2.audit Standards Free

STANDARDS ON
AUDITING
35 page summary
May 23
CA FINAL
Nov 23
FREE notes
ATTEMPT WISE MARKS BREAKUP FOR STANDARDS
May-18 Nov-18 May-19 Nov-19 Nov-20 Jan-21 Jul-21 Dec-21 May-22 Nov-22
SQC 1 4 5 5 5
200 5
210
220 5
230 5 5
240 5 5
250 4 5
260
265 5 5
299 5
300
315 4 5 5
320 5 5
330 5
402 5
450
500 5
501 5 5
505 4 5
510 4
520 4
530
540 5 4 4
550 5 5
560 5 5
570 5 5
580
600 5
610 4 5
620 5 5
700 10
701 5
705 4 5 5 4 5
706
710
720 5 4
Total 37 23 14 28 34 24 30 19 19 25
Marks breakup attempt wise CA FINAL May & Nov 23

SQC 1 – Quality control for firms that audit and review of historical financial
information, and other assurances and related service engagements
QC System of a firm shall include P&P addressing the following:
1. Leadership Responsibilities 4. Client Acceptance/Continuance

a) CEO/Managing Partners: Assume ultimate Clients identity and business reputation,
responsibility for the firm QC system clients operations, inappropriate limitation of
b) Persons responsible for QC system work, maintaining low fee structure, money
Appropriate authority, ability and experience. laundering
2. Ethical Requirements 5. Human Resources

Integrity, objectivity, confidentiality, professional Firm has personnel with Commitment,
competence and professional behavior Capabilities and Competence (3Cs)
3. Independence 6. Monitoring
Communication of independence requirements to QC is: Relevant, adequate, operating
personnel & identify threats. effectively
7. Complaints and allegations

◦ Dealing with failure to comply with QC, PS, L&R, etc.
◦ Within or outside the firm (i.e. Firm Personnel or Clients/Third Party)
◦ Investigation of complaint / allegation supervised by person with proper authority / experience
◦ Documentation of complaints / allegations and their responses (SA 230)
8. Engagement performance
Compliance with - professional standards, L&R
a) Review b) Engagement QC review
i. Work performed w.r.t PS, L&R i. Evaluation of firm’s Independence
ii. Work performed = Conclusion reached ii. Significant risks identified and its responses
iii. NTE of work performed to be revised iii. Communication with TCWG (SA 260) and management
iv. SAAE iv. Consultation w.r.t. Difference of opinion
v. Significant matters raised for further v. Audit documentation (SA 230): Work performed,
considerations evidences obtained and conclusions reached.
SQC 1: QC and Engagement Standards CA FINAL May & Nov 23

SA 200 – Overall objectives of independent auditor & conduct of audit in
accordance with SA
ASPECTS CONSIDERED BY AUDITOR WHILE CONDUCTING AUDIT
❶ Professional skepticism : Attitude that involves questioning mind, being alert to
circumstances which may indicate possible misstatement due to error/fraud and critical
assessment of audit evidence. Alertness required w.r.t
a) Contradictory AE
b) Reliability on documents
c) Conditions indicating possible frauds
❷ Professional judgement : Application of KTE within context of AS / SA in making informed

decisions w.r.t course of action. Required where?
a) RMM
b) FRF
c) Conclusions based on SAAE
d) Materiality
❸ Sufficient & Appropriate Audit Evidence (SAAE)

Sufficient means quantum / quantity. Appropriate means quality.
Audit Risk means risk that auditor gives inappropriate opinion when FS are misstated.
❹ Conduct of audit as per SA

a) Comply with all SA
b) Specify the said compliance in audit report (If entire SA not relevant, comply only with relevant)
c) In case of failure to achieve any objective, determine the necessity of Modified Opinion or
withdrawal from Audit
❺ Ethical requirements
a) Integrity b) Objectivity c) Confidentiality
d) Prof competence & due care e) Prof behavior
OTHER EXPLANATIONS
SCOPE OF AUDIT PREPARATION OF FS PREPARATION OF FS

. . .
1. FS as per Financial 1. Responsibility of 1. FR based on Mgmt judgment.
Reporting Framework management 2. Audit procedure for obtaining SAAE
. .
2. Auditor’s opinion does 2. Above responsibility 3. Cost - benefit analysis

NOT assure also includes selection 4. Fraud, particularly by senior mgmt
a. Future viability and application of 5. Non – Compliance of Laws &
b. Economy, Efficiency Accounting policies Regulations by mgmt
and Effectiveness (EEE) and Accounting 6. Future events causing entity to
of management estimates cease/continue as a going concern.
SA 200 CA FINAL May & Nov 23

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□ Read □ 1st revision □ 2nd Revision □ 3rd Revision
SA 210 – Agreeing the terms of audit engagement

At the beginning of the audit
INITIAL AUDIT ENGAGEMENT RECURRING AUDIT ENGAGEMENT

Determine requirements w.r.t:
Limitations by management?  Revision of audit engagement terms
 Reminding entity of existing terms
YES NO
If required, send new If not required, don’t
engagement letter send
Do NOT Check existence of Pre –
accept audit conditions: Circumstances requiring revision of audit
.
engagement 1. FRF Applicable engagement terms:

unless .
2. Agreement with mgmt for 1. Entity misunderstands objectives and audit

required by
responsibility wrt: scope
law
a. FS preparation 2. Revised / special audit engagement terms
b. IC 3. Significant change in :
.
a. Ownership
3. Provide Auditor :
b. Nature / Size of Entity
a. Access to all relevant info
c. Legal / Regulatory Requirements
b. Additional info requested by
auditor
If management requests for change in terms
during audit engagement,
determine effect on level of assurance and
EXIST DO NOT EXIST reasonable justification.
Discuss with
Accept audit Auditor satisfied Auditor not satisfied
management
Record new DO NOT accept changes
engagement
• Unacceptable FRF Mgmt NOT permit
DO NOT accept terms in new
audit if
• Management does not auditor to continue
agree with responsibilities
letter
Withdraw & report to
appropriate authority

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SA 220 – Quality control for an audit of FS

Implementation of QC system of a firm shall include policies & procedures addressing each of the following element
1. Leadership responsibilities:
a) Engagement Partners - Assume compliance with professional stds, L&R, QC policies
b) Issue appropriate audit report
2. Ethical requirements:
a) Remain alert w.r.t non-compliance w.r.t relevant ethical requirements via Inquiry, observation
b) Indication of non-compliance – Consult others and determine appropriate action
3. Independence:
Form conclusion Obtain Identify and evaluate Evaluate Determine if Take appropriate
w.r.t. compliance relevant circumstances info on these action or report
with info that threatens identified threaten inability to
independence from firm independence breaches independence address threats
4. Client Acceptance/Continuance:
a) Check whether appropriate procedures followed and conclusions reached are appropriate
5. Assignment of engagement team:

a) Perform audit engagements on basis of professional standards, L&R, QC policies
b) Appropriate audit report in circumstances
6. Engagement performance:
a) Take responsibility for direction, supervision and performance
b) Review performed in accordance with policies / procedures
c) Take consultation wherever required and ensure implementation
d) Engagement QC Review - In case of listed entities
7. Monitoring: QC is relevant, adequate and operating effectively

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SA 230 – Audit documentation

Audit documentation means record of audit procedures performed, AE obtained and audit conclusions reached.
Documents shall be retained for a period of 7 years from audit report.
. PURPOSE . . NATURE . . OWNERSHIP .

a) Assistance in planning / a) Sufficient and appropriate record for a) Audit documentation – property
performing audit audit report direction, supervision of auditor
b) Direction, supervision and review of work b) Auditor at his discretion, make
and review of work b) Evidence that audit was planned/ portions from documentation
c) Fix accountability performed in accordance with SA’s. available to client
. SPECIFIC DOCUMENTATION .
a) Documentation of discussion – significant matters discussed with TCWG and Management
b) Documentation of departure from relevant requirement – Reasons and alternative procedures performed
c) Documentation of matters arising after auditor’s report date – Circumstances encountered, new audit
d) Procedures performed, AE obtained and audit conclusions reached
. FORM, CONTENT AND EXTENT OF DOCUMENTATION .

Prepare audit documentation for enabling an experienced auditor to understand NTE of audit procedures,
results of audit procedures performed and audit evidences obtained.
Factors affecting Form, Content and Extent of documentation -
a) Size / complexity of entity
b) Nature of audit procedures performed
c) Identified RMM
d) Significance of AE obtained
e) NTE of exceptions identified

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SA 240 – The Auditor’s responsibilities relating to fraud in an audit of FS

Fraud : Intentional act involving use of deception to obtain and unjust advantage. Auditor is concerned with fraud
that causes MM.
1. Sources of misstatement 3. Conditions / Events which increases risk of
Fraud
Fraudulent financial reporting
a) Discrepancy in accounting records
1. Fictitious journal entries
b) Conflicting or missing evidences
2. Inappropriate assumptions
c) Unusual relationship between auditor and
3. Omitting, advancing and delaying
management
recognition of events
4. Concealing facts that affect FS
4. Management duties
a) Primary responsibility for prevention / detection
Misappropriation of assets
of fraud = TCWG and management.
1. Embezzling receipts
b) Must have commitment and created a culture of
2. Stealing physical assets
honesty and ethical behaviour.
3. Using entity’s assets for personal use
5. Fraud risk factors
2. Risk associated with Non detection of MM a) Incentive / pressure to commit fraud
a) Risk resulting from fraud is higher than from risk b) Perceived opportunity to do so
resulting from errors (based on deficient Internal Controls)
b) Risk resulting from management fraud is higher than c) Rationalization to do so
risk resulting from employee fraud (based on Attitude / Nature of Person)
6. Auditor’s duty
Obtain reasonable assurance that Maintain an attitude of Circumstances indicate
FS as a whole are free from MM professional skepticism existence of MM
Communicate to TCWG and management Consider whether it is

(also to Regulatory and Enforcement Authority, if required by Law) indication of fraud and, if fraud
Auditor unable to Consider the feasibility If 1. Discuss with TCWG and management
complete engagement of withdrawing withdraw 2. Report to appropriate persons
7. Risk assessment procedures 8. Responses to assessed risks

a) Enquiring management and others within a) Overall responses
entity wrt process of identifying and • Assign personnel as per their capability
responding risk • Evaluate whether accounting policies indicate fraudulent FR
b) Enquiring TCWG whether they have b. Responses at the Assertion Level:

knowledge about frauds Design and perform audit procedures whose NTE are
responsive to assessed RMM due to fraud.
c) Unusual / Unexpected relationships
identified while performing analytical c. Responses to risks related to mgmt override of controls:
procedures indicate RMM due to frauds • Management in unique position to perpetrate fraud because
of management ability to manipulate accounting records.
d) Other information indicating of RMM due • Auditor shall determine whether he needs to perform extra
to frauds audit procedures.

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SA 250 – Consideration of laws and regulations in an audit of FS

1. Management responsibilities (Compliance of L&R is duty of TCWG and Management):
a) Monitoring legal requirements and operating procedures designed to meet requirements
b) Instituting and operating appropriate IC system d) Developing and following CoC
c) Ensuring employee follow CoC e) Monitoring compliance of CoC
2. Auditor’s responsibilities .
A. Basic responsibility: Obtain general understanding of legal & regulatory framework and compliance by entity.
B. Specific responsibility: Does L&R have direct effect on determination of material amount and disclosures in FS
YES NO
Obtain SAAE Perform limited procedures

 Inquire with management
 Inspecting correspondence with
relevant regulatory authority
To ensure COMPLIANCE
Obtain WR (SA 580) that all instances of non-compliance have been disclosed
3. Reporting responsibilities .
A. To TCWG: Non compliance. Communicate to higher authority if TCWG is involved.
B. Regulatory and enforcement authorities: If required by law
C. Auditors report: i) Material effect on FS → Qualified / Adverse opinion
Management: Qualified / disclaimer of opinion
ii) Unable to conclude due to limitation by
Circumstance: Consider the effect
4. Audit procedures in case non compliance is 5. Indicators of Non - Compliance .

identified/suspected: .  Investigation by regulatory bodies
 Obtain understanding of the act  Payment of fines / penalties
 Circumstances of its occurrence  Excessive sales commissions or agent’s fees
 Possible effects on FS  Unusual payments in cash
 Discuss with TCWG and Management  Unusual payments towards legal and retainership fees
 Payment without proper exchange control documentation
 Adverse media comment

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SA 260 – Communication with TCWG

TCWG : Persons overseeing strategic directions and obligations related to entity
Management : Person with executive responsibility for conduct of entity’s operations
AUDITOR’S RESPONSIBILITIES .
- Determine the appropriate person to whom to communicate
- Determine the need to communicate with governing body, if auditor communicates with subgroup
- If all TCWG are involved in managing entity, and matter has been communicated with persons having managerial
responsibility, the matters need NOT be communicated again to the same persons in their governing role.
MATTERS TO BE COMMUNICATED .
 Auditor’s responsibilities w.r.t FS
 Planned scope and timing of audit
 Significant findings (Accounting policies/estimates, FS disclosures, significant difficulties such as significant delay
in info, unavailability to get info, limitation imposed by management)
 Statement w.r.t. compliance of ethical requirements regarding independence.
COMMUNICATION PROCESS . FACTORS AFFECTING MODE OF COMMUNICATION.

 Oral / written  Size, operating structure, legal structure
 Detail / summarised  In case of audit of special purpose FS, whether
 Structured / unstructured auditor also audits general purpose FS
 Should be in writing, if oral communication is not adequate  Amount of ongoing contact and dialogue
 Communication should be on timely basis. between auditor and TCWG
 Evaluate adequacy of communication and if not adequate,  Significant changes in membership of governing
evaluate its effect on auditor’s assessment of RMM. body

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SA 265 – Communicating deficiencies in IC to TCWG and Management

Deficiency in IC : ❶ Inability of IC to prevent, detect and correct misstatements
❷ Absence of control necessary to prevent, detect and correct misstatements
AUDITOR’S RESPONSIBILITIES .
1. IDENTIFICATION OF DEFICIENCIES IN IC
a) Determine whether on basis of work done, deficiency in IC is identified
b) Determine whether individually or in combination, they constitute significant deficiencies
c) Indicators of significant deficiencies
- Ineffective aspects of control environment
- Entity’s risk assessment procedures are ineffective
- Ineffective response to identified significant risks
- Correction of prior period misstatements arising due to fraud/error.
- Management’s inability to oversee FS preparation.
2. COMMUNICATION OF DEFICIENCIES [IN WRITING]

TO WHOM?. WHAT?.
 TCWG _: Significant deficiencies  Description of deficiencies
 Management : Significant and other deficiencies  Explanation of their potential effect
MATTERS THAT AUDITOR MAY CONSIDER IN DETERMINING WHETHER A DEFICIENCY IN IC = SIGNIFICANT .

 Likelihood of deficiencies leading to MM in the FS in the future
 Susceptibility to loss or fraud of the related asset/liability
 Subjectivity and complexity of determining estimated amounts, such as FV accounting estimates, etc.
 The Volume of activity that has occurred in the a/c balance or class of transactions exposed to deficiency,
 The cause and frequency of exceptions detected as a result of deficiencies in the controls

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SA 299 – Joint Audit of FS

A Joint audit is an audit of FS of an entity by 2 or more auditors appointed with objective of issuing the audit report.
AUDIT PLANNING AND ALLOCATION OF WORK .

1. DEVELOPMENT OF AUDIT PLAN
a) Identify division of audit areas and common audit areas amongst joint auditors
b) Ascertain reporting objectives of engagement to plan timing of audit and nature of communication
c) Consider results of preliminary engagement activities
2. ALLOCATION OF WORK: By mutual discussion, divide the audit work

a) Based on identifiable units or specified areas.
b) In some cases due to nature of business, division based on Assets / Liabilities / Income / Expenditure
c) Certain areas due to their importance, cannot be divided and covered by all auditors
3. DOCUMENTATION OF WORK ALLOCATED

a) Work allocation document signed by all joint auditors and communicated to TCWG
b) Helps to avoid disputes / confusion w.r.t. scope of work
RESPONSIBILITY OF JOINT AUDITORS .

 JOINTLY AND SEVERALLY LIABLE FOR
a) Audit work not divided
b) Decisions w.r.t common areas w.r.t. NTE of audit procedures
c) Matters brought to notice of a joint auditors by another joint auditor
d) Presentation and disclosure of FS as per applicable FRF
e) Ensuring audit report complies with all SAs
 RESPONSIBILITY OF EACH JOINT AUDITOR (Apart from work divided and allotted to them)
a) Determine NTE of audit procedures
b) Study and evaluate IC system and assessment of RMM.
AUDIT CONCLUSION AND REPORTING .

1. REPORTING REQUIREMENTS
a) Joint auditors required to issue common audit report
b) In case of disagreement w.r.t. audit opinion, express opinion in a separate audit report.
c) Joint auditor not bound by views of majority
d) In case of separate reports, make reference to separate audit report issued by other auditors under heading
‘Other Matter Paragraph’ as per SA 706
2. REVIEW OF WORK BY OTHER AUDITOR

a. Each Joint Auditor entitled to : Assume other auditors carried on their part of audit
Work in accordance with SA and any departure from FRF is brought to notice.
b. Not necessary for joint auditor to review work of other joint auditor

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SA 300 – Planning in an Audit of FS

IMPORTANCE OF PLANNING . PRELIMINARY ENGAGEMENT ACTIVITIES .
 Devote appropriate attention to important areas  Procedures required w.r.t Continuance of client
 Identify & resolve potential problems on timely basis relationship (SA 220)
 Properly organised and managed audit  Evaluate compliance with ethical requirements (SA 220)
 Coordination of work done by auditors of component  Understanding the terms of engagement (SA 210)
PLANNING ACTIVITIES .
Factors to consider while establishing audit strategy Development of audit plan
1. Reporting objectives 1. NTE of risk assessment (SA 315) procedures
2. Team efforts directed by significant factors 2. NTE of further audit procedures (SA 330)
3. Preliminary engagement activities results 3. Other planned audit procedures
4. NTE of procedures to be performed
5. Characteristics of engagement
.PLANNING A CONTINUOUS PROCESS . CHANGES TO PLANNING DECISIONS .

Planning is not a discrete phase, but rather a 1. Update and change overall audit strategy and audit plan
continuous process. It begins shortly after 2. Audit strategy & plan may be modified as a result of :
completion of previous audit and continues until a) Unexpected events
completion of current audit engagement. b) Changes in conditions
Planning involves following activities : TRAIN c) Results of audit procedures
a. Terms of audit engagement 3. Based on revised consideration of assessed risks, auditor
b. RAP performance needs to modify the NTE of further audit procedures.
c. Analytical procedures to be applied as RAP This may be the case when info that comes to auditor’s
d. Involvement of experts attention differs significantly from info received when
e. NTE of audit and communication auditor planned the audit procedures.

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SA 315 – Identifying and assessing the RMM through understanding the entity
and its environment
RAP : Procedures to obtain an understanding of entity and its environment including IC to identify and assess RMM
at FS and assertion Level. Includes Inquiry of management, Analytical procedures, Observation and inspection
. UNDERSTANDING OF ENTITY & ITS ENVIRONMENT .

1. Auditor obtain understanding of relevant industry, regulatory and other external factors including FRF
2. Nature of entity including :
a) Its operations c) Type of investments
b) The way entity is structured and financed d) Ownership and governance structure
3. Selection and application of accounting policies
4. IC relevant to Audit
. IDENTIFICATION AND ASSESSMENT OF RMM .

1. FS Level: RMM that relate pervasively to FS as a whole and potentially affect many assertions
2. Class of transaction, a/c bal & disclosure level: Helps determine NTE of further audit procedures necessary,.
ASSERTIONS EVALUATED
Transactions occurred during the year Account balances at period Presentation and disclosure
❶ Occurrence end ❶ Occurrence & rights & obligations
❷ Completeness ❶ Existence ❷ Completeness
❸ Accuracy ❷ Rights and Obligation ❸ Classification & understandability
❹ Cut-off ❸ Completeness ❹ Accuracy & valuation
❺ Classification ❹ Valuation and allocation
 Identify risks  Risk of fraud

RISK REQUIRING
STEPS IN  Assess and evaluate identified risks  Risk related to eco, A/c development
SPECIAL
RAP  Relate identified risks to what  Complexity of transactions
CONSIDERATION
could go wrong at assertion level  Related party transactions
. RISK IN CIS ENVIRONMENT . . COMPONENTS OF INTERNAL CONTROL .

1. RISK IMPOSED BY IT/CIS 1. Control environment: Communication of ethical
a) Reliance on programs that process inaccurate values
data or inaccurate processing 2. RAP: Identify business risk, assessing likelihood of
b) Unauthorised access to data that may result in occurrence
destruction of data 3. Info systems relevant to FR: Classes of
c) Unauthorised changes to data in master files transactions, accounting procedures and records
d) Unauthorised changes to systems 4. Control activities relevant to audit:
a) Physical controls
2. AREAS TO BE EXAMINED b) Processing of Information
a) Program development and maintenance c) Segregation of duties
b) Physical CIS security d) Performance reviews
c) System software support 5. Monitoring of controls: Assess effectiveness of IC
d) Processing of data performance

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SA 320 – Materiality in planning and performing an audit

 Materiality is subject of professional judgment B. Performance materiality : Is an amount less than
 Discussion presented in FRF provides reference w.r.t. materiality for the FS as a whole (i.e., planning
materiality. materiality) to reduce to an appropriately low
 If not included in FRF, following to be referred: level the probability that the aggregate of
a) Misstatements (including omission) effecting economic uncorrected and undetected misstatements
decisions of users. exceeds materiality for the FS as a whole.
b) Size/nature of misstatements
c) Common financial info.
AUDITOR’S DUTIES .
1) Upon establishing overall audit strategy → Determine materiality
2) Determine:
 Materiality for specific transactions in which lower amount misstatements intends to effect eco decisions of users.
 Purpose of assessing RMM and determining NTE of further audit procedures.
REVISION OF MATERIALITY .
If Auditor becomes Revise materiality for Determine whether necessary
If Auditor concludes
aware of info that FS as a whole and if to revise performance
lower materiality
would have caused required, for particular materiality, and whether the
than initially
auditor to determine classes of transactions, NTE of further audit
determined is
different amount account balances and procedures remain
appropriate
initially disclosures appropriate.
CONCEPT OF MATERIALITY .
% is often applied to a chosen benchmark as a starting point in determining materiality for FS as a whole. Factors
affecting identification of benchmark:
a. Elements of FS c. Ownership structure and way in which entity is financed
b. Nature, life-cycle & industry in which it operates d. Relative volatility of benchmark

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SA 330 – Responses to assessed risks

A. .OBJECTIVE : To obtain SAAE about assessed RMM through design and implementing appropriate responses
B. .TEST OF CONTROLS : Procedures designed to evaluate the operating effectiveness of controls in preventing,
detecting and correcting MM at assertion level.
Obtain AE w.r.t. – Evaluate Material Communicate to
 Application of controls the Audit weaknesses management and
 Consistency of application evidence identified TCWG on timely basis
SPECIAL CONSIDERATIONS
❶ Using AE obtained in interim period ❷ Using AE obtained during previous audits
a) Obtain AE for significant changes Establish continuing relevance of evidence by
subsequent to interim period determining changes subsequent to previous audit
b) Determine the additional evidence to a. Changes occur : Test the controls In current audit
be obtain for remaining period b. No changes occur : Test the controls once in 3 Audits
Factors warranting re-test of controls :
a) Deficient control environment d) Deficient control monitoring
b) Significant manual element to relevant controls e) Deficient general IT controls
c) Changing circumstances that indicate need for changes in controls
.
C. .SUBSTANTIVE PROCEDURES : Procedures designed to detect MM at assertion level
Test of details Substantive analytical

(for classes of transaction, A/c bal & disclosures) procedures
 EXTERNAL CONFIRMATION PROCEDURES AS SUBSTANTIVE PROCEDURES

a) Auditor to consider whether external confirmation procedures to be performed as substantive analytical
procedures
b) Factors assisting auditor:
▪ Confirming party knowledge of subject matter
▪ Ability & willingness of intended confirming party to respond
▪ Objectivity of intending party
 CLOSING PROCESS
a) Reconciling FS with underlying accounting records
b) Examine material journal entries & other adjustments made during course of preparing FS
 SIGNIFICANT RISKS: Procedures specifically responsive to that risk needs to be applied.
 TIMING: When substantive procedures are applied for interim period, the auditor shall cover remaining period
by appropriate procedures.

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SA 402 – Audit considerations relating to an Entity using a service organisation

User auditor: Auditor who audits and reports on FS of user entity
User entity : Entity that uses SO and whose FS are being audited
Type 1 Report : Report on description and design of IC at a SO for a specified date
Type 2 Report : Report on description, design and operating effectiveness of controls at SO for a specified period.
AUDITOR’S OBJECTIVE .
 Obtain understanding of nature and significance of service provided by SO and their effect on the user’s entity IC
relevant to the audit, sufficiently to identify and assess the RMM.
 Design and perform audit procedures responsive to those risks
OBTAINING UNDERSTANDING OF SERVICES PROVIDED BY SO INCLUDING .

1) Nature of services provided by SO and it’s significance to user entity.
2) Nature and materiality of transactions processed or FR processes affected by SO.
3) Degree of interaction between SO activities and those of user entity.
4) The nature of relationship between user entity and SO.
AUDITOR’S CONSIDERATIONS .
1) Evaluate design, implementation and maintenance of relevant controls of user entity that relate to services
provided by SO.
2) If user auditor unable to obtain sufficient understanding from user entity, then follow these procedures:
a) Obtaining Type 1 or Type 2 Report, if available.
b) Contact SO, through user entity or Visit SO
c) Using another auditor to perform procedures that will provide info above relevant controls at SO.
 If SO uses sub-SO, and the service auditor’s report includes sub-SO relevant control objectives & description of its
system and scope of service auditor’s engagement, this method of reporting is called as inclusive method.
However, if the service auditor’s report DOES NOT include such info, called as carve – out method.
 NTE of work to be performed by user auditor regarding services provided by Sub-SO depend on nature and
significance of those services to the user entity and the relevance of those services in the audit.

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SA 450 – Evaluation of misstatements identified during the audit

A. Misstatements: Difference between amounts, classification, presentation or disclosure of a reported FS item as
against the applicable FRF.
CAUSES OF MISSTATEMENTS .
1. Inaccuracy in gathering data from which FS is prepared. 3. Omission of an amount/disclosure
2. Inappropriate selection and application of accounting policies. 4. Incorrect accounting estimates
Auditor’s procedures if misstatements identified
Accumulate the misstatements other than those that are clearly trivial
Communicate to management and request them to correct
Management corrects Management refuses
Perform additional procedures to Understand reasons for not making corrections

determine whether misstatements remain
Re-assess materiality.
If material, communicate uncorrected misstatements and their effect
If not corrected, obtain a WR from management/TCWG, w.r.t them

believing that effect of uncorrected misstatements is immaterial.
Determine whether any revision required in audit strategy
Audit strategy requires revision if,
Nature of identified misstatements Aggregate of misstatements accumulated

and circumstances of their occurrence during the audit approaches materiality
indicate that other MM may exist that determined in accordance with SA 320

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SA 500 – Audit evidence

Audit evidence: Info used by auditor, in arriving at the conclusion on which auditor’s opinion is based.
Should be sufficient & appropriate.
(Quantity) (Quality)
Procedures to obtain AE: Methods of obtaining AE

 Risk assessment procedures  Inspection
Inquiry consists of seeking info of
 Further assessment procedures  Observation knowledgeable persons, within the entity
 Inquiry (Oral/Written) or outside the entity. It is used extensively
 External confirmation throughout the audit in addition to other
 Analytical procedures audit procedures. They may range from
 Re-performance formal written inquiries to informal oral
Test of details Substantive analytical
inquiries
procedures  Recalculation
1. INFORMATION PREPARED USING WORK OF ME
a) Evaluate competence, capability b) Obtain understanding of expert work c) Evaluate appropriateness of
and objectivity • Area of specialty expert work
• Personal exp (previous work) • Applicable professional standards • Findings and conclusion
• Discussion with expert • Legal and regulatory requirements • Assumptions and methods
• Discussion with others • Assumptions and methods used • Source data
• Published books / papers • Nature and source data used
2. MATTERS AFFECTING NTE OF AUDIT PROCEDURES IN CASE OF INFO BEING PRODUCED USING WORK OF ME
a) Nature and complexity of matter
b) RMM in matter
c) Availability of alternative sources of AE
d) Nature, scope and objectives of ME work
e) Whether ME is employed by entity, or is a party engaged by it to provide relevant services.
f) Whether ME is subject to technical performance standards or other professional or industry requirements.
g) Extent to which management can exercise control/influence over work of ME.
h) Auditor’s knowledge/experience of ME field of expertise
3. INFORMATION PRODUCED BY ENTITY: Obtain SAAE about accuracy and completeness of info and evaluate
whether info is sufficiently precise and detailed for auditor’s purpose.
RELIABILITY OF AUDIT EVIDENCE .

a) External evidence more reliable than internal evidence
b) Evidence obtained directly more reliable than obtained indirectly
c) Evidence in documentary Form more reliable than oral evidence
d) Evidence through original docs more reliable than evidence in photocopies

I have
SA 501 – Audit evidence : Specific considerations for selected items

INVENTORY – OBTAIN SAAE REGARDING EXISTENCE AND CONDITIONS BY .
1. ATTENDANCE AT PHYSICAL INVENTORY COUNTING, UNLESS IMPRACTICABLE TO
a. Evaluate management procedures for entity’s phy inventory counting c. Inspect the inventory
b. Observe performance of management count procedures d. Perform test counts
2. PERFORM AUDIT PROCEDURES over entity’s final inventory records to determine whether they accurately reflect
actual inventory count results.
Special procedures :
 Inventory counting conducted at date other than BS date: Perform audit procedures to obtain SAAE regarding
changes in inventory between the count date and FS date & ensure they are properly recorded.
 Auditor unable to attend inventory count: Make or observe some physical counts on an alternative date and
perform audit procedures on intervening transactions
 Attendance at inventory count is impracticable: Perform alternative audit procedures to obtain SAAE regarding
existence and conditions of inventory. If not possible to do so, modify opinion in auditor’s report as per SA 705.
 Inventory under custody and control of third party: Obtain confirmation from 3rd party
LITIGATIONS AND CLAIMS – COMPLETENESS .

a) Inquiry of management within entity, including in house legal counsel
b) Review minutes of TCWG meetings and legal expenses account
If management refuses to permit auditor to communicate with legal counsel/external legal counsel/auditor unable
to collect SAAE by performing alternative procedures, modify opinion as per SA 705.
SEGMENT REPORTING – PRESENTATION AND DISCLOSURE .

1) Obtain understanding of methods in determining segment information
2) Perform analytical procedures/other audit procedures

I have
SA 505 – External confirmation

External confirmation- AE obtained as a direct written response to auditor from 3rd party in paper, / Other Form
TYPES OF EC .
1) + ve request: Request that 3rdparty responds directly to auditor incase it agrees / disagrees with info in request.
– ve request: Request that 3rd Party respond directly to auditor ONLY if it disagrees with info in request
Provides less persuasive evidence than the positive confirmation request.
When -ve request may be used as sole substantive procedure:
a) Low RMM
b) Population consists of large number of small, homogenous account balances
c) Expectation of low exception rate.
d) Auditor not aware of circumstances that 3rd party disregard request
AREAS WHERE EC MAY BE OBTAINED . EXTERNAL CONFIRMATION PROCEDURES .

1) Bank bal & other confirmation
Determining info Selecting Designing
from bankers to be confirmed confirmation request
appropriate 3rd party
2) Account receivables/payables
3) Stock lying with third parties
4) Property title deed held by 3rd party Follow up process Sending the request
FACTORS TO BE CONSIDERED WHILE DESIGNING EC REQUEST .

1) Assertions being addressed 3) Prior experience of audit 5) Layout and presentation of request
2) Specific identified RMM 4) Method of communication 6) Management authorisation
RESPONSE TO EC REQUEST ACTION TO BE TAKEN MANAGEMENT REFUSES TO ALLOW
AUDITOR TO SEND REQUEST
Creates doubt Obtain further evidence a. Inquire the reasons
Not reliable Consider effect on opinion b. Evaluate implications on RMM
c. Perform alternate audit procedures
No response Perform alternative procedures
Unable to collect evidence If refusal appears to be unreasonable or unable to
Determine its effect on opinion
collect AE – communicate with TCWG (SA 260) and
Exception occurs Investigate to determine MM determine effect on audit opinion

I have
SA 510 – Initial audit engagement – opening balance

Initial audit engagement: An engagement in which FS for prior period were not audited or were audited by
predecessor auditor
Opening balance: A/c balance & disclosures that exist at beginning of period
AUDIT PROCEDURES .
1) OPENING BALANCE
a) Read most recent FS and auditor report thereon c) Ensure prior period closing bal b/f correctly
b) Obtain SAAE w.r.t existence of RMM d) Ensure appropriate a/c policies applied
2) CONSISTENCY OF A/C POLICIES

Obtain SAAE w.r.t. consistent application or proper accounting and disclosure for changes.
3) MODIFICATION IN PREDECESSOR AUDITOR’S REPORT

Evaluate effect of modification in assessing RMM in current period FS
Case Opinion
Unable to obtain SAAE Qualified / Disclaimer
Opening balance
Contain MM not properly accounted/disclosed in current year FS Qualified / Adverse
Consistency of Inconsistency exists or changes not properly accounted or
Qualified / Adverse
a/c policies disclosed
Modification in
Modify current year audit
prev auditor’s Modification remains relevant and material for current period FS
report accordingly
report

I have
SA 520 – Analytical procedures

Analytical procedures: Evaluation of financial info through analysis of relationships among both financial and non-
financial data. Also includes such investigation as is necessary of identified fluctuations or relationships that are
inconsistent with other relevant info or that differ from expected values by a significant amount.
ANALYTICAL PROCEDURES .
a) CONSIDERATION OF COMPARISONS OF FINANCIAL INFO b. CONSIDERATION OF RELATIONSHIPS
 With comparable info for prior periods; or  Elements of financial info; or
 With anticipated results of the entity; or  Financial info and relevant non–financial info
 Auditor’s expectations; or
 Similar industry info
AUDITOR’S PROCEDURES .
1) DETERMINE SUITABILITY OF PARTICULAR SAP (Following factors require consideration)
a) SAPs more suitable to large volumes of transactions tending to be predictable over time.
b) Suitability of SAP influenced by nature of assertion and auditor’s assessment of AP
c) In some cases, unsophisticated predictive models may be useful
2) EVALUATE THE RELIABILITY OF DATA: Source, comparability and nature of info available
3) DEVELOP AN EXPECTATION OF RECORDED AMOUNTS OR RATIOS
4) DETERMINE THE AMOUNT OF ANY DIFFERENCE OF RECORDED AMOUNTS FROM EXPECTED VALUES
5) INVESTIGATING RESULTS OF ANALYTICAL PROCEDURES: If auditor identified fluctuations or relationships that are
inconsistent with other relevant info, the auditor shall investigate such differences by -
a. Inquiring of management b. Performing other audit procedures as necessary in the circumstances

I have
SA 530 – Audit sampling

Audit sampling: Application of 100% audit procedures to less than 100% of items within a population.
Stratification: Process of dividing a population based on similar characteristics. Each such group is called strata. Each
stratum is treated as if it were a separate population and proportionate items are selected from each.
Tolerable misstatement: Application of performance materiality to a particular sampling procedure
Tolerable rate of deviation: Rate of deviation from prescribed IC procedures set by the auditor in respect of which
the auditor seeks to obtain an appropriate level of assurance that the rate of deviation set by the auditor is not
exceeded by actual rate of deviation in the population.
TYPES OF SAMPLING .
1) STATISTICAL SAMPLING APPROACH : Scientific sampling based on use of probability theory rather than auditors
own judgement.
2) NON–STATISTICAL APPROACH: Sampling based on personal experience and knowledge of auditor.
RISKS INVOLVED .
 SAMPLING RISK: Risk that auditor’s conclusion based on a sample may be different from conclusion if entire
population was subjected to same audit procedure.
Controls declared more effective than they actually are
Test of control
Controls declared less effective than they actually are
MM declared not to exist Affects audit effectiveness and is more likely to
when in fact it does lead to an inappropriate audit opinion
Test of details
MM declared to exist Affects audit efficiency as it would lead to additional
when in fact it does not work to establish that initial conclusions were incorrect.
 NON SAMPLING RISK: Risk that auditor reaches an erroneous conclusions for any other reason.
AUDITOR’S DUTIES . SAMPLE SELECTION METHODS .
1) Sample design, size and selection of items – 1) Random selection: All items within population stand an
 While designing, consider purpose of audit equal chance of selection randomly
procedure and characteristics of population 2) Systematic selection: No. of sampling units in the
 Sample size should be sufficient to reduce population is ÷ by sample size to give a sampling interval.
sampling risk to an acceptably low level. 3) Monetary unit sampling: Value weighted selection in which
2) Perform audit procedures sample size, selection and evaluation results in a conclusion
 Appropriate to purpose, on each item selected. in monetary amounts.
 If auditor is unable to apply designed audit 4) Haphazard selection – Samples selection without following
procedures to selected item, consider that item a structured technique. Not appropriate when using
is a deviation. statistical sampling.
3) Evaluation of results of audit sampling 5) Block selection – It involves selection of a block(s) of
 Determine whether sampling provided contiguous items from within the population.
reasonable conclusion about the population.
. FACTORS AFFECTING SAMPLE SIZE .
TEST OF CONTROLS TEST OF DETAILS
Increase in extent to which RAP Increase in auditor’s RMM Assessment Increase
Increase
takes into account relevant controls Increase in SAP directed at same assertion Decrease
Increase in tolerable deviation rate Decrease Increase in auditor’s desired level of assurance that
Increase in expected rate of tolerable deviation rate is not exceeded by actual Increase
deviation of the population to be Increase misstatement in the population
tested Increase in Tolerable Misstatement Decrease
Stratification of population when appropriate Decrease

I have
SA 540 – Auditing accounting estimates, including FV accounting estimates

and related disclosures
Accounting estimates: An approximation of a monetary amount in absence of precise means of measurement.
Eg of accounting estimates: Provision for bad debts, depreciation, inventory loss, etc.
Eg of FV accounting estimates: Share based payments, FI, Assets acquired in business combination.
Estimation uncertainty: Susceptibility of a/c estimates and related disclosures to an inherent risks of precision in its
measurement.
Eg of low estimation uncertainty: A/c estimates in business activities that are not complex, frequently made and
updated, derived from data that is readily available, etc
Eg of high estimation uncertainty: A/c estimates in litigation outcome, derivative FI
1) OBTAIN UNDERSTANDING OF –
a) Applicable FRF requirements
b) Estimation making process – Methods/models, relevant controls, use of management expert
2) REVIEW OF OUTCOME OF ACCOUNTING ESTIMATES: NTE of auditor’s reviews whether info obtained from review
would be relevant to identifying and assessing RMM of accounting estimates made in current FS.
a) Outcome of accounting estimates will often differ from ones recognised in prior period FS.
b) By performing RAP to identify & understand the reasons for differences, auditor may obtain –
- Info w.r.t effectiveness of management’s prior – period estimation process
- AE pertinent to re – estimation in current period, of prior period accounting estimates.
RESPONSES TO ASSESSED RISKS .

1. General responses to assessed risks – 2. Specific responses to significant estimation uncertainty. Evaluate
a) Whether events occurring upto date of  How management addressed estimation uncertainty in making
auditor’s report provide audit evidence accounting estimates
regarding a/c estimates  Whether significant assumptions used by mgmt are reasonable.
b) Test how management made the a/c If in auditor’s judgement, management has not adequately addressed the
estimate and data on which it is based. effects of estimation uncertainty, he should develop a range with which to
c) Test Operating Effectiveness of IC evaluate the reasonableness of a/c estimates.

I have
SA 550 – Related parties

Meaning of RP
• A person/entity having control/significant influence over reporting entity
• Entity over which reporting entity has control/significant influence
• Entity under common control with reporting entity via common controlling ownership, common key mgmt, etc.
AUDITOR’S RESPONSIBILITIES :
General Specific FRF established a/c and disclosure requirements
Obtain an understanding of RP relation a) Perform audit procedures to identify, assess & respond RMM
a) Recognise fraud risk factors b) Evaluate whether identified RP relationships & transactions
b) Conclude whether FS affected by those have been appropriately accounted & disclosed as per FRF.
relations and transactions achieve T&F view c) Obtain WR from TCWG/Management (SA 580)
AUDITOR’S DUTIES :
1. RISK ASSESSMENT PROCEDURES
a) Understanding the entity’s RP relationships and transaction
 Auditor to inquire management regarding identifying entity’s RP, nature of relationship with RP, type and
purpose of transactions with RP
 Identify, account and disclose RP relationships/transactions, authorise and approve significant transactions with
RP and also outside normal course of business.
b) Maintaining alertness for RP information –

 If significant transactions outside entity’s normal course of business, inquire management about – nature of
transactions and whether RP could be involved.
 Possible sources of MM – IT returns, internal audit report, contracts with management, SH’s register.
 Possible sources of identification of RP transactions – complex equity transactions, transactions with off – shore
entities in jurisdictions with weak corporate laws, sales transactions with unusually large discounts or returns.
c) Identifying fraud risk factors

 RP has vetoed significant business decisions taken by management or TCWG
 No debate among TCWG/ management regarding business proposal initiated by RP
2. RESPONSES TO ASSESSED RISKS

a. Identification of undisclosed RP/RP transactions: Communicate to other members of engagement team,
request management to identify the transactions with newly identified RP, inquire for management failure to
identify RP/disclose RP.
b. Identified significant RP transactions outside normal course of business: Inspect underlying contracts to
evaluate business rationale, collect evidence w.r.t. approval and authorisation of transactions.
c. Assertions that RP transactions were conducted at arms length price – Collect SAAE w.r.t. management
assertion of arms length transactions and engage expert to determine market value.

I have
SA 560 – Subsequent events

EVENTS OCCURRING BETWEEN DATE OF FS AND . SPECIFIC INQUIRIES TO BE MADE FROM MANAGEMENT.
DATE OF AUDITOR’S REPORT .  Whether new commitments, borrowings, guarantees
 Perform audit procedures to obtain SAAE that all have been entered into
events which require adj/disclosure have been  Whether sales/acquisitions of assets have occurred or
identified. planned
 To NTE of procedures, auditor may obtain  Whether there have been increases in capital or issuance
understanding of procedures applied for identifying of debt instruments
significant events, inquire management w.r.t to the  Whether any assets have been appropriated by
same, read minutes of meeting held after B/S date. government or destroyed.
 Obtain WR from management that all known events  Whether there have been dev regarding contingencies
have been appropriately adjusted/disclosed.  Whether any unusual a/c adjustments have been made.
FACTS THAT BECOME KNOWN TO AUDITOR .

❶ BEFORE ISSUE OF FS
In general, auditor has no obligation. If significant matter, discuss with management, determine need to amend FS
Management amends the FS Management refuses to amend the FS
Auditor shall Amend the Report provided to entity Report not provided to entity yet
extend audit report to
procedures include an Notify TCWG and management
to date of additional date to not to issue FS to 3rd parties
new report restricted to
and provide that
a new audit amendment If management still issues FS, take
report on and include an appropriate action to prevent
amended FS EOM/OMP reliance on auditor’s report. Modify the report
❷ AFTER ISSUE OF FS
In general, auditor has no obligation. If significant matter, discuss with management, determine need to amend FS
Management amends the FS Management refuses to amend the FS
Auditor shall Amend the

carry out audit report to Notify to TCWG and management that
procedures include an auditor will seek to prevent reliance on
on amended additional date auditor’s report
FS, review restricted to
steps taken, that
provide a amendment
new auditor and include an If TCWG/Mgmt does not take necessary
report on EOM/OMP steps, take appropriate action to prevent
amended FS reliance on auditor’s report.

I have
SA 570 – Going concern

Management’s responsibility to assess the entity’s ability to continue as a going concern and general purpose FS are
prepared on going concern basis unless management intends to liquidate the entity or cease operations.
Auditor to obtain SAAE about the appropriateness of ADDITIONAL PROCEDURES :
management use of going concern basis of a/c  When management has not yet performed assessment
of entity’s ability to continue as a going concern,
request them to make assessment.
Determine whether management has already performed  Evaluating management plans for future action,
preliminary assessment of entity ability to continue as whether the outcome of these plans is likely to
going concern improve the situation and whether these plans are
feasible in the circumstances.
 Considering whether any additional facts or
Auditor identifies events that cast significant doubt on information have become available since the date on
entity’s ability to continue as going concern. which management made its assessment.
 Request WR (SA 580) from management and where
Perform additional procedures appropriate TCWG, regarding plans for future action.
CONDITIONS THAT MAY CAST DOUBT ABOUT GOING..

Use of going Use of going Management CONCERN ASSUMPTIONS .
concern basis concern basis of unwilling to 1) FINANCIALS CONDITIONS
of a/c is a/c is appropriate make its  Net liability conditions
inappropriate but material assessment  Non–renewal of borrowings
uncertainty exists  Adverse financial ratios
 Substantial losses
 Inability to pay creditors
Express an Determine Consider the
2) OPERATING CONDITIONS
adverse whether FS implications of
opinion makes relevant auditor’s
 Management intention to liquidate the entity
disclosure report.  Loss of KMP
 Labour difficulties
 Shortage of important supplies
Yes No 3) OTHERS
 Non–compliance of statutory requirements
 Pending legal proceedings against the entity
Express unmodified Express qualified/adverse
 Changes in laws/regulations
opinion opinion

I have
SA 580 – Written Representation

WR: A written statement by management provided to auditor to confirm certain matters or to support other audit
evidence. WR is recognised as an AE but not SAAE.
MATTERS FOR WHICH WR MAY BE OBTAINED . DATE AND PERIOD COVERED BY WR .
a) Management responsibilities wrt 1) Date of WR – near as practicable to date of auditor’s
 Preparation and presentation of FS as per FRF report date. Not after the date of auditor’s report date.
 Information provided to auditor as agreed in 2) WR shall be for all FS and period(s) referred to in auditor’s
engagement terms report because management needs to reaffirm that the
b) As required by other SA or auditor determines WR it previously made with respect to the prior periods
necessary. remain appropriate.
AUDITOR’S RESPONSES IN DIFFERENT SITUATIONS .

MANAGEMENT REFUSES TO PROVIDE WR RELIABILITY OF WR IS DOUBTFUL
 Discuss matter with management  If concerns about integrity of management, determine
 Re-evaluate the reliability and integrity of effect on reliability of WR and other AE in general.
management  If WR inconsistent with other evidence, perform
 Determine effect on opinion. additional procedures.
 If conclude WR ≠ reliable, determine possible effect on
audit opinion

I have
SA 600 – Using the work of another auditor

Applicability: In situation where PA reporting on financial info of an entity, uses the work of OA w.r.t the financial info
of one/more components (division, branch etc) included in financial info of the entity.
Non–applicability: Joint auditors and auditor’s relationship with predecessor auditor.
ACCEPTANCE AS PRINCIPAL AUDITOR : MATTERS TO BE COMMUNICATED .

Auditor consider whether the auditor’s own  Consider professional competence of OA, if other auditor is
participation is sufficient to be able to act as PA. not a member of ICAI.
For this purpose, auditor would consider –  Visit component and examine books of account, if
 Materiality of portion of financials which PA established.
audits  Obtain SAAE that work of OA is adequate for PA purposes.
 PA degree of knowledge  Discuss audit procedures applied by OA
 RMM in the financials of the components  Review a written summary of OA’s procedures and findings
audited by other auditor. through questionnaires/checklist
DOCUMENTATION : COORDINATION : REPORTING :

 Component whose FS audited by  Sufficient liaison/coordination 1) Express qualified/disclaimer of
OA and their significance to between PA and OA. opinion because of scope limitation
financial info of entity as a whole  PA may require OA to answer  If PA concludes that he cannot use
 Names of OA a detailed questionnaire work of OA
 Any conclusions reached that  OA should coordinate with PA  PA unable to perform sufficient
individual components are not for adhering to time table, additional procedures regarding
material bringing attention of PA to any financial info of component audited
 Procedures performed regarding significant finding, by OA
components 2) Report should state clearly division
 Conclusions reached of responsibility
DIVISION OF RESPONSIBILITY :
 PA would NOT be responsible w.r.t work entrusted to OA, except in circumstances which should have aroused his
suspicion about the reliability of work performed by OA.
 When PA has to base opinion on financial info of entity as a whole, relying upon statements and reports of OA, his
report should clearly state division of responsibility for financial info.

I have
SA 610 – Using the work of internal auditor

Internal audit is a function of an entity that performs assurance and consulting activities designed to evaluate and
improve effectiveness of entity’s governance, risk management and IC processes.
EVALUATION OF IA FUNCTION BY EXTERNAL AUDITOR USING THE WORK OF IA FUNCTION .
1. Objectivity of IA 1. Discuss planned use of work of IA.
2. Competency 2. Read reports of IA function relating to work of function
3. Systematic and disciplined approach that external auditor plans to use to obtain
understanding of NTE of audit procedures it performed
If satisfactory If not satisfactory and related findings.
3. Perform sufficient audit procedures on work of IA
Determine NTE of work of Do not use work of IA
function as a whole that external auditor plans to use
IA Function function. to determine its adequacy for audit purpose.
ADDITIONAL POINTS .
1. DETERMINE WHETHER IA CAN BE USED TO PROVIDE DIRECT ASSISTANCE
If not prohibited by law or regulation, external auditor may use an IA to provide DA if there are no significant
threats to objectivity and IA is sufficiently competent to perform proposed work.
2. DETERMINE NTE OF WORK THAT CAN BE ASSIGNED TO IA
IA shall NOT be used to provide DA to perform procedures that:
 Include significant judgements: Assessing RMM, evaluating sufficiency of tests performed and significant
accounting estimates.
 Relate to higher assessed RMM
 Relate to work with which IA has been involved.
 Relates to decisions which external auditor makes in accordance with this SA w.r.t IA function and use of its work
3. USING DA OF INTERNAL AUDITOR -
a) Prior to using IA to provide DA for purposes of audit, external auditor shall obtain
❶ Written agreement from entity that IA will be allowed to follow external auditor’s instructions and that entity
will not intervene in work IA performs and obtain
❷ Written agreement from IA w.r.t confidentiality of specific matters denoted by external auditor.
b) External auditor shall direct, supervise and review the work performed by IA on engagement

I have
SA 620 – Using the work of auditor’s expert

An Individual or organisation possessing expertise in fields other than whose work is used by the auditor to assist
the auditor in obtaining SAAE.
. AREAS WHERE WORK OF AUDITORS EXPERT CAN BE USED .

1) Valuation of complex FI, L&B, P&M, jewelry 2) Estimation of oil and gas reserves
2) Valuation of env liabilities and site clean-up costs. 4) Analysis of unusual tax compliance issues
PROCEDURES TO BE FOLLOWED WHILE USING WORK OF AUDITOR’S EXPERT .

 Factors influencing auditor’s decision w.r.t use of AE when management had used a expert
a) The Nature, scope and objectives of management’s expert work.
b) Whether management expert employed by entity or is a party engaged by it to provide relevant services.
c) The extent to which management can exercise control or influence over the work of management’s expert
d) The management expert’s competence and capabilities
 Obtaining an understanding of expert work  Expert work not adequate for audit purpose :If auditor
a) To enable auditor to determine nature, scope and concludes that work of auditor’s expert is not adequate
objectives of expert’s work for the auditor’s purposes and auditor cannot resolve
b) Evaluate of adequacy of that work for auditor’s the matter through additional audit procedures, he may
purposes. to express a modified opinion
 Agreement with auditor’s expert

a) Need to be in writing – b)Factors suggesting need for written agreement with expert
 Nature, scope and objectives of auditor’s expert  Access to sensitive confidential entity info
work  Multi – jurisdictional legal or regulatory requirements apply
 Respective role and responsibilities of auditor  Matters to which auditor’s expert work relates is highly
and auditor’s expert complex.
 NTE of communication including form of report.  Auditor has not previously used work performed by expert.
NTE OF AUDIT PROCEDURES DEPENDS ON .

1) The nature of the matter to which that expert’s work relates.
2) The RMM in the matter to which that expert’s work relates.
3) Significance of that expert’s work in context of the audit.
4) Factors suggesting need for different or extensive procedures –
 Work of auditor’s expert relates to a significant matter that involves subjective and complex judgements.
 The auditor has not previously used the work of AE, and has no prior knowledge of that expert competence,
capabilities and objectivity.
 The AE is performing procedures that are integral to the audit, rather than being consulted to provide advice on
an individual matter
REFERENCE TO THE AUDITOR’S EXPERT IN THE AUDITOR’S REPORT .

 No reference required in case of unmodified audit report unless required by L&R.
 In case of modified reports, it may be appropriate to refer to the auditor’s expert to explain the nature of the
modification. In such case, auditor may need the permission of the auditor’s expert before making such a
reference.

I have
SA 700 – Forming an opinion and reporting on FS

TYPES OF REPORT .
Unmodified reports: Report issued when auditor concludes that FS are prepared in all material aspects in
accordance with applicable FRF.
Modified report: Matters that affect audit opinion (SA 705) – Qualified / Adverse / Disclaimer of opinion
Matters that do not affect audit opinion (SA 706) – With EOM para, With OM para.
FORMING AN OPINION ON FS .
Auditor shall form opinion on whether FS are prepared in all material respects in accordance with applicable FRF. To
form opinion, auditor needs to conclude as to whether he has obtained reasonable assurance that FS as a whole are
free from MM whether due to error or fraud. Take into account:
1) Auditor’s conclusion, as per SA 330, whether SAAE has been obtained.
2) Auditor’s conclusion, as per SA 450, whether uncorrected misstatements are material, individually or in aggregate
3) The evaluations mentioned below
a) Whether FS are prepared, in all material respects, in accordance with requirements of applicable FRF.
b) Whether in view of requirements of applicable FRF,
 FS adequately disclose significant accounting policies selected and applied
 Accounting policies selected and applied consistent with FRF
 Accounting estimates are reasonable
 Info presented in FS is relevant, reliable, comparable and understandable.
AUDITOR’S RESPONSIBILITIES FOR AUDIT OF FS .

1) State that objective of auditor to obtain reasonable assurance that FS are free from MM & issue the auditor’s
report that includes an audit opinion.
2) Explanation w.r.t. Reasonable assurance and application of concept of materiality
3) Statement that auditor exercises professional judgement and maintain professional skepticism throughout audit.
4) State auditor’s responsibilities w.r.t –
 Identifying and assessing RMM
 Obtain SAAE
 Understanding of IC
 Evaluation of appropriateness of accounting policies & reasonableness of accounting estimates.
5) State auditor’s responsibilities w.r.t. –
 Matters communicated with TCWG
 Providing statement to TCWG on compliance of ethical requirements
 Determining key audit matters out of matters communicated to TCWG
AUDITOR’S REPORT FOR AUDITS CONDUCTED AS PER SA AND ISA .

Auditor may be required to conduct an audit in accordance with the ISA, in addition to the SAs issued by ICAI.
In such a case, auditor’s report may refer to SAs in addition to ISAs auditing, but the auditor shall do so only if:
1) There is no conflict between requirements in the ISAs and those in SA’s that would lead the auditor to form a
different opinion or not include EOM/OM para.
2) The auditor’s report includes at a minimum, each of elements set out in auditor’s report prescribed by L&R
discussed above when auditor uses layout/wording specified in SAs.
SUPPLEMENTARY INFO PRESENTED WITH FS .

If supplementary info is presented with audited FS, but not required by FRF, the auditor shall –
 Evaluate whether supplementary info differentiated from audited FS
 If not, ask management to change presentation of unaudited supplementary info
 If management refuses, explain in auditor’s report that supplementary info is unaudited

I have
ELEMENTS OF UNMODIFIED AUDIT REPORT .
SR. NO PARTICULARS DETAILS
“Independent auditor’s report” so as to distinguish from reports issued by
1 Title
others
Addressed as appropriate. Generally, it is addressed to those for whom it is
2 Addressee
prepared.
Fair presentation framework
In our opinion, FS present fairly, in all material respects in accordance with
(applicable FRF)
In our opinion, FS gives a T&F view of ___________ in all material respects in
3 Opinion selection
accordance with (applicable FRF)
Compliance framework
In our opinion, FS present fairly, in all material respects in accordance with
(applicable FRF)
 States that audit was conducted in accordance with SA’s
 Refer to section of auditor’s report that describes the auditor’s
4 Basis for opinion
responsibilities
 Compliance of ethical requirements including independence.
5 Going concern Where applicable, auditor shall report in accordance with SA 570
In case of listed entity, auditor shall communicate key audit matters in
6 Key audit matters
auditor’s report in accordance with SA 701
 Prepare FS as per FRF
 Design, implementation and maintenance of IC
Management  Maintenance of adequate records for safeguarding of assets and
7
responsibilities for FS prevention and detection of fraud
 Assessing appropriateness of going concern
 Overseeing financial reporting process.
Auditor’s responsibilities
8 Explained in detailed above
for audit of FS.
Other reporting CARO 2020 Reporting u/s 143(3) of Companies Act, 2013, Section 143(11) of
9
responsibilities Companies Act, 2013, Rule 11 of CAAR, 2014.
In personal name and name of firm, alongwith membership number and firm
10 Signature
registration number.
11 Place The City where audit report is signed
12 Date Not be earlier than date on which audit evidences are collected.

I have
SA 701 – Communicating KAM in the independent auditor’s report

Key audit matters: Those matters that in the auditor’s judgement were of most significance in audit of FS of current
period. These are selected from matters communicated with TCWG.
SCOPE OF SA 701 .
It deals with auditor’s responsibilities to communicate KAM in the auditor’s report. It is NOT a
 Substitute for disclosures in FS that the applicable FRF requires to make
 Substitute for auditor expressing a modified opinion when required by SA 705
 Substitute for reporting in accordance for SA 570, when a material uncertainty exists relating to events or
conditions that may cast significant doubt on entity’s current ability to continue as a going concern.
PURPOSE OF COMMUNICATING KAM .

a) To enhance communicative value of the auditor’s report by providing greater transparency
b) To provide additional info to intended users of FS to assist them in understanding those matters that in auditor’s
judgement were of most significance
c) To assist intended users in understanding the entity and areas of significant management judgement
CONSIDERATIONS FOR DETERMINING KAM .

KAM are to be determined from the matters communicated to TCWG, considering the following –
 Areas of higher RMM
 Significant auditor judgement relating to FS that involved management judgement.
CIRCUMSTANCES IN WHICH A MATTER DETERMINED TO BE KAM IS NOT COMMUNICATED .

a) L&R precludes pubic disclosure about the matter.
b) Audit determines that matter should not be communicated in the auditor’s report because the adverse
consequences of doing so would reasonably be expected to outweigh the public interest of such communication.
MANNER OF REPORTING .
 Use separate section denoted as “Key Audit Matters”
 Description of each KAM shall follow the introduction
 Description of each KAM shall address reason why the matter was considered as KAM.
MODIFIED OPINION VS GOING CONCERN VS KAM .

 KAM is NOT a substitute for modified opinion under SA 705 or reporting required under SA 570 w.r.t evidence of
material uncertainty as to events that cast significant doubts on entity ability to continue as going concern.
 Auditor shall report modification/going concern in accordance with applicable SA’s and include a reference to
basis for qualified (adverse) opinion or the material uncertainty related to going concern section in KAM Section

I have
SA 705 – Modifications to the opinion in the independent auditor’s report

TYPES OF MODIFIED OPINION .
 Qualified: Issued when FS are misstated having material but not pervasive effect or
Auditor not been able to collect SAAE for transaction that are having material but do not have pervasive effect.
 Adverse: Issued when FS are misstated having material and pervasive effect.
 Disclaimer of opinion: Issued when auditor not been able to collect SAAE for transactions that are material and
have pervasive effect.
PERVASIVE NOT PERVASIVE
Material misstatement Adverse Qualified
SAAE not obtained for material transactions Disclaimer Qualified
CONSIDERATIONS WHILE ISSUING MODIFIED OPINION .

 Qualified: Except for the effects of matters prescribed In “Basis of qualified opinion” section , the FS has been
prescribed fairly in all material respects in accordance with FRF
 Adverse: In auditor’s opinion, because of significance of matters described in “Basis of adverse opinion” section,
the FS does not give a T&F view of __________ in accordance with applicable FRF.
 Disclaimer: Because of significance of matters described in the “Basis for disclaimer of opinion” section, the
auditor has not been able to obtain SAAE for expressing opinion.
BASIS FOR OPINION SECTION .

 Amend the heading – Basis for qualified / adverse / disclaimer of opinion
 Include a description of matter giving rise to modification
CAUSE OF MODIFICATION DESCRIPTION

Description of misstatement
MM in amount
Quantification of financial effect, if determinable
MM in disclosure Explanation how the disclosures are misstated
Describe nature of omitted info and include the omitted
MM due to non–disclosure of required information
disclosure provided it is practicable
Inability to obtain SAAE State the reason for inability
AUDITOR’S RESPONSIBILITY SECTION .

When an auditor disclaims the opinion, the auditor shall amend the description of auditor’s responsibilities to
include only the following:
 Statement that auditor’s responsibility is to conduct an audit in accordance with SAs and to issue auditor’s report.
 Statement that because of significance of matters described in basis for disclaimer of opinion section, auditor was
not able to obtain SAAE to provide a basis for an audit opinion.

I have
SA 706 – Emphasis of matter paragraph & other matter paragraph in the

independent auditor’s report
EMPHASIS OF MATTER PARA .
A para included in the auditor’s report that refers to a matter appropriately reflected/disclosed in the FS that in the
auditor’s judgement is of such significance, that it is fundamental to the user’s understanding of FS.
 Auditor shall include an EOM Paragraph in the auditor’s report provided –

 Auditor not required to modify the opinion in accordance with SA 705
 When SA 701 applies, the matter has not been determined to be KAM.
 When auditor includes an EOM paragraph in the auditor’s report, the auditor shall –
 Include a separate section of the auditor’s report with a heading that includes the term “Emphasis of Matter”
 Include in the paragraph, a clear reference to the matter being emphasized and to where relevant disclosures
that fully describe the matter can be found in the FS.
CIRCUMSTANCES WHEN EOM PARA CAN BE ISSUED

 Uncertain situation as to future outcome of an exceptional litigation
 Significant subsequent events
 Early application of new AS in advance of its effective date.
LOCATION IN AUDIT REPORT

 When EOM para relates to applicable FRF, auditor may consider it necessary to place the paragraph immediately
following the basis of opinion section to provide appropriate context to auditor’s opinion.
 When KAM section is presented in the auditor’s report, an EOM para may be presented either directly before or
after KAM Section, based on auditor’s judgement as to the relative significance of the info included in EOM para.
OTHER MATTER PARA .

A para included in the auditor’s report that refers to a matter other than presented/disclosed in the FS that in the
auditor’s judgement is relevant for user’s understanding of audit, auditor’s responsibility or auditor’s report.
 OM para is not a substitute of KAM

 OM Para should be included in the audit report in a separate section termed as “Other Matter”
 Differentiate “Other Matter” with “Key Audit Matters”.
LOCATION IN AUDIT REPORT

 Immediately after the “Key Audit Matter” section.
 If other matter is related with other legal and regulatory requirements, it needs to be placed in “Reporting on
other legal and regulatory requirements” section.

I have
SA 710 Comparative information – corresponding figures and comparative FS

Comparative information: The amounts and disclosures included in FS in respect of one or more prior periods in
accordance with FRF.
Corresponding figures: Comparative info where amounts & other disclosures for the prior period are included as an
integral part of current period FS & are intended the be read only in relation to current period.
Comparative FS: Comparative info where amounts & other disclosures for the prior period are included for
comparison with FS of current period, but, if audited, are referred to in auditor’s opinion.
AUDIT PROCEDURES .
1) Determine whether FS include comparative info required by FRF and whether such info is classified appropriately
2) Evaluate whether
 Comparative info agrees with amounts and other disclosures presented in prior periods
 Accounting policies reflected in comparative info are consistent with those applied in current period.
3) Doubt over existence of MM: Perform additional audit procedures to obtain SAAE to determine existence of MM
4) Obtain WR from management to re-affirm that WR previously made wrt prior period remain appropriate.
AUDIT REPORTING .
COMPARATIVE FS
 Audit opinion to refer to each period for which are presented and on which opinion is expressed.
 If opinion on prior period FS expressed in current period differs from opinion expressed in relevant prior period,
give substantive reason for difference in other matter para.
CORRESPONDING FIGURES
Audit opinion not to refer to corresponding figures, except,
 Auditor’s report in prior period FS was modified and subject matter is still unresolved – Modify current audit
report also.
 Auditor obtains AE w.r.t existence of MM in prior periods FS on which unmodified opinion was issued – Express
qualified/adverse opinion on current FS w.r.t Corresponding figures if misstatement has not been dealt as
required by applicable FRF.
PRIOR PERIOD FS AUDITED BY ANOTHER AUDITOR

Audit report to also contain OM para, stating that:
 FS of prior period were audited by predecessor auditor
 Type of opinion expressed
 Date of report
PRIOR PERIOD FS ARE UNAUDITED

Include OM para – That corresponding FS are unaudited, but this does not relieve the auditor from need to obtain
SAAE that opening balances do not contain misstatements that can potentially affect current FS.
DIVISION OF RESPONSIBILITY .
 PA would not be responsible w.r.t work entrusted to OA, except in circumstances which should have aroused his
suspicion about the reliability of work performed by OA.
 When PA has to base opinion on financial info of entity as a whole, relying upon statements and reports of OA, his
report should clearly state division of responsibility for financial info

I have
SA 720 – The Auditor’s responsibilities relating to other information

Deals with auditor’s responsibilities relating to other info, whether financial or not included in entity’s annual report.
AUDITOR’S PROCEDURES .
OBTAINING OTHER INFO The auditor shall
 Determine through discussion with management which documents comprises the annual report, and entity’s
planned manner and timing of issuance of such documents.
 Make appropriate arrangements with management to obtain in a timely manner and if possible, prior to date of
auditor’s report the final version of documents comprising the annual report
 When some or all of the documents determined above will not be available until after the date of the auditor’s
report, request management to provide a WR that the final version of the documents will be provided to the
auditor when available.
READING AND CONSIDERING THE OTHER INFORMATION
 Whether there is material inconsistency between Other info and FS and
 Whether there is a material inconsistency between Other info and auditor’s knowledge obtained in audit, in
context of AE obtained and conclusions reached in the audit.
AUDITOR RESPONSES .
1) WHEN MATERIAL INCONSISTENCY APPEARS TO EXIST OR OTHER INFO APPEARS TO BE MATERIALLY MISSTATED
Auditor shall discuss the matter with management and, perform other procedures to conclude whether
 MM of other info and FS exists
 Auditor’s understanding of entity and environment needs to be updated.
2) WHEN THE AUDITOR CONCLUDES THAT A MM OF OTHER INFO EXISTS
a) If auditor concludes that MM of other info exists, he shall request management to correct info.
b) If management-
 Agrees to make corrections, auditor to determine that correction has been made
 Refuses to make correction, auditor shall communicate with TCWG and request for making corrections.
c) If auditor concludes that MM exists in other info obtained is NOT corrected after communicating the matter with
TCWG, the auditor shall take appropriate action, including–
 Consider implications for the report and communicate with TCWG w.r.t auditor’s plans of addressing MM.
 Withdrawing from engagement, where withdrawal is possible under applicable L&R.
REPORTING .
1) Auditor’s report shall include separate section with heading “Other Information” when
For an audit of FS of a listed entity, the auditor has obtained or expects to obtain other info
For an audit of FS of a unlisted entity, the auditor has obtained some or all of the other info.
2) When auditor’s report is required to include an Other info section, it shall include -
Statement that management is responsible for other info
Identification of other info obtained by auditor prior to auditor’s report date
3) Statement that auditor’s opinion does not cover other info and accordingly that the auditor does not express an
audit opinion.
4) When auditor expresses a qualified/adverse opinion in accordance with SA 705, the auditor shall consider
implications of matters giving rise to modification of opinion for statement required in above para.
EXAMPLES OF AMOUNTS OR OTHER ITEMS THAT MAY BE INCLUDED IN OTHER “INFORMATION” .

AMOUNTS OTHER ITEMS
 Items such as net income, EPS, sales, dividends, etc.  Explanation of critical a/c estimates
 Items such as asset dispositions, litigation provisions, etc  Identification of RP and descriptions of transactions
 Capital expenditure by segment/division  Descriptions of guarantees, contractual obligations,
 Amounts involved in and related financial effects of off – legal/environmental liability cases, etc.
balance sheet arrangements.  General descriptions of business environment
 Amounts involved in guarantees, contractual obligations.  Overview of Strategy

7. AUDIT COMMITTEE AND CORPORATE GOVERNANCE (47 pages in ICAI SM)
Corporate governance: System by which mgmt. of a business entity directs and controls the
activities in best interest of stakeholders.
APPLICABILITY OF LODR REGULATIONS

Listed entity who has listed any of the following designated securities on RSE
Specified securities listed on main board / SME exchange / Innovator growth platform
Non-convertible securities Indian depository receipts Security receipts
Securitised debt instruments Units issued by mutual fund Any other as specified
AUDIT COMMITTEE (AC)

Every LISTED COMPANY
PUBLIC COMPANY ● Turnover > 100 crores or
(Last audited FS) ● O/s loans, debentures & deposits > 50 crores or
(Sec 177 of companies Act) ● PSC > 10 crores
LISTED ENTITY HAVING O/s SR ES OTHERS

100% members shall be ID Atleast 2/3rd members shall be ID
CONSTITUTION ● Minimum 3 directors as members
● All members of AC shall be able to read & understand FS.
● Atleast 1 member shall have accounting or related FM expertise.
● Chairperson shall be ID & shall be present at AGM to answer SH queries.
FREQUENCY QUORUM
MEETING Ꚛ 2 members
Atleast 4 times a year
(Gap between 2 meetings max 120 days)
Ꚛ 1/3rd members
(Min 2 ID shall be present)
POWERS ● Investigate any activity within its terms

(Illustrative not ● Seek information from any employee
exhaustive) ● Obtain outside legal advice
(Mandatory powers) ● Secure attendance of outsiders with relevant outsiders
● Approval for Payment to stat auditor for any other service rendered.
● Oversight listed entity FR process to ensure FS = Correct, sufficient, credible
● Review functioning of Whistle blower policy
● Recommend Auditor appointment, remuneration.
ROLE / ● Review Auditors report with mgmt before submitting to board.
FUNCTIONS ● Evaluate IFC & RM systems
POWA2I2 V QT ● Comment on rationale, cost benefit & Impact of merger etc on Entity & SH
● Valuation of undertakings or assets of undertakings
● Review Quarterly & Annual FS with mgmt before submitting to board
● Approval of any subsequent modification of Txn of listed entity with RP
7. AUDIT COMMITTEE AND CORPORATE GOVERNANCE CA DHEER MODI

MANDATORY ● Internal control weaknesses Internal auditor report.
REVIEW OF ● Internal control weakness letters issued by Stat auditor.
INFO BY AC ● Management discussion & analysis of financial condition & results of op.
● Appointment, removal and terms of remuneration of CIA.
IS MCD ● Statement of Deviations
Ꚛ Quarterly st. of deviations
Ꚛ Annual st. of funds utilized for purpose other than stated in prospectus
RESIGNATION OF STATUTORY AUDITOR from listed entity & material subsidiary

Within 45 days from end After 45 days from end of Auditor has signed LR for
of Q of FY Q of FY 1st 3 Q of FY
Issue LR for such Q Issue LR for such Q + Next Q Issue LR for last Q +
Audit report for FY
If any concern with mgmt (Non availability of info, non cooperation by mgmt) which may hamper
audit process, auditor to approach chairman of AC.
If resignation is due to non receipt of information, auditor to inform AC details of info sought.
Post which AC / BOD (If no AC) to communicate its views to mgmt & auditor.
ROLE OF AUDITOR IN AC & CERTIFICATION OF COMPLIANCE OF CONDITIONS

OF CORPORATE GOVERNANCE (CG)
● Stat auditor shall be invited (When required) to meetings of AC. Right to be heard. Right to vote
● Auditor to document matters which are important in providing evidence to support certificate of
factual findings.
VERIFICATION REGARDING COMPOSITION OF BOARD
● Atleast ½ BOD = NED Age < 75 years “ [ If > 75 years, SR needs to be passed + Justification ]
● Atleast 6 directors in BOD . [ Top 2,000 listed entities ]
● Atleast 1 WD . [ WD = Independent WD if top 1,000 listed entity ;;]
● Atleast ½ of BOD = ID . [ Listed company having O/s SR ES ]
Director D / ID in maximum 7 listed entities

● LISTED ENTITY Can be
WTD / MD ID in maximum 3 listed entities
● CHAIRPERSON = NED ≠ NED Special

= Special 1/2 of BOD = ID 1/2 of BOD = ID Promoter / related to promoter /
≠ Special 1/3 of BOD = ID 1/2 of BOD = ID Occupies mgmt position at BOD level.
● Examine annual disclosures submitted by BOD. Ascertain independence of D.

● INED - No material pecuniary relationship with C/H/A/S/Promoter/D in CY + 2 immediate PY.
● ID + Relative can own maximum 2% voting power in listed entity.
● Appt of person on BOD requires SH approval (Earlier of Next GM or 3m from appt.)
● Appt of person earlier rejected by SH done only with SH prior approval + explanation by NRC.
.
Upper round off | Market cap as at end of immediate previous FY | ES are listed on SE

REMUNERATION OF DIRECTORS
DISCLOSURE REQUIREMENTS APPROVAL
● All pecuniary relationships with NED ● Fees paid to NED (Incl ID) recommended by
● Criteria of making payment to NED BOD + Approval of SH in GM
● Elements of rem package of individual D ● SH resolution to specify limit max no. of SOP
● Details of fixed component & performance that can be granted to NED in FY.
linked incentive + Performance criteria ● If annual rem payable to 1 NED > 50% of total
● Service contract, notice period, severance fee rem payable to all NED, SH approval every year.
● SOP details (Discount, accrual period, exercising period) ● No SH approval - payment of sitting fees NED
● Fee to ED who are promoter require SH SR in
▪ Auditor to ascertain from minutes of BM, SM
GM if Ꚛ Annual rem > 5 crore
if rem of NED has been approved by SH in GM
2.5% of net profit
▪ Examine report of BOD on corporate
Ꚛ When no of ED > 1, aggregate annual
governance & ascertain whether it discloses
rem to such EDs > 5% of net profit
remuneration to D & compensation to NED.
OBLIGATION WITH RESPECT TO EMPLOYEES, KMP, DIRECTORS & PROMOTER

BOARD DIRECTOR
● 1st BM within 30 days of incorporation ● Member in max 10 committees.
(60 days in case of IFSC public & Pvt company) ● Chairperson in max 5 committees (AC & SRC)
● BM atleast 4 times a year.
Maximum gap between 2 BM = 120 days ● ID shall be liable only for acts of omission or
● Section 8 Co = 1 BM every 6 calendar months commission by the listed entity which occurred
IFSC public & Pvt co - 1 BM in each half of CY with his knowledge
● Quorum = of 1/3rd or 3 (Include 1 ID)
(Top 2000 listed)
● ID to hold atleast 1 meeting in FY WITHOUT
NID & members of mgmt.
● Review compliance reports of laws app. to SENIOR MANAGEMENT (SM)
listed entity + Steps to rectify non compliance.
● Make disclosure to board relating to material
● Replace ID who resigns / removed by BOD fin & comm txn where they have personal
within 3m from date of vacancy interest that may have conflict with int of Co
● Undertake Director & Officer insurance ● No emp / D / promoter of listed entity shall
(D & O insurance) for all its ID for sum assured enter in agreement with SH or 3rd party wrt
& such risks as determined by BOD. profit sharing in connection with dealings in
securities UNLESS approval of BOD + SH OR
VIGIL MECHANISM
Establish a whistle It should provide for adequate Details of establishment of
blower policy for D & safeguard against victimization such mechanism to be
Emp to report genuine of D / Emp & provide direct disclosed on website &
concerns access to chairperson of AC Board report

CODE OF CONDUCT (COC)
Board to lay down COC for all board Board members & SM to affirm COC to suitably
members and SM compliance on annual basis incorporate duties of ID
Annual report to contain declaration COC to be posted on website of as laid down in
to this effect signed by CEO company Companies act 2013
Senior management (SM) = Members of core mgmt team excluding BOD, CEO, MD, WTD, M & including CS, CFO
SUBSIDIARY OF LISTED ENTITY

● Atleast 1 ID of listed entity shall be D on BOD of UMS (20%) whether inc in India or not.
● AC of listed entity shall review FS – investments made by US.
● Minutes of board meetings of US shall be placed at board meeting of listed entity. Mgmt of US to
bring to notice of BOD of listed entity, a statement of all significant transactions entered by US.
● % holding in MS after Listed entity disposes shares shall be > 50%. Shall always control over MS.
Selling / disposing & leasing of assets > 20% of assets of MS during a FY shall require SR.
(UNLESS SR in GM EXCEPT when such disinvestment is made under scheme of arrangement approved by court / tribunal or
under resolution plan approved u/s 31 of IBC & it has been disclosed to stock exchange within 1 day of plan being approved.)
● Policy for determining MS to be disclosed on company’s website & link in annual report.
Material subsidiary (MS) = Income / NW > 10% consolidated income / NW of listed entity + S in immediate preceding a/c year
Significant transactions = Individual transaction > 10% of total revenue / expense / asset / liability of US for preceding a/c year
◊ Every listed entity & UMS (Incorporated in India) to undertake secretarial audit and annex it with annual report.
◊ Every listed entity shall submit a secretarial compliance report to SE within 60 days from EoFY.
NOMINATION & REMUNERATION COMMITTEE (NRC)

Every LISTED PUBLIC COMPANY
● Atleast 2/3rd members shall be ID

● Minimum 3 directors (NED) as members
CONSTITUTION ● Chairperson shall be ID & shall be present at AGM to answer SH queries.
● Chairperson of listed entity can be member. CANNOT chair the committee.
FREQUENCY QUORUM (Same as AC)
Atleast once a year Ꚛ 1/3rd members
(Min 1 ID shall be present)
● Identify person Qualified to be D & recommend to BOD appointment.

ROLE / ● Formulating criteria to determine qualification, independence of D &
FUNCTIONS recommend Policy to BOD wrt remuneration of D, KMP & employees.
● Devising policy on Board diversity.
QP BEEER? ● Formulating criteria to Evaluate performance of ID & BOD.
● Determine whether to Extend term of ID based on performance evaluation.
● Use services of External agency to search for candidates
● Recommend to board all Remuneration payable to SM.

STAKEHOLDER RELATIONSHIP COMMITTEE (SRC)
Every LISTED COMPANY

Atleast 2/3rd members shall be ID Atleast 1 member shall be ID
CONSTITUTION
● Minimum 3 directors as members
● Chairperson shall be NED & shall be present at AGM to answer Security H.
FREQUENCY
MEETING
Atleast once a year
● Resolve Grievances of Security H.

ROLE / ● Review measures taken for effective exercising of Voting rights by SH.
FUNCTIONS ● Review of adherence to Service standards wrt various services rendered by
SUV G Registrar & Share transfer agent.
● Review of measures taken for reducing quantum of Unclaimed dividend.
RISK MANAGEMENT COMMITTEE (SRC)

Top 1000 listed entities | High value debt listed entity

Atleast 2/3rd members shall be ID Atleast 1 member shall be ID
CONSTITUTION
● Minimum 3 members, with majority Directors
● Chairperson shall be member of BOD.
FREQUENCY QUORUM (Same as AC)
Atleast 2 times a year
Ꚛ 1/3rd members
(Gap between 2 meetings max 180 days)
(Min 1 D shall be present)
● Formulate & monitor risk mgmt policy. Periodic review once in 2 years.
ROLE / POWERS ● Functions specified in Part D of Sch II
● Appt, removal & terms of remuneration of Chief risk officer to be reviewed
STATEMENT OF DEVIATIONS / VARIATIONS

1. Listed entity to submit to SE following Quarterly for public issue, right issue, preferential issue
● Deviations in use of proceeds from objects stated in offer document / explanatory statement.
● Category wise variation between projected utilization of funds made by it in offer document.
2. Statement to be submitted till proceeds have been utilised / purpose has been achieved.
3. If funds raised through preferential allotment or QIP, disclose utilization till funds fully utilised.
AC TO MANDATORILY Quarterly statement of deviations submitted to SE.
REVIEW Annual statement of funds utlised for purpose other than those stated in offer document.

INFORMATION TO SHAREHOLDERS TRANSFER / TRANSMISSION OF SECURITIES
● Send soft copy of full annual report to SH (Email ● BOD to delegate power of transfer of
Registered) not less than 21 days before AGM. securities to a committee / registrar / Agent.
● D being appointed, provide Resume, Nature of ● BOD to attend formalities atleast once in a
expertise, Listed entities where = D, Sholding NED. fortnight.
COMPLIANCE CERTIFICATE – CEO & CFO to certify to Board that

● FS & CFS have been reviewed. X Materially untrue statement. aT&F view aAS & law complied.
● X transaction entered which are fraudulent / illegal.
● Accept responsibility for maintaining IC + Deficiency disclosed to auditor + Steps taken to rectify
● They have indicated to auditor & AC significant changes in Ꚛ IC Ꚛ A/c policies Ꚛ Fraud
MANAGEMENT DISCUSSION & ANALYSIS REPORT POOR FI2SH

Industry structure & developments Opportunities & threats HR Outlook Risk & concerns
FP wrt OP Internal control system & their adequacy Product wise performance
Significant (25% or Current ratio Operating profit margin % Net profit margin % Debtor t/o
more) change in Interest coverage ratio Debt equity ratio Inventory t/o
OTHER DISCLOSURES
1 Ensure timely & accurate disclosure of the listed entity.

• Info shall be prepared & disclosed as per prescribed accounting standards.
• Channels for disseminating info should provide equal, timely, cost effective
Disclosure & access to relevant info by users.
Transparency • Minutes of meeting to be maintained explicitly recording dissenting opinions.
2 • Disclosure of events / info which in opinion of BOD is material

• BOD to authorise one or more KMP for purpose of determining materiality of
an event / info & for disclosing to SE. Contact details of this person to be
Material disclosed to SE + listed entity’s website.
events & Info • Such disclosures to be hosted on website for minimum 5 years.
3 • Submit Qly compliance report on corp gov. within 21 days from end of Q.
• Formulate policy on materiality of RP transactions. Should include threshold
limits approved by BOD. Policy to be reviewed by BOD atleast once in 3 years.
Related party • Material RP transaction = Individually / taken together with previous
disclosure transactions during a FY > ֎ 1,000 crore
LOWER
֎ 10% of annual consolidated t/o
• All RP transactions & subsequent material modifications require prior approval
of ID in audit committee of listed entity.
• Audit committee may grant omnibus approval for RP transactions.
• Submit to SE disclosures of RP transactions & publish on website.
• ‘High value debt listed entity’ to submit such disc with SFS for the half year.
• Listed entity to make disc every 6m within 15 days of publish of CFS&SFS
• Listed entity to make disc every 6m ON day of publish of CFS&SFS wef 01-04-23.

Additional disclosures as per Sch V – Annual report, relating to related party
1. Listed entity which has listed its non convertible security shall make disclosures in compliance
with AS on “Related party disclosures”
2. Disclosure requirement as follows:
IN ACCOUNTS OF DISCLOSURE OF AMOUNT AT YEAR END & HIGHEST DURING THE YEAR
Loan & advances to a / b /c "Name" & "Amount"
Holding company
a) Subsidiary b) Associate c) Firms / Companies in which directors are interested
Subsidiary Same disclosures as applicable to parent company in the accounts of subsidiary company
Investments by loanee (Person who receives loan) in shares of parent company &
Holding company
Subsidiary company, when the company has made a loan or an advance
3. Disclosure of transactions of listed entity with any person / entity belonging to promoter /
promoter group which holds 10% or more SHing in listed entity.
4 While preparation of FS, if treatment different from than that prescribed in AS

has been followed, fact to be disclosed in FS + Management explanation.
Auditor to refer Sec 133, 134 & 143 of Companies Act, 2013. Also refer
Accounting Compliance certificate issued in accordance with regulation 17(8).
treatment
5 Disclosure in relation to Sexual harassment of women at workplace

a. No of complaints filed during the FY
b. No of complaints disposed off during the FY
Sexual c. No of complaints pending as on end of FY
harassment
REPORT ON CORPORATE GOVERNANCE AUDITORS’ CERTIFICATE

• Submit Qly compliance report on CG to RSE within 21 days from Listed entity to obtain
EO each Q. compliance certificate from
• Report to be signed by Compliance officer / COE of listed entity. auditor / practicing CS
• Auditor ascertain whether BOD have included in audit report a regarding compliance of
separate section on CG conditions of CG and shall be
• Any data in report on CG should not be inconsistent with that annexed with directors report.
contained in FS.
INDEPENDENT DIRECTOR definition wouldn’t fit here  so giving you space for your notes 

INDEPENDENT DIRECTOR (NED) other than Nominee Director
HIMSELF RELATIVE DOES NOT
• Is a person of integrity & expertise & experience • Hold securities in CHAS during CY + 3 PFY with FV >
• Age > 21 years 50 lacs or 2% of Paid SC in CHAS
• Is / was NOT promoter of CHAS.
• Is NOT related to promoter / director of CHAS LOWER
• Has NO material pecuniary relationship with CHAS / • Indebted / guaranteed to CHAS /Promoter/ Director >
Promoter / Director during CY + 3 PFY specified amount during CY + 3 PFY
• Is NOT an ID of another company on board of which • Pecuniary relationship with CHAS > 2% gross t/o
non ID of listed entity is an ID.
NEITHER HIMSELF NOR RELATIVE

• Holds / Held position of KMP / Employee of CHAS in 3 PFY. Relative = Employee = OK 
• Is / was employee / proprietor / Partner in any of 3 PFY of
1) A firm of auditors or CS or Cost auditors of CHAS
2) Legal / consulting firm that has had any transaction with CHAS > 10% of gross t/o of firm
• Him + Relative holds > 2% of total voting power of C
• Is Chief executive / Director of NPO which receives > 25% of its receipts / Corpus from CHAS / promoters /
Directors / Entity holding > 2% total voting power of listed entity
• Is material supplier / service provider / Customer / Lessor / lessee of entity

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STANDARDS ON

Marks breakup attempt wise CA FINAL May & Nov 23

1. Leadership Responsibilities 4. Client Acceptance/Continuance

2. Ethical Requirements 5. Human Resources

7. Complaints and allegations

SQC 1: QC and Engagement Standards CA FINAL May & Nov 23

❷ Professional judgement : Application of KTE within context of AS / SA in making informed

❸ Sufficient & Appropriate Audit Evidence (SAAE)

❹ Conduct of audit as per SA

SCOPE OF AUDIT PREPARATION OF FS PREPARATION OF FS

2. Auditor’s opinion does 2. Above responsibility 3. Cost - benefit analysis

SA 200 CA FINAL May & Nov 23

SA 210 – Agreeing the terms of audit engagement

INITIAL AUDIT ENGAGEMENT RECURRING AUDIT ENGAGEMENT

engagement 1. FRF Applicable engagement terms:

2. Agreement with mgmt for 1. Entity misunderstands objectives and audit

SA 210 CA FINAL May & Nov 23

SA 220 – Quality control for an audit of FS

5. Assignment of engagement team:

7. Monitoring: QC is relevant, adequate and operating effectively

SA 220 CA FINAL May & Nov 23

SA 230 – Audit documentation

. PURPOSE . . NATURE . . OWNERSHIP .

. FORM, CONTENT AND EXTENT OF DOCUMENTATION .

SA 230 CA FINAL May & Nov 23

SA 240 – The Auditor’s responsibilities relating to fraud in an audit of FS

Communicate to TCWG and management Consider whether it is

7. Risk assessment procedures 8. Responses to assessed risks

b) Enquiring TCWG whether they have b. Responses at the Assertion Level:

SA 240 CA FINAL May & Nov 23

SA 250 – Consideration of laws and regulations in an audit of FS

Obtain SAAE Perform limited procedures

4. Audit procedures in case non compliance is 5. Indicators of Non - Compliance .

SA 250 CA FINAL May & Nov 23

SA 260 – Communication with TCWG

COMMUNICATION PROCESS . FACTORS AFFECTING MODE OF COMMUNICATION.

SA 260 CA FINAL May & Nov 23

SA 265 – Communicating deficiencies in IC to TCWG and Management

2. COMMUNICATION OF DEFICIENCIES [IN WRITING]

MATTERS THAT AUDITOR MAY CONSIDER IN DETERMINING WHETHER A DEFICIENCY IN IC = SIGNIFICANT .

SA 265 CA FINAL May & Nov 23

SA 299 – Joint Audit of FS

AUDIT PLANNING AND ALLOCATION OF WORK .

2. ALLOCATION OF WORK: By mutual discussion, divide the audit work

3. DOCUMENTATION OF WORK ALLOCATED

RESPONSIBILITY OF JOINT AUDITORS .

AUDIT CONCLUSION AND REPORTING .

2. REVIEW OF WORK BY OTHER AUDITOR

SA 299 CA FINAL May & Nov 23

SA 300 – Planning in an Audit of FS

.PLANNING A CONTINUOUS PROCESS . CHANGES TO PLANNING DECISIONS .

SA 300 CA FINAL May & Nov 23

. UNDERSTANDING OF ENTITY & ITS ENVIRONMENT .

. IDENTIFICATION AND ASSESSMENT OF RMM .

 Identify risks  Risk of fraud

. RISK IN CIS ENVIRONMENT . . COMPONENTS OF INTERNAL CONTROL .

SA 315 CA FINAL May & Nov 23

SA 320 – Materiality in planning and performing an audit

SA 320 CA FINAL May & Nov 23