SA Charts - Standards on Auditing PDF

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Standards on Auditing...

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CA FINAL – AUDIT

(www.APNAMENTOR.com)

May 2020 (Old Course)

“SUMMARY CHARTS” “+ Amendments covered from RTP MAY 2020”

CA FINAL AUDIT REGULAR & FAST TRACK BATCHES

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AUDIT SAGA by

CA SANI SANIDHYA DHYA SARAF

For TEST SERIES, PENDRIVE CLASSES & FREE RESOURCES visit: -

www.APNAMENTOR.com OLD COURSE-MAY 2020 ”ONE STOP SOLUTION” FOR CA FINAL AUDIT REVISION” Need Help Help? ? Call: 976-04 976-040-0350 0-0350 (apnamentor.com@g [email protected] mail.com) Compiled by CA SANIDHYA SARAF

“APNA MENTOR” 976-040-0350

CA FINAL – AUDIT

(www.APNAMENTOR.com)

May 2020 (Old Course)

APN APNA A MEN ENTOR TOR

_____“ONE STOP SOLUTION” FOR CA FINAL AUDIT REVISION______

FEATU RES O F SU MMARY CH ART FEATURES OF SUMMARY CHART ☻ Colorful, Handy, Exam oriented portrait layout charts one of its Type ☻ One Stop Solution for CA Final Audit Quick Revision & Go through ☻ Student Friendly Presentation for better printing & learning ☻ Short Bullet points to revise entire syllabus in time

Compiled by CA SANIDHYA SARAF

“APNA MENTOR” 976-040-0350

CA FINAL – AUDIT

(www.APNAMENTOR.com)

May 2020 (Old Course)

“A WORD FROM AUTHOR” The Summary Charts is thoroughly designed keeping in view Examination time learning requirements & pressure on last day for CA Final Students wherein emphasis is given to Quick last minute Revision by Quick Pictorial chart form reference to all Relevant Topics points to facilitate a better score. These charts are presented in Simpler Version in form of Bullet Points & Tables with Chart form in Portrait mode rather than usual Landscape mode for a new change. This is expected to facilitate students to grasp the concepts in a better way. Author is obliged to have any suggestions on any value additions required to be done in the material for which you can write to me on [email protected] I would like to extend a warm heartedly thanks to my parents for their continuous love to me in my every step of life. Special Thanks to Mr. AMIT GUPTA (9650557427) for Valuable Contribution to design & format these Charts and to all students who have contributed towards this by doing proof reading and there encouragement without which this would never have been a reality. Also for Detailed Analysis & understanding Students may refer to below by Author: * Question Bank * PENDRIVE Class * Main Book * Free Voice Revision Clips * 4 - 5 Day Crash Course * Revision Classes Warm Regards

CA SANIDHYA SARAF (WIRC)

AUDIT SAGA

(AUTHOR)

www.APNAMENTOR.com All rights reserved. No part of these Notes may be reproduced, stored in retrieval system or transmitted in any form or by any means, Electronic, Mechanical, Photocopying, Recording, or Otherwise without prior permission from the Publisher. Although author and publisher have made every effort to ensure that information in these Charts was correct at press time, author and publisher do not assume and hereby disclaim any liability to any party for any loss, damage, or disruption caused by errors or omissions, whether such errors or omissions result from negligence, accident, or any other cause.

Compiled by CA SANIDHYA SARAF

“APNA MENTOR” 976-040-0350

CA FINAL – AUDIT

Compiled by CA SANIDHYA SARAF

(www.APNAMENTOR.com)

May 2020 (Old Course)

“APNA MENTOR” 976-040-0350

CA FINAL – AUDIT

(www.APNAMENTOR.com)

May 2020 (Old Course)

“INDEX” S.N.

TOPICS COVERED

A. B. C. D.

AUDITING STANDARDS (Up to SA 720) COMPANY AUDIT (Section 126 – 148 of Co. Act 2013) PROFESSIONAL CODE OF ETHICS (PE) OTHER COMMON TOPICS: -

Pg. No. 1 – 49 50 – 60 61 – 70 71 – 127

1

15 16

Audit under Fiscal Laws (GST Audit + Tax Audit) Peer Review Investigation Due Diligence (DD) Audit Strategy, Planning & Programming Risk Assessment & Internal Controls Audit Report & CARO 2016 Audit Committee & Corporate Governance Audit of Consolidated Financial Statements (CFS) Audit of Banks Audit of General Insurance Companies (GIC) Audit of Non- Banking Finance Companies (NBFC) Audit of Public Sector Undertakings (PSUs) Internal Audit, Mgt. & Operational Audit Audit of Dividend Liabilities of Auditor

69 – 82 83 – 84 85 – 86 87 – 88 89 – 90 91 – 92 93 – 94 95 – 101 101– 103 103 – 106 107 – 110 111 – 114 115 – 117 118 – 122 123 – 125 126 – 127

S.N.

TOPICS COVERED (For Old Course only)

Pg. No.

A. B. C. D.

Cost Audit Audit under CIS Environment SARBANES OXLEY ACT, 2002 (SOX) Audit of Co- Operative Societies

128 – 130 131 – 133 134 135 – 136

2 3 4 5 6 7 8 9 10 11 12 13 14

Compiled by CA SANIDHYA SARAF

“APNA MENTOR” 976-040-0350

AUDIT SAGA

STANDARDS ON AUDITING

NO. SQC 1 SA 200 SA 210 SA 220 SA 230 SA 240 SA 250 SA 260 SA 265 SA 299 SA 300 SA 315 SA SA SA SA SA SA SA SA SA SA SA

320 330 402 450 500 501 505 510 520 530 540

SA SA SA SA SA SA SA SA SA SA SA

550 560 570 580 600 610 620 700 701 705 706

SA 710 SA 720

APNA MENTOR

TITLE OF SQC/ SA/ SRE~ Quality Control for Firms that Perform Audits & Review of Historical Financial Info & other Assurance & related service engagements Overall Objectives of Independent Audit& Conduct of Audit as per SA(s) Agreeing Terms of Audit Engagement Quality Control For An Audit of FS Audit Documentation Auditor's Responsibility in relation to Fraud in Audit of FS Consideration of Laws & Regulations in Audit of FS Communicating with TCWG Communicating deficiencies in Internal Control to TCWG Joint Audit of Financial Statements Planning an Audit of FS Identifying & Assessing RMM by understanding Entity & its Environment & Internal Control Materiality in Planning & Performing an Audit Auditor’s Responses to Assessed Risk Audit considerations relating to Entity using Service Organization Evaluation of Misstatements identified during Audit Audit Evidence Audit Evidence - Specific Considerations for Selected Items External Confirmations Initial Audit Engagements-Opening Balance Analytical Procedures Audit Sampling Auditing Accounting Estimate including Fair Value Accounting Estimates & Related Disclosure Related Parties Subsequent Events Going Concern Written Representations Using work of Another Auditor Using work of Internal Auditor Using work of Auditor’s Expert Forming Opinion & Reporting on FS Communicating Key Audit Matters in Independent Audit Report Modifications to opinion in Independent Auditor’s Report Emphasis of Matter Paragraphs & Other Matter Paragraphs in Independent Auditor’s Report Comparative Info - Corresponding Figures & Comparative FS Auditor’s Responsibility in relation to Other Information

SAs by CA SANIDHYA SARAF

[1]

“APNA MENTOR” 976-040-0350

AUDIT SAGA

STANDARDS ON AUDITING

APNA MENTOR

SQC 1: - Quality Control for Firms that Perform Audits & Review of Historical Financial Info & other Assurance & Related Service Engagements System of Quality Control

Leadership Responsibility Acceptance & Continuance of Client Relationship

KEY ELEMENTS OF SYSTEM OF QUANTITY CONTROL

Ethical requirement

Human Resources

-Firm to establish System of Quality Control to provide Reasonable Assurance that: * Firm & personnel comply to Professional Standards, Regulatory & Legal Requirements * Reports issued by Firm or Engagement Partners are appropriate in circumstances.

AND

Ethical considerations in Code of Conduct includes: (IPCC OP = Same for SA 200) • Integrity • Professional Competence • Confidentiality • Objectivity • Professional behavior • Independence * Firm's CEO or Managing Partner to assume ultimate responsibility for Quality Control. * Importance of Quality Oriented Work Culture emphasized by all Levels of Firm's mgt to ensure it comply to Professional & Regulatory standards & effective reporting * Firm quality consideration not overridden by commercial consideration & business strategy * Person who is assigned responsibility for Firm's quality control system by CEO or Managing partners to possess sufficient & appropriate experience & necessary authority to assume that responsibility. On acceptance of client relationship or on deciding on continuance of existing relationship, factors to consider: • Clients Integrity tested through various sources • Compliance with Ethical Requirements • Availability of Time & Resources • Competence to perform Engagement like Industry knowledge in regard to Engagement Firm should assign Responsibility for each engagement to Engagement Partner & ensure: • Identity & Role of engagement partner are communicated • Engagement partner has Competence & Authorities • Responsibilities are clearly defined & communicated to that partner. An Effective System of Quality Control in firm should consider following: •Recruitment process to select Individual of Integrity •Firm's performance evaluation, compensation & promotion procedures • Development of Capabilities, Competence by Professional Education & Training • Career development & estimation of personnel needs

Engagement Performance

System of Quality Control to provide reasonable assurance by considering following factors: • Understanding requirements of Engagement & Objective of work • Process for compliance with applicable engagement standards. • Supervising Progress of engagement. • Reviewing responsibilities of Team Members & firm personnel. • Consultation with appropriate personnel within or outside firm or experts. • Deal with difference of opinion in Engagement Team or Engagement Partner & Engagement Quality Control Reviewer (Report not be issued without resolving conflict)

Monitoring

System of Quality Control to establish policies & procedures to monitor effectiveness of engagement performance & ongoing evaluation of Quality Control System considering: • Design, effective implementation & appropriate application of quality control system. • Analysis of new developments in professional standards & legal standards. • Corrective actions & improvements in system & communication of weaknesses identified. • Inspection of completed engagements that shall include at least one engagement for each partner over Inspection cycle of not more than 3 years. (Deficiencies identified = communicated to Engagement Partner along with Remedial Action that would require changes in Quality Control Policy)

SAs by CA SANIDHYA SARAF

[2]

“APNA MENTOR” 976-040-0350

AUDIT SAGA

STANDARDS ON AUDITING

APNA MENTOR

Auditor Responsibility (Overall Objective of Independent Audit)

SA 200: - Overall Objective of Independent Audit& Conduct of Audit as per SA(s)

REQUIREMENTS OF SA 200

Professional Skepticism

Scope of Audit

* To obtain reasonable assurance that FS are free from MM resulting from either due to fraud or error enabling Auditor to express an opinion on whether FS are prepared in all material respects as per applicable FRF * To Report on FS & Communicate as required by SA's. * To Report u/s 143(2) to Members of Co. on A/c examined by him & FS to be laid in AGM. * To ensure that his opinion on FS is reflecting True & Fair view. * To State in his Report u/s 143(2) whether A/c examined by him & FS give True & Fair view * To obtain SAAE to reduce Audit Risk to Acceptable low level & consider SA 500 as per SA 200. * Remain Alert to conditions indicating possible misstatement due to Error or fraud * Critical assessment of audit evidence * Maintain it throughout Audit to identify fraud risk factors & evaluate RP transactions * Attitude requiring: Alertness towards Info provided to him by client A Questionable mind being alert * Reduces Risks of: Overlooking unusual circumstances. Over generalizing when drawing conclusions from audit observations. Using inappropriate assumptions in determining Nature, Time & Extent of Audit Procedures & evaluating results * Being alert to: Audit evidence that contradicts other audit evidence obtained. Info bringing in question reliability of docs & responses to inquiries used as evidence. Conditions indicating possible fraud or suggest need for Additional Audit Procedures Area of work for Auditor determined by following factors: * Requirements of legislation. * SA & other guidance by ICAI * Terms of engagement of Auditor Terms of engagement can’t override Scope decided by Legislation or SAs.” (i.e. mgt cannot Restrict Scope of auditor's audit function) * If Scope restricted or threat to Independence = communicate to TCWG as per SA 260.

Professional Judgment

Apply relevant Training, knowledge & experience in particular regarding decisions about: * Materiality and audit risk. * NTE of audit procedures used to meet requirements of SAs & gather audit evidence * Evaluating whether SAAE has been obtained & whether more needs to be done to achieve objectives of SAs & thereby overall objectives of Auditor. * Evaluation of mgt judgments in applying Entity’s Applicable FRF * Drawing of conclusions based on Audit evidence i.e. assessing reasonableness of Estimates made by mgt in preparing FS

Obtain SAAE Sufficient & Appropriate Audit Evidence

* Auditor to obtain SAAE as per AS 500 & Reasonable Assurance (High but not Absolute Level of Assurance) to decrease Audit Risk to Acceptable Low Level * SAAE are interrelated i.e. Sufficiency = Measure of Quantity of Audit Evidence & Appropriateness = Measure of Quality of Audit Evidence i.e. its relevance & reliability to support conclusions on which auditor’s opinion is based. * If Auditor fails to obtain SAAE = give disclaimer

Compliance with SAs

* SA 200 & Section 143(9) of Co Act 2013 states that Auditor to comply with SAs * Fail to comply & fail to depart attention to Departure = Guilty of professional misconduct

SAs by CA SANIDHYA SARAF

[3]

“APNA MENTOR” 976-040-0350

INHERENT LIMITATIONS OF AUSIT

AUDIT SAGA

STANDARDS ON AUDITING

Nature of Financial Reporting

APNA MENTOR

* Preparation of FS is responsibility of mgmt. involving Judgment & decision making by mgt. * There are range of issues involving different interpretation &judgment.

Nature of Audit Procedure

* Audit procedures used to gather audit evidence may be ineffective against fraud detection. * Audit is not an official investigation into alleged wrong doings * Possibility that Mgmt. may not provide complete Info intentionally or unintentionally. * Internal control systems may be planned & framed by mgmt. to manipulate & override it. * Frauds may involve sophisticated & carefully organized schemes. * Nature of audit procedures = Audit evidences obtained persuasive rather than conclusive

Timeliness & Cost Benefit

* Difficulty, time, or cost is not valid basis to omit Audit procedure for no alternative * Pressure to finish audit quickly, in least possible time * Because of limited audit fees there is budget & cost constraint.

Other Limitations

* Frauds, particularly involving senior management or collusion. * Non-disclosure of related parties. * Non- compliance with laws & regulation. * Info not provided by management.

SA 210: - Agreeing the Terms of Engagement (Accept or continue Audit Engagement only when basis on which Audit is to be performed = Agreed with Client)

Acceptance/ Change in Terms of Audit Engagement/ Recurring Audits

Pre-conditions for Audit

Determine whether applied Financial Reporting Framework (FRF) is = Acceptable. AND Obtain = Management Representation that it understand its responsibilities for: * Acceptable FRF is used in preparation of FS * Necessary Internal Controls implemented to ensure FS Free from Fraud or Error * Providing Auditor with Access to all Records& Info, Additional Info requested by Auditor * Unrestricted access to persons within entity to enable him to get Audit Evidence.

Initial audit Engagement

Recurring Audit

During Audit/ Before Completion of Audit (Client or Mgt Requests for Changes in Terms of Audit Engagement)

SAs by CA SANIDHYA SARAF

Limitations Imposed by Mgt = Not accept unless required by Law No Limitations Imposed by Mgt = Ascertain existence of Pre Conditions if: * Exist = Accept Audit * Not Exist = Discuss Matter with Mgt & not accept Audit in case of: Unacceptable FRF OR Mgt not agree to Responsibilities Auditor to assess below: * Whether Circumstances require Revision in Terms of Audit Engagement * Whether there is need to remind Entity of Existing terms of Audit Engagement. = And decide to send or not New Engagement Letter or other written agreement Auditor to consider whether Proposed changed terms of engagement effects Level of Assurance (If Change not conveys lower level of Assurance = Auditor not to agree unless reasonable justification from mgt) * If Terms Changed & Auditor & Mgt agree = Record new terms of engagement in Engagement letter or other suitable form of written agreement * If Reasonable Justification not given by Mgt OR Auditor unable to agree to Change & is not permitted by Mgt to continue Original Audit Engagement = Auditor shall: Withdraw Audit Engagement where possible under Applicable Law Determine whether any obligation to report circumstances to other parties, such as TCWG, Owners or Regulators

[4]

“APNA MENTOR” 976-040-0350

AUDIT SAGA

STANDARDS ON AUDITING

APNA MENTOR

Circumstances Warranting Revision in Terms of Audit Engagement

* Change in Financial Reporting Framework * Change in-Senior mgt * Significant change in Nature & Size of entity. * Significant change in Ownership * Revised/ Special Terms of Audit Engagement * Change in Reporting Requirement * Indication that Entity Misunderstood Scope & Objective of Audit * Legal or Regulatory Requirement

Instructions Auditor gives to Client before Audit

Form &Contents of Engagement Letter: - Agreed terms of Audit Engagement recorded in Audit Engagement Letter or other suitable form of Written agreement & includes: * Objective & Scope of audit of FSs * Responsibilities of Auditor & Mgt * Identification of Applicable FRF for Preparation of FS * Reference to Expected form & content of any reports to be issued by Auditor

Engagement Partner to take responsibility of

Factors considered for Incorporating Quality control in Audit Work

SA 220: - Quality Control For An Audit of FS

Direction

Supervision

REVIEW

* Leadership responsibility = Engagement Partner appointed to take responsibility of Quality Control & to Direct, Review & Supervise work of his Team * Skills & Competence = Audit Personnel to have required Skill & Competence. * Assignment = Audit assigned only to competent personnel. * Delegation = Sufficient direction, supervision & review of work at all levels. * Consultation = When necessary consultation in & outside firm with experts. * Accept & Retain Clients = Evaluate prospective client & Review existing client on ongoing basis. * Monitoring = Continued Adequacy & Operating effectiveness of Quality Control policies & procedures should be monitored. = F...