’s efforts;
(e) consider the results of preliminary engagement activities, or
similar engagements performed earlier.
(f) NTE of resources necessary
(g) Each of them shall perform RAP and communicate with other joint
auditors
(h) the joint auditors should obtain common engagement letter and
common management representation letter.
(i) the work allocation document should be signed by all the joint
auditors and communicated to those charged with governance.
Each auditor is responsible for their work but jointly responsible for the
following
1) Common areas to be audited jointly
2) Undivided work to be audited jointly

3) matters which are brought to the notice of the joint auditors by any
one of them and there is an agreement among the joint auditors on
such matters;




4) examining that the financial statements of the entity comply with the
requirements of the relevant statutes;

5) presentation and disclosure of the financial statements as required

by the applicable financial reporting framework;

6) Ensuring that the audit report complies with the requirements of the
relevant statutes, applicable Standards on Auditing and other
relevant pronouncements issued by ICAI.

Serious matters said by the joint auditor shall be communicated to all the
other joint auditors in writing prior to the completion of the audit.

It may be noted that the joint auditors are required to issue common audit
report. However, where the joint auditors are in disagreement with regard
to the opinion or any matters to be covered by the audit report, they shall
express their opinion in a separate audit report.

(Advantages and disadvantages from book)

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The auditor shall form an opinion on whether the financial statements are
prepared, in all material respects, in accordance with the applicable
financial reporting framework.

In order to form that opinion, the auditor shall conclude as to whether the
auditor has obtained reasonable assurance about whether the financial
statements as a whole are free from material misstatement, whether due
to fraud or error.

That conclusion shall take into account:

(a) Whether sufficient appropriate audit evidence has been obtained;

(b) Whether uncorrected misstatements are material,




individually or in aggregate;

(c) The evaluations-

Whether FS is as per FRF and other qualitative aspects

QUALITATIVE ASPECTS

1) Management judgement and its disclosure’

2) Biasness in management judgement

3) Biasness in making accounting estimates

SPECIFIC EVALUATION

In particular, the auditor shall evaluate whether:

(a) The financial statements adequately disclose the significant

accounting policies selected and applied;
(b) The accounting policies selected and applied are consistent with
the applicable financial reporting framework and are appropriate;

(c) The accounting estimates made by management are reasonable;

(d) The information presented in the financial statements is relevant,
reliable, comparable, and understandable;

(e) The financial statements provide adequate disclosures to enable the

intended users to understand the effect of material transactions and
events on the information conveyed in the financial statements; and

(f) The terminology used in the financial statements, including the title of
each financial statement, is appropriate.

GENERAL PURPOSE FS – it is prepared as per General purpose framework

GENERAL PURPOSE FRAMEOWORK – it is prepared as per generally accepted

FRF

There are two types of frameworks

The term “fair presentation framework” is used to refer to a financial

reporting framework that requires compliance with the requirements of the
framework and:

Acknowledges explicitly or implicitly that, to achieve fair presentation of

the financial statements, it may be necessary for management to provide
disclosures beyond those specifically required by the framework; or



Acknowledges explicitly that it may be necessary for management to

depart from a requirement of the framework to achieve fair presentation
of the financial statements. Such departures are expected to be
necessary only in extremely rare circumstances.

The term “compliance framework” is used to refer to a financial reporting

framework that requires compliance with the requirements of the
framework, but does not contain the acknowledgements in (i) or (ii)
above. (eg Schedule III)

FORM OF OPINION (Format)

•Title
•Addressee
•Auditor's Opinion
•Basis for Opinion
•Going Concern
•Key Audit Matters
ͻOther Information
•Responsibilities for the Financial Statements
•Auditor's Responsibilities for the Audit of the Financial Statements
•Location of the description of the auditor's responsibilities
•Other Reporting Responsibilities
•Signature of the Auditor
•Place of Signature
•Date of the Auditor's Report


Title: Independent Audit Report

Addressee: The auditor’s report shall be addressed, as appropriate, based

on the circumstances of the engagement. Law, regulation or the terms of
the engagement may specify to whom the auditor’s report is to be
addressed.(Normally members ) , based on audit it changes

OPINION : shall state

Intro para




Identify the entity whose financial statements

have been audited;

State that the financial statements have been

audited;

Identify the title of each statement comprising

the financial statements;

Refer to the notes, including the summary of

significant accounting policies; and

Specify the date of, or period covered by, each financial

statement comprising the financial statements.



Unmodified Opinion:

When expressing an unmodified opinion on financial statements, the

auditor’s opinion shall, unless otherwise required by law or regulation, use
one of the following phrases, which are regarded as being equivalent:

(a) In our opinion, the accompanying financial statements present

fairly, in all material respects, […] in accordance with [the
applicable financial reporting framework]; or

(b) In our opinion, the accompanying financial statements give a true

and fair view of […] in accordance with [the applicable financial
reporting framework].

The phrases “present fairly, in all material respects,” and “give a true
and fair view” are regarded as being equivalent

BASIS OF OPINION

 States that the audit was conducted in accordance with

Standards on Auditing;
 Refers to the section of the auditor’s report that describes the
auditor’s responsibilities under the SAs; (give reference)
 Includes a statement that the auditor is independent of the entity in
accordance with the relevant ethical requirements relating to the




audit and has fulfilled the auditor’s other ethical responsibilities in

accordance with these requirements.
 States whether the auditor believes that the audit evidence the auditor
has obtained is sufficient and appropriate to provide a basis for the
auditor’s opinion.

Thus, the Basis for opinion section provides important context about the
auditor’s opinion.

Going concern: SEPERATE CHAPTER

KAM: separate SA

Other Information: Where applicable, the auditor shall report in

accordance with SA 720 (Revised).

Responsibilities for the Financial Statements: The auditor’s report shall

include a section with a heading “Responsibilities of Management for the
Financial Statements.”

Preparing the financial statements in accordance with the

applicable financial reporting framework, and for such internal
control as management determines is necessary to enable the
(a preparation of financial statements that are free from material
) misstatement, whether due to fraud or error.

Assessing the entity’s ability to continue as a going concern and

whether the use of the going concern basis of accounting is
appropriate as well as disclosing, if applicable, matters relating to
(b going concern.
)

Auditor’s Responsibilities for the Audit of the Financial Statements:

The auditor’s report shall include a section with the heading “Auditor’s
Responsibilities for the Audit of the Financial Statements.”






Objectives of the auditor

That reasonable level of assurance

Auditors responsibility section
ishigh level of assurance and not
to state
guarantee

That misstatements can arise

fromfraud and error







It shall also state that


(a) State that the auditor communicates with those charged with
 governance regarding, among other matters, the planned scope and

timing of the audit and significant audit findings, including any

 significant deficiencies in internal control that the auditor identifies
 during the audit;

(b) For audits of financial statements of listed entities, state that the

auditor provides those charged with governance with a statement
that the auditor has complied with relevant ethical requirements
regarding independence and communicate with them all
relationships and other




matters that may reasonably be thought to bear on the auditor’s

independence, and where applicable, related safeguards; and
(c) For audits of financial statements of listed entities and any other entities
for which key audit matters are communicated in accordance with SA
701, state that, from the matters communicated with those charged
with governance, the auditor determines those matters that were of
most significance in the audit of the financial statements of the current
period and are therefore the key audit matters. The auditor describes
these matters in the auditor’s report unless lawor regulation precludes
public disclosure.


Other Reporting Responsibilities:




Sign: signed by Engagement partner, in case of firm all partners need not
sign, the engagement partner has to sign below the firm name and firm reg
number, also to prescribe membership number.

Place

Date

UDIN




It was noticed that financial documents/ certificates attested by third

person misrepresenting themselves as CA Members were misleading the
Authorities and Stakeholders. ICAI also received number of complaints of
signatures of CAs being forged by non CAs. To curb the malpractices, the
Professional Development Committee of ICAI implemented in phased
manner an innovative concept of UDIN i.e. Unique Document Identification
Number

KAM: SA 701

SA 701 deals with the auditor’s responsibility to communicate key audit

matters in the auditor’s report

Communicating key audit matters may also assist intended users in

understanding the entity and areas of significant management judgement
in the audited financial statements.it enhances the transparency of audit,
these matters are those matters which are discussed with TCWG

Here auditor expresses those significant areas and how he has

performed audit procedure

Definition of Key Audit Matter

ǁĞƌĞŽĨŵŽƐƚ <ĞLJĂƵĚŝƚŵĂƚƚĞƌƐĂƌĞ
<ĞLJƵĚŝƚDĂƚƚĞƌƐĂƌĞ
^ŝŐŶŝĨŝĐĂŶĐĞŝŶƚŚĞĂƵĚŝƚ ƐĞůĞĐƚĞĚĨƌŽŵŵĂƚƚĞƌƐ
ƚŚŽƐĞŵĂƚƚĞƌƐƚŚĂƚ͘ŝŶ
ŽĨƚŚĞĨŝŶĂŶĐŝĂů ĐŽŵŵƵŶŝĐĂƚĞĚǁŝƚŚ
ƚŚĞĂƵĚŝƚŽƌΖƐ
ƐƚĂƚĞŵĞŶƚƐŽĨƚŚĞ ƚŚŽƐĞĐŚĂƌŐĞĚtŝƚŚ
ƉƌŽĨĞƐƐŝŽŶĂůũƵĚŐĞŵĞŶƚ
ĐƵƌƌĞŶƚƉĞƌŝŽĚ͘ ŐŽǀĞƌŶĂŶĐĞ

This SA applies to
1) All listed entities
2) Circumstances where auditor decided to include KAM
3) It is required by law or regulation
4) KAM cannot be made in case of disclaimer opinion

KAM is Not
(a) A substitute for disclosures in the financial statements that the


 

applicable financial reporting framework requires management to

make, or that are otherwise necessary to achieve fair presentation;

(b) A substitute for the auditor expressing a modified opinion when

required by the circumstances of a specific audit engagement in
accordance with SA 705 (Revised);

(c) A substitute for reporting in accordance with SA 570 when a material

uncertainty exists relating to events or conditions that may cast
significant doubt on an entity’s ability to continue as a going concern;
or

(d) A separate opinion on individual matters.


SA 706 – EOMP OMP

when in the auditor’s judgement it is necessary to do so, by way of clear

additional communication in the auditor’s report, to:

Definition of Emphasis of Matter Paragraph


ƚŚĂƚ͘ŝŶƚŚĞĂƵĚŝƚŽƌΖƐ
ŵƉŚĂƐŝƐŽĨDĂƚƚĞƌ ƚŚĂƚƌĞĨĞƌƐƚŽĂŵĂƚƚĞƌ ũƵĚŐĞŵĞŶƚ͕ŝƐŽĨƐƵĐŚ
ƉĂƌĂŐƌĂƉŚŝƐĂƉĂƌĂŐƌĂƉŚ ĂƉƉƌŽƉƌŝĂƚĞůLJƉƌĞƐĞŶƚĞĚ ŝŵƉŽƌƚĂŶĐĞƚŚĂƚŝƚŝƐ
ŝŶĐůƵĚĞĚŝŶƚŚĞĂƵĚŝƚŽƌΖƐ ŽƌĚŝƐĐůŽƐĞĚŝŶƚŚĞ ĨƵŶĚĂŵĞŶƚĂůƚŽƵƐĞƌƐΖ
ƌĞƉŽƌƚ ĨŝŶĂŶĐŝĂůƐƚĂƚĞŵĞŶƚƐ ƵŶĚĞƌƐƚĂŶĚŝŶŐKĨƚŚĞĨŝŶĂŶĐŝĂů
ƐƚĂƚĞŵĞŶƚƐ͘

Definition of Other Matter paragraph

ƚŚĂƚƌĞĨĞƌƐƚŽĂŵĂƚƚĞƌ that. in the auditor's

KƚŚĞƌDĂƚƚĞƌƉĂƌĂŐƌĂƉŚŝƐ Judgement. is relevant to users'
ŽƚŚĞƌƚŚĂŶƚŚŽƐĞ
ĂƉĂƌĂŐƌĂƉŚŝŶĐůƵĚĞĚŝŶ understanding of the audit, the
ƉƌĞƐĞŶƚĞĚŽƌĚŝƐĐůŽƐĞĚŝŶ
ƚŚĞĂƵĚŝƚŽƌΖƐƌĞƉŽƌƚ auditor's responsibilities or the
ƚŚĞĨŝŶĂŶĐŝĂůƐƚĂƚĞŵĞŶƚƐ auditor's report.




EOMP

the auditor shall include an Emphasis of Matter paragraph in the auditor’s

report provided:

(a) The auditor would not be required to modify the opinion in

accordance with SA 705 (Revised) as a result of the matter; and

(b) When SA 701 applies, the matter has not been determined to be a
key audit matter to be communicated in the auditor’s report.

Some examples of circumstances where the auditor may consider it

necessaryto include an Emphasis of Matter paragraph.

 An uncertainty relating to the future outcome of exceptional litigation

or regulatory action.

 A significant subsequent event that occurs between the date of the

financial statements and the date of the auditor’s report.

 Early application (where permitted) of a new accounting standard

that has a material effect on the financial statements.

 A major catastrophe that has had, or continues to have, a significant

effect on the entity’s financial position.


EOMP is not a substitute for

1) Modified opinion
2) Is not a disclosure in FS
3) SA 570 reporting on factors affecting going concern

the auditor shall include an Other Matter paragraph in the auditor’s report,
except

(a) This is not prohibited by law or regulation; and

(b) When SA 701 applies, the matter has not been determined to be
a key audit matter to be communicated in the auditor’s report.

If the auditor expects to include an Emphasis of Matter or an Other

Matter paragraph in the auditor’s report, the auditor shall communicate
with those charged with governance regarding this expectation and the
wording of this paragraph.



SA 710

The nature of the comparative information that is presented in an entity’s

financial statements depends on the requirements of the applicable
financial reporting framework.

Comparative information is of two types: corresponding figures and

comparative FS

The essential audit reporting differences between the approaches are:

(a) For corresponding figures, the auditor’s opinion on the financial

statements refers to the current period only; whereas

(b) For comparative financial statements, the auditor’s opinion refers to

each period for which financial statements are presented.

This SA
 Auditor has to obtain SAAE whether the comparative information
included in the financial statements has been presented, in all
material respects, in accordance with the requirements for
comparative information in the applicable financial reporting
framework and
 Auditors reporting requirement

COMPARATIVE INFO (what auditor has to do)

 determine whether the financial statements include the comparative
information required by the applicable financial reporting framework
 whether they are properly disclosed
 it agrees with the amounts of previous results
The accounting policies reflected in the comparative information are
consistent with those applied in the current period (if any changes, it
is disclosed properly or not)
 the auditor shall request written representations for all periods
referred to in the auditor’s opinion
 if there is misstatement, discuss with management and perform
additional audit procedures, to obtain SAAE




What is corresponding item

ŽŵƉĂƌĂƟǀĞŝŶĨŽƌŵĂƟŽŶ ĂŶĚĂƌĞŝŶƚĞŶĚĞĚƚŽďĞ dŚĞůĞǀĞůKĨĚĞƚĂŝů

ǁŚĞƌĞĂŵŽƵŶƚƐĂŶĚ ƌĞĂĚŽŶůLJŝŶƌĞůĂƟŽŶƚŽ ƉƌĞƐĞŶƚĞĚŝŶƚŚĞ
ŽƚŚĞƌĚŝƐĐůŽƐƵƌĞƐĨŽƌƚŚĞ ƚŚĞĂŵŽƵŶƚƐĂŶĚŽƚŚĞƌ ĐŽƌƌĞƐƉŽŶĚŝŶŐ ĂŵŽƵŶƚƐ
ƉƌŝŽƌƉĞƌŝŽĚĂƌĞŝŶĐůƵĚĞĚ ĚŝƐĐůŽƐƵƌĞƐƌĞůĂƟŶŐƚŽ ĂŶĚ ĚŝƐĐůŽƐƵƌĞƐ ŝƐ
ĂƐĂŶŝŶƚĞŐƌĂůƉĂƌƚŽĨƚŚĞ ƚŚĞĐƵƌƌĞŶƚƉĞƌŝŽĚ ĚŝĐƚĂƚĞĚ ƉƌŝŵĂƌŝůLJ ďLJ ŝƚƐ
ĐƵƌƌĞŶƚƉĞƌŝŽĚ ;ƌĞĨĞƌƌĞĚƚŽĂƐΗĐƵƌƌĞŶƚ ƌĞůĞǀĂŶĐĞ ƚŽ ƚŚĞ ĐƵƌƌĞŶƚ
ĮŶĂŶĐŝĂůƐƚĂƚĞŵĞŶƚƐ ƉĞƌŝŽĚĮŐƵƌĞƐΗͿ͘ ƉĞƌŝŽĚĮŐƵƌĞƐ͘

When corresponding figures are presented, the auditor’s opinion shall not refer to
the corresponding figures except in the following circumstances:

PRIOR PERIOD IS AUDITED

1) previous auditor has given unmodified opinion

auditor obtains evidence that MM exist in prior period item, MM is not
dealt as per FRF, Auditor has to give a modified opinion

2) prior audit report has modification and same is not resolved explain
that the audit opinion has been modified because of the effects or
possible effects of the unresolved matter on the comparability of the
current period’s figures and the corresponding figures. Refer to both the
current period’s figures and the corresponding figures in the description
in basis of opinion paragraph

3) Prior Period Financial Statements Not Audited-

If the prior period financial statements were not audited, the auditor
shall state in an Other Matter paragraph in the auditor’s report that the
corresponding figures are unaudited.

Such a statement does not, however, relieve the auditor of the

requirement to obtain sufficient appropriate audit evidence that the
opening balances do not contain misstatements that materially affect
the current period’s financial statements.





Also provide details of predecessor auditor in OMP

Comparative FS

Definition: Comparative information where amounts and other

disclosures for the prior period are included for comparison with the
financial statements of the current period but, if audited, are referred to in
the auditor ’s opinion. The level of information included in those
comparative financial statements is comparable with that of the financial
statements of the current period.

 If the opinion on prior period FS differs from our opinion of Comparative
FS explain reason in OMP
 If prior period is unaudited, state in OMP however, relieve the auditor of
the requirement to obtain sufficient appropriate audit evidence that
the opening balances do not contain misstatements that materially
affect the current period’s financial statements.
 Also provide details of predecessor auditor in OMP

SA 705

When Auditor modifies the opinion

The auditor concludes that, based on the audit evidence obtained, the
financial statements as a whole are not free from material
misstatement
The auditor is unable to obtain sufficient appropriate audit evidence to
conclude that the financial statements as a whole are free from
material misstatement.







The auditor shall express a qualified opinion when:

(a) The auditor, having obtained sufficient appropriate audit evidence,

concludes that misstatements, individually or in the aggregate, are
material, but not pervasive, to the financial statements; or

(b) The auditor is unable to obtain sufficient appropriate audit evidence

on which to base the opinion, but the auditor concludes that the
possible effects on the financial statements of undetected
misstatements, if any, could be material but not pervasive.

Definition of Pervasive – A term used, in the context of misstatements, to
describe the effects on the financial statements of misstatements or the
possible effects on the financial statements of misstatements, if any, that
are undetected due to an inability to obtain sufficient appropriate audit
evidence.

Pervasive effects on the financial statements are those that, in the

auditor’s judgement:

(i) Are not confined to specific elements, accounts or items of the

financial statements;




(ii) If so confined, represent or could represent a substantial

proportion of the financial statements; or
(iii) In relation to disclosures, are fundamental to users’ understanding
of the financial statements.
Disclaimer of Opinion The auditor shall disclaim an opinion when the
auditor is unable to obtain sufficient appropriate audit evidence on which
to base the opinion, and the auditor concludes that the possible effects on
the financial statements of undetected misstatements, if any, could be both
material and pervasive.

What type of opinion?

The decision regarding which type of modified opinion is appropriate

depends upon:

(a) The nature of the matter giving rise to the modification, that is, whether
the financial statements are materially misstated or, in the case of an
inability to obtain sufficient appropriate audit evidence, may be
materially misstated; and

(b) The auditor’s judgement about the pervasiveness of the effects or

possible
effects of the matter on the financial statements.

Nature of Matter Giving Rise to the Auditor’s Judgement ab out the
Modification Pervasiveness of the f Effects or
Possible Effects on the Financial
Statements
Material but not Material and
Pervasive Pervasive
Financial statements are materially Qualified opinion Adverse opinion
misstated
Inability to obtain sufficient appropriate Qualified opinion Disclaimer of opinion
audit evidence

Management imposing restriction: refer page 8.42 flow chart

Form and content of audit Report of qualified opinion: page 8.44

(in basis of opinion, mention the reason and then give 4 matters which
was earlier said under basis of opinion), also give quantification about
misstatement