SA 700 (Revised) : F O R F S
SA 700 (Revised) : F O R F S
SA 700 (Revised) : F O R F S
Contents
Paragraph(s)
Introduction
Scope of this SA.....................................................................................1-4
Effective Date ........................................................................................... 5
Objectives ................................................................................................ 6
Definitions ............................................................................................7-9
Requirements
Forming an Opinion on the Financial Statements .............................10-15
Form of Opinion ................................................................................16-19
Auditors Report ................................................................................20-45
Supplementary Information Presented with the
Financial Statements .........................................................................46-47
Application and Other Explanatory Material
Qualitative Aspects of the Entitys Accounting Practices ................. A1-A3
Disclosure of the Effect of Material Transactions and Events on the
Information Conveyed in the Financial Statements ...............................A4
The Council of the ICAI, in partial modification of the decision taken by it at its 291st meeting
held in December 2009, has decided that the effective date/applicability of three standards viz SA
700 (Revised), SA 705 and SA 706 be postponed by one year and consequently the said
Standards shall now be effective/applicable for audits of financial statements for periods beginning
on or after 1st April, 2012 (instead of audits of financial statements for periods beginning on or after
1st April, 2011 as was earlier decided).
SA 700 (Revised)
Introduction
Scope of this SA
1. This Standard on Auditing (SA) deals with the auditors responsibility to
form an opinion on the financial statements. It also deals with the form and
content of the auditors report issued as a result of an audit of financial
statements.
2. SA 7054 and SA 7065 deal with how the form and content of the auditors
report are affected when the auditor expresses a modified opinion or includes an
Emphasis of Matter paragraph or an Other Matter paragraph in the auditors
report.
3. This SA is written in the context of a complete set of general purpose
financial statements. SA 8006 deals with special considerations when financial
statements are prepared in accordance with a special purpose framework. SA
8057 deals with special considerations relevant to an audit of a single financial
statement or of a specific element, account or item of a financial statement.
4. This SA promotes consistency in the auditors report. Consistency in the
auditors report, when the audit has been conducted in accordance with SAs,
promotes credibility in the global marketplace by making more readily identifiable
those audits that have been conducted in accordance with globally recognised
standards. It also helps to promote the users understanding and to identify
unusual circumstances when they occur.
Effective Date
Objectives
6. The objectives of the auditor are to:
(a) Form an opinion on the financial statements based on an evaluation of the
conclusions drawn from the audit evidence obtained; and
(b) Express clearly that opinion through a written report that also describes the
basis for the opinion.
4
SA 700 (Revised)
Definitions
7. For purposes of the SAs, the following terms have the meanings attributed
below:
(a) General purpose financial statements Financial statements prepared in
accordance with a general purpose framework8.
(b) General purpose framework A financial reporting framework designed to
meet the common financial information needs of a wide range of users. The
financial reporting framework may be a fair presentation framework or a
compliance framework.
The term fair presentation framework is used to refer to a financial
reporting framework that requires compliance with the requirements of the
framework and:
(i)
(ii)
Paragraph 3.4 of the Revised Preface to the Statements of Accounting Standards issued by the
Institute of Chartered Accountants of India in 2004 states as follows:
The term General Purpose Financial Statements includes balance sheet, statement of
profit and loss, a cash flow statement (wherever applicable) and statements and
explanatory notes which form part thereof, issued for the use of various stakeholders,
Governments and their agencies and the public.
9 SA 200, Paragraph 13(a).
10
Paragraphs 35-36 deal with the phrases used to express this opinion in the case of a fair
presentation framework and a compliance framework respectively.
SA 700 (Revised)
Requirements
Forming an Opinion on the Financial Statements
10. 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.11 & 12
11. 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) The auditors conclusion, in accordance with SA 330, whether sufficient
appropriate audit evidence has been obtained;13
(b) The auditors conclusion, in accordance with SA 450, whether uncorrected
misstatements are material, individually or in aggregate;14 and
(c)
12. The auditor shall evaluate whether the financial statements are prepared, in
all material respects, in accordance with the requirements of the applicable
financial reporting framework. This evaluation shall include consideration of the
qualitative aspects of the entitys accounting practices, including indicators of
possible bias in managements judgments. (Ref: Para. A1-A3)
13. In particular, the auditor shall evaluate whether, in view of the requirements
of the applicable financial reporting framework:
(a) The financial statements adequately disclose the significant accounting
11
SA 700 (Revised)
The terminology used in the financial statements, including the title of each
financial statement, is appropriate.
14. When the financial statements are prepared in accordance with a fair
presentation framework, the evaluation required by paragraphs 12-13 shall also
include whether the financial statements achieve fair presentation. The auditors
evaluation as to whether the financial statements achieve fair presentation shall
include consideration of:
(a) The overall presentation, structure and content of the financial statements;
and
(b) Whether the financial statements, including the related notes, represent the
underlying transactions and events in a manner that achieves fair
presentation.
15. The auditor shall evaluate whether the financial statements adequately
refer to or describe the applicable financial reporting framework. (Ref: Para. A5A10)
Form of Opinion
16. The auditor shall express an unmodified opinion when the auditor
concludes that the financial statements are prepared, in all material respects, in
accordance with the applicable financial reporting framework.
17. If the auditor:
(a) concludes that, based on the audit evidence obtained, the financial
statements as a whole are not free from material misstatement; or
(b) 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 modify the opinion in the auditors report in accordance with
SA 700 (Revised)
SA 705.
18. If financial statements prepared in accordance with the requirements of a
fair presentation framework do not achieve fair presentation, the auditor shall
discuss the matter with management and, depending on the requirements of the
applicable financial reporting framework and how the matter is resolved, shall
determine whether it is necessary to modify the opinion in the auditors report in
accordance with SA 705. (Ref: Para. A11)
19. When the financial statements are prepared in accordance with a
compliance framework, the auditor is not required to evaluate whether the
financial statements achieve fair presentation. However, if in extremely rare
circumstances the auditor concludes that such financial statements are
misleading, the auditor shall discuss the matter with management and,
depending on how it is resolved, shall determine whether, and how, to
communicate it in the auditors report. (Ref: Para. A12)
Auditors Report
20. The auditors report shall be in writing. (Ref: Para. A13-A14)
Auditors Report for Audits Conducted in Accordance with Standards on
Auditing
Title
21. The auditors report shall have a title that clearly indicates that it is the
report of an independent auditor. (Ref: Para. A15)
Addressee
22. The auditors report shall be addressed as required by the circumstances of
the engagement. (Ref: Para. A16)
Introductory Paragraph
23. The introductory paragraph in the auditors report shall: (Ref: Para. A17A19)
(a) Identify the entity whose financial statements have been audited;
(b) State that the financial statements have been audited;
(c)
Identify the title of each statement that comprises the financial statements;
For example, the Board of Directors under the Companies Act, 1956.
SA 700 (Revised)
32. Where the financial statements are prepared in accordance with a fair
presentation framework, the description of the audit in the auditors report shall
refer to the entitys preparation and fair presentation of the financial statements
or the entitys preparation of financial statements that give a true and fair view,
as appropriate in the circumstances.
33. The auditors report shall state whether the auditor believes that the audit
evidence the auditor has obtained is sufficient and appropriate to provide a basis
for the auditors opinion.
Auditors Opinion
34. The auditors report shall include a section with the heading Opinion.
35. When expressing an unmodified opinion on financial statements prepared
in accordance with a fair presentation framework, the auditors opinion shall,
unless otherwise required by law or regulation, use one of the following phrases,
which are regarded as being equivalent: (Ref: Para. A26-A32)
(a) The financial statements present fairly, in all material respects, in
accordance with [the applicable financial reporting framework]; or
(b) The financial statements give a true and fair view of in accordance with [the
SA 700 (Revised)
(f)
addition to the national auditing standards, but the auditor shall do so only if:
(Ref: Para. A42-A43)
(a) There is no conflict between the requirements in the national auditing
standards and those in ISAs that would lead the auditor (i) to form a
different opinion, or (ii) not to include an Emphasis of Matter paragraph
that, in the particular circumstances, is required by ISAs; and
(b) The auditors report includes, at a minimum, each of the elements set out in
paragraph 43(a)-(i) when the auditor uses the layout or wording specified
by the national auditing standards. Reference to law or regulation in
paragraph 43(e) shall be read as reference to the national auditing
standards. The auditors report shall thereby identify such national auditing
standards.
45. When the auditors report refers to both the national auditing standards and
International Standards on Auditing, the auditors report shall identify the national
auditing standards being the Standards on Auditing issued by the Institute of
Chartered Accountants of India.
16
SA 540, Auditing Accounting Estimates, Including Fair Value Accounting Estimates, and Related
Disclosures, paragraph 21.
SA 700 (Revised)
SA 700 (Revised)
because the financial statements do not include all the information in the
manner required by that other framework.
A10. The financial statements may, however, be prepared in accordance with
one applicable financial reporting framework and, in addition, describe in the
notes to the financial statements the extent to which the financial statements
comply with another framework (e.g., financial statements prepared in
accordance with the national framework that also describe the extent to
which they comply with International Financial Reporting Standards). Such
description is supplementary financial information and, as discussed in
paragraph 47, is considered an integral part of the financial statements and,
accordingly, is covered by the auditors opinion.
SA 700 (Revised)
SA 700 (Revised)
SA 700 (Revised)
with SAs in the auditors report unless the auditor has complied with the
requirements of the SA 200 and all other SAs relevant to the audit 23.
Auditors Opinion (Ref: Para. 35-37)
Wording of the auditors opinion prescribed by law or regulation
A26. SA 210 explains that, in some cases, law or regulation prescribes the
wording of the auditors report (which in particular includes the auditors
opinion) in terms that are significantly different from the requirements of SAs.
In these circumstances, SA 210 requires the auditor to evaluate:
(a) Whether users might misunderstand the assurance obtained from the
audit of the financial statements and, if so,
(b) Whether additional explanation in the auditors report can mitigate
possible misunderstanding.
If the auditor concludes that additional explanation in the auditors report
cannot mitigate possible misunderstanding, SA 210 requires the auditor not
to accept the audit engagement, unless required by law or regulation to do
so. In accordance with SA 210, an audit conducted in accordance with such
law or regulation does not comply with SAs. Accordingly, the auditor does not
include any reference in the auditors report to the audit having been
conducted in accordance with Standards on Auditing 24.
Present fairly, in all material respects or give a true and fair view
A27. Whether the phrase present fairly, in all material respects, or the
phrase give a true and fair view is used in any particular jurisdiction is
determined by the law or regulation governing the audit of financial
statements in that jurisdiction, or by generally accepted practice in that
jurisdiction. Where law or regulation requires the use of different wording,
this does not affect the requirement in paragraph 14 of this SA for the auditor
to evaluate the fair presentation of financial statements prepared in
accordance with a fair presentation framework.
Description of information that the financial statements present
A28. In the case of financial statements prepared in accordance with a fair
presentation framework, the auditors opinion states that the financial
statements present fairly, in all material respects, or give a true and fair view
of the information that the financial statements are designed to present, for
23
24
SA 700 (Revised)
SA 700 (Revised)
The Council of the ICAI, at its 292nd meeting held in January 2010, decided to require the
members of the ICAI to include, in addition to the other requirements relating to signature on the
audit report, as prescribed under the relevant Standard on Auditing, the registration number of the
firm as allotted by ICAI, in the audit reports signed by them, and ensure that the resolution passed
by the company regarding appointment of the statutory auditor of the company under section 224
of the Companies Act, 1956, also contain the registration number of the firm of the auditor(s) with
the ICAI. These requirements came into effect from April 1, 2010. Subsequently, the Council of the
ICAI, at its 296th meeting held in June 2010, decided to extend the requirement to mention the firm
registration number to all reports issued pursuant to any attestation engagement, including
certificates, issued by the members as proprietor of/ partner in the said firm. The requirement
applies where such firm registration number has been allotted by the ICAI. The Council further
decided to make this requirement effective for all attestation reports/ certificates issued on or after
1st October, 2010.
SA 700 (Revised)
is addressed in SA 56027.
A38. Since the auditors opinion is provided on the financial statements and
the financial statements are the responsibility of management, the auditor is
not in a position to conclude that sufficient appropriate audit evidence has
been obtained until evidence is obtained that all the statements that
comprise the financial statements, including the related notes, have been
prepared and management has accepted responsibility for them.
A39. In case of some entities, the applicable law or regulation identifies the
individuals or bodies (e.g., the directors) that are responsible for concluding
that all the statements that comprise the financial statements, including the
related notes, have been prepared, and specifies the necessary approval
process. In such cases, evidence is obtained of that approval before dating
the report on the financial statements. In case of some other entities,
however, the approval process is not prescribed in law or regulation. In such
cases, the procedures the entity follows in preparing and finalising its
financial statements in view of its management and governance structures is
considered in order to identify the individuals or body with the authority to
conclude that all the statements that comprise the financial statements,
including the related notes, have been prepared. In some cases, law or
regulation identifies the point in the financial statement reporting process at
which the audit is expected to be complete.
A40. In some entities, final approval of the financial statements by
shareholders is required before the financial statements are issued publicly.
In these entities, final approval by shareholders is not necessary for the
auditor to conclude that sufficient appropriate audit evidence has been
obtained. The date of approval of the financial statements for purposes of
SAs is the earlier date on which those with the recognised authority
determine that all the statements that comprise the financial statements,
including the related notes, have been prepared and that those with the
recognised authority have asserted that they have taken responsibility for
them.
Auditors Report Prescribed by Law or Regulation (Ref: Para. 43)
A41. SA 200 explains that the auditor may be required to comply with legal or
regulatory requirements in addition to SAs 28. Where this is the case, the
auditor may be obliged to use a layout or wording in the auditors report that
differs from that described in this SA. As explained in paragraph 4,
27
28
SA 700 (Revised)
consistency in the auditors report, when the audit has been conducted in
accordance with SAs, promotes credibility in the global marketplace by
making more readily identifiable those audits that have been conducted in
accordance with globally recognised standards. When the differences
between the legal or regulatory requirements and SAs relate only to the
layout and wording of the auditors report and, at a minimum, each of the
elements identified in paragraph 43(a)-(i) are included in the auditors report,
the auditors report may refer to Standards on Auditing. Accordingly, in such
circumstances the auditor is considered to have complied with the
requirements of SAs, even when the layout and wording used in the auditors
report are specified by legal or regulatory reporting requirements. Where
specific requirements in a particular law or regulation do not conflict with
SAs, adoption of the layout and wording used in this SA assists users of the
auditors report more readily to recognise the auditors report as a report on
an audit conducted in accordance with SAs. (SA 210 deals with
circumstances where law or regulation prescribes the layout or wording of
the auditors report in terms that are significantly different from the
requirements of SAs).
Auditors Report for Audits Conducted in Accordance with Both
Auditing Standards issued by the Institute of Chartered Accountants of
India (national auditing standards) and International Standards on
Auditing (Ref: Para. 44)
A42. The auditor may refer in the auditors report to the audit having been
conducted in accordance with both International Standards on Auditing as
well as the national auditing standards, i.e., the Standards on Auditing issued
by the Institute of Chartered Accountants of India when, in addition to
complying with the national auditing standards, the auditor complies with
each of the ISAs relevant to the audit.
A43. A reference to both International Standards on Auditing and the national
auditing standards is not appropriate if there is a conflict between the
requirements in ISAs and those in the national auditing standards that would
lead the auditor to form a different opinion or not to include an Emphasis of
Matter paragraph that, in the particular circumstances, is required by ISAs. In
such a case, the auditors report refers only to the auditing standards (either
International Standards on Auditing or the national auditing standards) in
accordance with which the auditors report has been prepared.
Supplementary Information
Statements (Ref: Para. 46-47)
Presented
with
the
Financial
Unaudited notes that are intermingled with the audited notes can be
misinterpreted as being audited.
A50. The fact that supplementary information is unaudited does not relieve
the auditor of the responsibility to read that information to identify material
inconsistencies with the audited financial statements. The auditors
responsibilities with respect to unaudited supplementary information are
consistent with those described in SA 720 29.
2.
Paragraph 42 of ISA 700 states that the auditors report shall name the
location in the jurisdiction where the auditor practices. Since the
practices prevailing in India requires the auditor to mention the Place
of Signature instead of the Auditors Address in the auditors report,
the requirement of mentioning the auditors address has been replaced
with the place of signature, which is the name of specific location, which
is ordinarily the city where the audit report is signed. Corresponding
changes have also been made at the relevant places of the Standard.
3.
Paragraph A36 of ISA 700 explains who is eligible for signing the
auditors report in the different situations. Since in India, audit report
may be signed by the auditor in his personal name in case of sole
practitioner and where the firm is appointed as the auditor, the report
may be signed in the personal name of the auditor and in the name of
the audit firm, the paragraph has accordingly been changed. Since as
SA 700 (Revised)
per the Indian practice, the partner/proprietor signing the audit report
also needs to mention the firm registration number, wherever
applicable, and the membership number assigned by the Institute of
Chartered Accountants of India, the said requirement has also been
incorporated in the paragraph A36 of SA 700 (Revised).
SA 700 (Revised)
Appendix
(Ref: Para. A14)
SA 700 (Revised)
a.
we have obtained all the information and explanations which to the best of
our knowledge and belief were necessary for the purpose of our audit;
b.
in our opinion proper books of account as required by law have been kept
by the Company so far as appears from our examination of those books
[and proper returns adequate for the purposes of our audit have been
received from branches not visited by us] 30 ;
c.
the Balance Sheet, Statem ent of Profit and Loss, and Cash Flow
Statem ent dealt with by this Report are in agreem ent with the books of
account [and with the returns received from branches not visited by us]31 ;
d.
in our opinion, the Balance Sheet, Statement of Profit and Loss, and Cash
Flow Statem ent com ply with the Accounting Standards referred to in subsection (3C) of section 211 of the Companies Act, 1956;
e.
f.
Since the Central Government has not issued any notification as to the rate
at which the cess is to be paid under section 441A of the Companies Act,
1956 nor has it issued any Rules under the said section, prescribing the
manner in which such cess is to be paid, no cess is due and payable by the
Company.32
30
To be included if relevant.
31
To be included if relevant.
32
Attention of the readers is invited to the Announcement issued by the Council of the ICAI
regarding the auditors reporting responsibilities pursuant to clause 4(ix)(a) of the Companies
(Auditors Report) Order, 2003 and section 227(3)(g) of the Companies Act, 1956 wrt the cess
payable under Section 441A of the Companies Act, 1956. The Announcement is published
elsewhere in the Handbook.
SA 700 (Revised)
33
SA 700 (Revised)
Illustration 2:
Circumstances include the following:
Company Limited (the Company) and its subsidiaries, which comprise the
consolidated Balance Sheet as at March 31, 20XX, and the consolidated
Statement of Profit and Loss and the consolidated Cash Flow Statement for the
year then ended, and a summary of significant accounting policies and other
explanatory information.
Managements Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation of these consolidated financial
statements that give a true and fair view of the consolidated financial position,
consolidated financial performance and consolidated cash flows of the Company
in accordance with accounting principles generally accepted in India. This
responsibility includes the design, implementation and maintenance of internal
control relevant to the preparation and presentation of the consolidated financial
SA 700 (Revised)
statements that give a true and fair view and are free from material
misstatement, whether due to fraud or error.
Auditors Responsibility
Our responsibility is to express an opinion on these consolidated financial
statements based on our audit. We conducted our audit in accordance with the
Standards on Auditing issued by the Institute of Chartered Accountants of India.
Those Standards require that we comply with ethical requirements and plan and
perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the
amounts and disclosures in the consolidated financial statements. The
procedures selected depend on the auditors judgement, including the
assessment of the risks of material misstatement of the consolidated financial
statements, whether due to fraud or error. In making those risk assessments, the
auditor considers internal control relevant to the Companys preparation and
presentation of the consolidated financial statements that give a true and fair
view in order to design audit procedures that are appropriate in the
circumstances. An audit also includes evaluating the appropriateness of
accounting policies used and the reasonableness of the accounting estimates
made by management, as well as evaluating the overall presentation of the
consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate
to provide a basis for our audit opinion.
Opinion
In our opinion and to the best of our information and according to the
explanations given to us, the consolidated financial statements give a true and
fair view in conformity with the accounting principles generally accepted in India:
( a)
in the case of the consolidated Balance Sheet, of the state of affairs of the
Company as at March 31, 20XX;
(b) in the case of the consolidated Profit and Loss Account, of the profit/ loss
for the year ended on that date; and
(c) in the case of the consolidated Cash Flow Statement, of the cash flows for
the year ended on that date.
SA 700 (Revised)
35
SA 700 (Revised)
Illustration 3:
Circumstances include the following:
Audit of a complete set of separate general purpose financial
statements of an entity prepared in accordance with the
requirements of XYZ Law of India under a compliance
framework.
The terms of the audit engagement reflect the description of
managements responsibility for the financial statements in SA
210.
The report is unmodified and does not include either an
Emphasis of Matter paragraph or an Other Matter(s) paragraph.
INDEPENDENT AUDITORS REPORT
[Appropriate Addressee]
We36 have audited the accompanying financial statements of ABC and
Associates, which comprise the Balance Sheet as at March 31, 20XX, and the
Profit and Loss Account37 for the year then ended, and a summary of significant
accounting policies and other explanatory information.
Managements Responsibility for the Financial Statements
Management is responsible for the preparation of these financial statements in
accordance with XYZ Law of India. This responsibility includes the design,
implementation and maintenance of internal control relevant to the preparation of
the financial statements that are free from material misstatement, whether due to
fraud or error.
Auditors Responsibility
Our responsibility is to express an opinion on these financial statements based
on our audit. We conducted our audit in accordance with the Standards on
Auditing issued by the Institute of Chartered Accountants of India. Those
Standards require that we comply with ethical requirements and plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free from material misstatement.
As there is no reporting on Other Legal and Regulatory Requirements, there is no necessity of
including the heading Report on the Financial Statements above the introductory paragraph.
37 Provide titles of all financial statements that comprise a full set of financial statements required
by XYZ Law of India.
36
SA 700 (Revised)
Note that the opinion excludes the words true and fair as this report is not under a fair
presentation framework.
39 Partner or Proprietor, as the case may be.
38
SA 700 (Revised)