Audit report- SA 700. 705, 706

AUDIT REPORT
(Notes for CA Final, ICAI
Compiled from ICAI Study
Material)
-covering SA 700, 705,706
CA Piyali Parashari
CA, CWA, BCOM (Hons)

CA Piyali Parashari
AUDIT REPORT
What is Audit Report?
 The report is the medium of communication of the auditor's expert views on the FS and it has a
significant bearing on the credibility of such statements.
 By expressing views in the report, the auditor takes a great responsibility because a large
number of people are likely rely on the FSs.
 Auditors report is linked with the terms of his engagement.
a. In statutory audit terms are mentioned in the concerned law
b. In non statutory audit it is mentioned in the agreement
 Hence the terms of the engagement should be in writing so that possibilities of ambiguities or
different interpretations of the terms can be eliminated.
What is the Auditors objectives regarding Audit Report?
Significance of the nature of audit examination:
 The nature of the audit examination carried out also has a very great impact on the audit
opinion.
 Standards issued by the AASB constitute auditing standards which the auditor has to follow
in performing his audit.
 Also as per Section 143 of the Companies Act, 2013 the auditor in our country is required
to state certain facts like whether he has obtained all the information and explanations
considered necessary by him and whether the balance sheet and the statement of profit and
loss are in agreement with the books of account. This helps in indicating the nature of
examination carried out.
 In the audit report of partnerships and sole traders, we see reports stating that the audit has
been carried out by reference to the "books of account and the vouchers produced" This
highlights the nature of audit carried out, it will suggest proper evidence collection and
arithmetic agreement.
 The famous case of Deputy Secretary to the Govt. of India, Ministry of Finance v.
S.N. Das Gupta. In this case, apparently to disown responsibility, the auditor indicated that he
had not carried out certain procedures. This ultimately resulted in his being charged with
form an
opinion on the
FS on the
basis of audit
evidence
Express opinion
through a written
report which states
the basis of
forming opinion
Audit is
verificatory in
nature. Opinion
formed through
verification and
evaluation
Report have a fact
para and an
opinion para:
facts should be
stated as they are
and should be
separated from
opinion para
Report should
also state the
scope and the
limitations.

CA Piyali Parashari
professional misconduct and being found guilty. The statement in the report that he had not
carried out certain procedures suggested the nature of examination actually carried out by
him and that established the meaninglessness of the opinion.
Significance of obtaining information and explanation from management
(Sec 143(3) of Companies Act 2013) casts a duty on the auditor to state whether the
information and explanations considered necessary by him for the purpose of his audit has
been obtained.
MANAGEMENT
RESPONSIBILITY
AUDITORS RESPONSIBILITY
The management of the
company is expected to
have thorough
understanding of the
implications of all
material transactions and
therefore auditors have a
right to ask for
information and
explanation from the
management so that they
clearly understand the
impact of the transactions
on the accounts.
Therefore, if any vital
information is deliberately
withheld from the auditor
and he had no means to
know the existence of
such information, and in
case the accounts turn to
be wrong for that reason,
the auditor should not be
held guilty or negligent.
If, however, the auditor has means to know of the existence of such
vital information but he ignored it, he would be held guilty on
that account.
The information and explanations given to the auditor by the
management should be relied upon if the auditor is satisfied
that they are prima facie reliable, having regard to the
circumstances.
Where some basic documentary evidence is available the auditor
should insist that it is shown to him. He should not reject the
information and explanations as fabricated unless he has
noticed something suspicious about them.
The auditor should also see whether the information and
explanations made available to him have come from the
company's records or they have been specially formulated.
If they have been specially formulated the auditor should exercise
a little more care to examine them for any apparent
unreasonableness or inconsistency.
However, no information and explanations should be accepted
as reliable without subjecting that a scrutiny, based on
available evidence and common sense.
In the audit report there will be a part devoted to
recommendations. If an auditor feels that certain
improvements in the accounting control or in the records are
called for, he shall make a separate report as suggestions for
improvements.
Nature of Auditor's Opinion:
 He should prefix the expression "in my opinion" to the opinion part of the report. Then he will
be able to separate the facts and opinion.
 If the auditor is satisfied that the FS under report correctly summarise the year's transactions
and are truthfully and fairly presented he will issue an opinion that will make the FS credible.
 On the other hand, if the auditor is not satisfied about the proper presentation of facts in the
FS or is of the opinion that inappropriate classification, aggregation, etc. have been used or
important information has been withheld, he has to issue a qualified opinion.
 He may qualify the truth and fairness of the FS either on an overall basis or for some aspects
specified in the report. This will put the readers of his report on guard and the auditor will
remain protected to the extent he has qualified the report, from allegations of professional
misconduct or negligence against him.
 In the course of audit he takes care to see whether the FS are prepared and presented in
accordance with the principles of accounting and these are applied consistently;

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Clauses (5), (6), (8), and (9) of Part l, Second Schedule to the Chartered Accountants Act, 1949
have a direct bearing on the reports of the chartered accountants in India.
A chartered accountant in practice shall be deemed to be guilty of professional misconduct, if he
1. fails to disclose a material fact known to him which is not disclosed in FS but disclosure of
which is necessary to make the FS not misleading;
2. fails to report a material misstatement known to him to appear in a FS with which he is
concerned in a professional capacity;
3. fails to obtain sufficient information to warrant the expression of an opinion or his
exceptions are sufficiently material to negate the expression of an opinion, and
4. fails to invite attention to any material departure from the generally accepted procedure
of audit applicable to the circumstances.
STANDARDS OF AUDITING
GENERAL REPORTING FRAMEWORK
FAIR PRESENTATION FRAMEWORK COMPLIANCE FRAMEWORK
A. It refers to the FRF that requires
compliance with requirements of the
framework.
B. Acknowledges explicitly/implicitly that the
following may be necessary for fair
presentation of FS
a. Management may need to provide
disclosures beyond that required by
FRF.
b. Management may depart (in rare cases)
from a requirement of the framework
Refers to FRF that requires compliance with
the requirements of the framework but does
not contain the acknowledgement as in the
FRF.
SA 700 (Revised)-
Forming an opinion
and reporting on FS
SA 705 – Modifications to
the opinion in the
Independent Auditors
Report
SA 706 – Emphasis of
Matter Paragraph and
Other Matters Paragraph in
the Independent Auditors
Report

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AUDITORS RESPONSIBILITY STATEMENT (WORDINGS USED)
I) An audit involves performing procedures to obtain audit evidence about the amounts and
disclosures in the FSs.
II) The procedures selected depend on the auditor's judgment, including the assessment of the
risks of material misstatement of the FSs, whether due to fraud or error. In making those risk
assessments, the auditor considers IC relevant to the entity's preparation of the FSs in order to
design audit procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the entity's IC.
III) When the auditor also has to express an opinion on the effectiveness of IC together with the audit
of the FSs, the auditor shall omit the phrase “that the auditor's consideration of IC is not for the
purpose of expressing an opinion on the effectiveness of IC”; and
IV) An audit also includes evaluating the appropriateness of the accounting policies used and the
reasonableness of accounting estimates made by management, as well as the overall
presentation of the FSs.
BASIC ELEMENTS OF THE AUDIT REPORT
• The TITLE should clearly indicate that the report is of the Independent
Auditor
TITLE
• The report must be addressed as per the circumstances of the
engagement.ADDRESSEE
• Identify the entity whose FS have been audited
• State that the FS have been audited,
• Identify the title of each statement that comprises the financial
statements,
• Refer to the summary of significant accounting policies and other
explanatory information, and
• Specify the date or period covered by each FS.
Introductory
Paragraph
• It prescribes that the management/ TCWG is responsible for the
preparation of the FS as per the applicable FRF.
• This responsibility includes the design, implementation and
maintenance of ICs relevant for the preparation of the FS that are
free from material misstatements due to fraud and error.
• Management's responsibility shall be described as stated in the
• Where the FS are prepared in accordance with a fair presentation
framework, the the auditor's report shall refer to "the preparation
and fair presentation of these FS" or "the preparation of FS that give a
true and fair view", as appropriate in the circumstances.
Management's
responsibility
for the FS

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• The report shall state that
• it is the auditors responsibility to express an opinion on the FS based
on the audit.
• audit was conducted as per the Standards of Auditing issued by ICAI
and governing laws and regulations. That the SAs require the auditor to
comply with ethical requirements and that the auditor has planned and
performed the audit to obtain reasonable assurance about whether the
FS are free from material misstatements.
• Also state whether he believes that SAAE has been obtained for forming
an opinion.
Auditors
responsibility
•The auditor should use the following phrases in the Audit Report
•In case of Unmodified Opinion on FS prepared as per Fair Presentation
Framework:
•(a) The FSs present fairly, in all material respects, in accordance with the
applicable FRF or
•(b) The FSs give a true and fair view in accordance with the applicable FRF
•In case of Unmodified Opinion that FS are prepared as per Compliance
Framework:
•(a) The FSs give a true and fair view in accordance with the applicable FRF
Auditors
Opinion
•The other reporting responsibilities in the auditor's report on the FSs, shall
be addressed in a separate section in the auditor's report that shall be sub-
titled "Report on Other Legal and Regulatory Requirements," or
otherwise as appropriate to the content of the section
•If the auditor's report contains a separate section on other reporting
responsibilities, the headings, statements and explanations shall be under
the sub-title "Report on the Financial statements." The "Report on Other
Legal and Regulatory Requirements" shall follow the "Report on the
FSs".
Other
Reporting
Responsibilties
•It should be signed by the auditor in his personal name.
•If firm is appointed as auditor- report signed in personal name and
name of firm.
•The firm registration number and membership number of ICAI
should be mentioned.
Signature of the
Auditor
•It is the date on which the auditor signs the report expressing an
opinion on the FS
•The date of report informs the user that the auditor has considered the
effect on the FSs and effect on the report, of the events and transactions
of which the auditor became aware and that occurred up to that date.
•The date should not be prior to the date of auditor obtaining SAAE
including evidence that
• All statements comprising the FS including notes have been prepared.
•Those with authority have asserted that they have taken responsibility
for the FS.
Date of the
Auditor's Report
•The report shall name specific location which is ordinarily the city where
audit report is signed.
Place of signature

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EVALUATIONS TO CONCLUDE ON REASONABLE ASSURANCE
SUPPLEMENTARY INFORMATION PRESENTED WITH THE FS
SI that is not required by the applicable FRF but is an integral part of the FS because it cannot be
clearly differentiated from the audited FS due to its nature and how it is presented shall be covered
by the auditor’s opinion.
Modified Opinions:
SA 705 is applicable when the auditor concludes that a modification to the auditor's opinion on the FS
is necessary.
Types of modified opinion as per SA 705.
1. Qualified opinion
2. Adverse Opinion
Supplementary
Information (SI)
Auditor to evaluate whether SI is
differentiated from audited FS.
Not required as per FS
but presented in FS If not
differentiated
Auditor shall request
management to differentiate it.
If
management
refuses
Auditor shall state in Audit Report
that such information is not
audited.
If FS adequately
disclose significant
accounting policies
Accounting policies
are consistent &
appropriate as per
FRF
Accounting
estimates
are
reasonable
Information in
FS is relevant,
reliable,
comparable,
understandable
Disclosures are adequate to
enable users to understand effect
of material transactions/ events
on info in FS.
Terminology used in FS
is appropriate.
FS adequately describe/
refer the applicable FRF
FS prepared in all material
respects as per FRF Qualitative aspects of
accounting practices and
possible bias in
management judgement
considered.
Materiality of uncorrected
misstatements individually
or in aggregate (SA 450)
considered
SAAE has been obtained
(SA 330)Conclusion
on
reasonable
assurance
AUDIT OPINION

CA Piyali Parashari
3. Disclaimer of Opinion
When modification is required?
1. When auditor concludes that based on AE obtained FS as a whole are not free from material
misstatements
2. Auditor is not able to obtain that SAAE to conclude that FS as a whole are free from material
misstatements.
How to determine which Modified Opinions to be given?
Qualified Opinion to be issued when: misstatements are MATERIAL BUT NOT PERVASIVE
1.
2.
Qualified opinion should be expressed as “ except for” for matters requiring qualification.
Adverse Opinion to be issued when: misstatements are BOTH MATERIAL AND PERVASIVE
Disclaimer of Opinion to be issued when
I. misstatements are MATERIAL AND PERVASIVE & SAAE NOT OBTAINED
a.
Auditor has SAAE
Concludes that misstatements as a individually or in
aggregate are material but not pervasive to the FS
Auditor not able to
obtain SAAE on which to
base his opinion.
Concludes that possible effects of undetected
misstatements on the FS could be material but not
pervasive.
Auditor has SAAE Concludes that misstatements as a individually or in
aggregate are material AND pervasive to the FS
Auditor not able to
obtain SAAE on which to
base his opinion.
Concludes that possible effects of undetected
misstatements on the FS could be BOTH material &
pervasive.

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II. RARE CIRCUMSTANCES WHERE THERE ARE MULTIPLE UNCERTAINTIES
a.
MANAGEMENT IMPOSED LIMITATION AFTER ACCEPTANCE OF AUDIT
When auditor issues Adverse Opinion or Disclaimer of Opinion on FS as a whole, his report shall NOT
HAVE any Unmodified Opinion on either of the following
i) On a single FS
ii) One or more specific elements, items or accounts of the FS
This unmodified opinion will contradict the auditor adverse opinion or disclaimer of opinion on the
FS as whole.
FORM AND CONTENT OF AUDITORS REPORT WHEN OPINION IS MODIFIED
BASIS OF MODIFICATION PARAGRAPH
To be PLACED BEFORE OPINION PARAGRAPH & DESCRIBE THE MATTER THAT GAVE RISE TO
MODIFICATION
A. Material misstatement is of specific amounts in the FS this para should provide
• a description and quantification of the financial effect of the misstatements.
• if quantification is not possible then he shall state so in the para
B. For misstatement relating to narrative disclosures, para should provide explanation of how
disclosures are misstated.
C. If misstatement relates to non disclosure of information, auditor shall discuss with
i. TCWG
ii. Describe in Basis of Modification para the nature of the omitted information
iii. Include the omitted disclosures if
a. allowed by law
b. he has obtained SAAE about the information.
Auditor has SAAE on all
possible uncertainties
Concludes that it is NOT POSSIBLE to form an opinion on
the FS due to potential interaction of the uncertainties and
possible cumulative effect on the FS.
Auditor accepts
the audit
After acceptance by
auditor, management
puts limitation on
scope of the audit
Auditor concludes that
qualified / disclaimer of
opinion on FS will be required.
Request the
management
to remove
limitation.
If the management refuses
auditor to communicate matter
to TCWG
Auditor has to determine if it is
possible to perform alternate
procedures to obtain SAAE.
If Auditor is not able to
obtain SAAE he has to
determine the
implications.
If he concludes that the effect of
undetected misstatements on
the FS is material but not
pervasive he should qualify his
opinion
If he concludes that the effect of
undetected misstatements on the FS
is material AND pervasive and
qualification of his opinion will not
communicate the gravity of
situation he shall
i)Resign (if not prohibited by law)
OR ii) Disclaim his opinion if
resignation is not possible.

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D. If modification is due to inability to obtain SAAE give reasons for that inability
E. Even when auditor has given an Adverse Opinion or Disclaimer the Basis of Opinion para
should provide reasons for the Modification.
OPINION PARAGRAPH
When auditor modifies audit opinion he shall use headings “Qualified Opinion”, “Adverse Opinion” or
“Disclaimer of Opinion” as appropriate. Also communicate with TCWG in all cases.
Qualified Opinion Adverse Disclaimer of Opinion
 Basis of qualification
 State the
i) Qualified opinion
ii) Impact on “true and
fair view” comment
 Basis of adverse opinion
 Adverse Opinion; Negative
comment on “true and fair
view”
 Basis for disclaimer
 Factual statement of “no
opinion” is given
 Statement:
In the auditors opinion ,
except for matters stated
in the Basis for Qualified
Opinion para,
i) the FS present fairly
(or give a true & fair
view) in all material
respects in accordance
with the applicable FRF –
when reporting as per
Fair Presentation
Framework
ii) the FS have been
prepared in all material
respects as per applicable
FRF- when reporting as
per compliance
framework.
 Statement:
because of the significance
of the matters stated in the
Basis for Adverse Opinion
para,
i) the FS do not present
fairly (or give a true & fair
view) in all material
respects in accordance with
the applicable FRF – when
reporting as per Fair
Presentation
ii) the FS have not been
prepared in all material
respects as per applicable
FRF- when reporting as per
compliance framework.
 Statement:
because of the
significance of the
matters stated in the
Basis for Disclaimer of
Opinion para,
i) The auditor has
not been able to
obtain SAAE to
provide a basis for
forming an
opinion. AND
ii) The auditor does
not express an
opinion on the FS.
AMENDMENT OF AUDITOR’S RESPONSIBILITY STATEMENT WHEN AUDITOR MODIFIES
REPORT: The auditor shall amend the description of auditors responsibility statement to state that
QUALIFIED OPINION ADVERSE OPINION DISCLAIMER OF OPINION
-the auditor believes that the
AE the auditor has obtained is
SAAE to provide a basis for
the modified opinion.
the auditor believes that the AE
the auditor has obtained is SAAE
to provide a basis for the
modified opinion.
“Because of the matters
described in the Basis for
Disclaimer of Opinion para we
were not able to obtain
sufficient appropriate audit
evidence to provide a basis for
an audit opinion.”

CA Piyali Parashari
EMPHASIS OF MATTER PARA (SA 706)
It deals with additional communication which auditor considers necessary for drawing attention of
users to a matter presented in the FS that is necessary for users to understand the FS.
Condition for using EoM: Auditor has obtained SAAE that matter is not materially misstated in the
FS. EoM only highlights/gives further information of matters presented in the FS. It does not affect
the auditors opinion.
When EoM is to be given:
a. If matter is adequately disclosed in FS for points under YES, then EoM given.
b. If matter not adequately disclosed in FS for points under YES, then Modified Opinion
c. If extreme situations involving multiple uncertainties that are significant to FS then
Disclaim opinion
d. For matters under NO, give Modified report or Disclaimer
YES NO .
Inclusion of EoM does not affect the OPINION given.
EoM is not a substitute for either
i) Auditor expressing a qualified/ adverse / disclaimer of opinion
ii) Disclosures in FS as per applicable FRF
Procedure for including EoM in audit report
i) Immediately after opinion para in audit report
ii) Use the head “Emphasis of Matter” paragraph
iii) Include clear reference to matter being emphasized and where they are disclosed in the
FS.
iv) Indicate that Audit Opinion is not modified due to matter stated in EoM.
EoM Other Matter
1. Matters presented or disclosed in FS or
notes also
Matters not presented or disclosed in notes.
2. Matters of fundamental importance or
matter is unusual.
Matters relevant to users for understanding the
audit.
When should Other Matter paragraph be used?
i) PY audit was conducted by another CA firm.
ii) Auditor is not able to resign from assignment even though scope limitation is pervasive
iii) Reporting on more than 1 set of FS
iv) Restriction on distribution and use of auditor’s report.
Going concern Material Misstatement in
opening balances not
disclosed
Scope
Limitation
Non provision for
contravening with
applicable laws
Significant
uncertainty: future
outcome of litigation
Non compliance
with Accounting
Standards
Insufficient
appropriate audit
evidence for opening
balances
Early adoption of
new AS with
pervasive effect to
FS

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Unqualified Report
It is to be ISSUED IN THE FOLLOWING CIRCUMSTANCES.
Modified Report:
a. Issued when there is Scope Limitation
b. Issued when there are material disagreements with the Management.
SIGNATURE ON AUDIT REPORT
A CA in practice signs the report in the name he
is registered as a practitioner.
For a firm: The partner should sign his own
name in his own hand for and on behalf of the
firm appointed to audit the records.
Clause 12 of Part I of First Schedule of
Chartered Accountants Act 1949 provides that
a CA in practice shall be guilty of professional
misconduct if he allows a person
a. Not being a member of the Institute or
b. A member not being his partner
To sign on his behalf or on behalf of his firm any
FS. This ensures that the line of professional
responsibility is clear.
Auditors report is considered Modified when it includes
Matters that do not affect
audit opinion
Emphasis of
matter
Matters that affect
Audit Opinion
Qualified
opinion
Adverse
opinion
Disclaimer of
opinion
Changes in accounting principles/methods of
their application and effects of changes have been
properly disclosed
Auditor concludes that FS give a true
and fair view as per applicable FRF
FS have been prepared as per GAAP (Generally
Accepted Accounting Principles) and have been
consistently applied.
FS comply with related statutory regulations
All relevant matters relevant for proper
presentation of FS have been disclosed.
If firm appointed for audit:
The partner of the firm who is
a CA may sign (sec 145 &
141(2) of Companies Act 2013
Individual:
His name/ name of firm of
which he is sole proprietor

CA Piyali Parashari
AUDIT REPORT UNDER COMPANIES ACT 2013
SEC 143: Auditors have to report to the members as per this section. Audit report should be
classified into 2 categories.
i. Statement of Facts
ii. Opinion
Sec 143(3): The auditor has to state the following in his report
The OPINIONS which the auditor is required to express are.
(i) Whether proper books of account as required by law have been kept by the company so far as it
appears from the examination of the books and proper returns adequate for the purposes or the
audit have been received from branches not visited by him;
(ii) Whether the accounts give the information required by the Act in the manner so required,’
(iii) Whether in his opinion, the statement of profit and loss and balance sheet complied with the
accounting standards referred to in Section 133,’
(iv) Whether the FS gve a true and fair view of the state of the company's affairs as at the end of its
financial year and profit or loss and cash flow for the year.
Whether he has sought and
obtained all the information
and explanations which in his
opinion is necessary for the
audit and if not details thereof
& the effect of such info on FS
If in his opinion
a. proper books as per law have
been kept as appears from his
examination on those books
b. proper returns have been
received from branches not
visited by him
Whether the report on the A/cs
of any branch office audited
under sub-section (8) by a
person other than the
company's auditor has been
sent to him & how he has dealt
with it in preparing his report;
Whether the company's BS &
P&L dealt with in the report are
in agreement with the books of
account and returns;
the observations or comments of the
auditors on financial transactions or
matters which have any adverse effect on
the functioning of the company;
whether, in his
opinion, the FS
comply with the AS;
Whether any director is
disqualified from being
appointed as a director as
per sec 164(2)
Any qualification or
adverse remark
regarding
maintenance of
accounts
Whether company has adequate
Internal Financial Controls &
their effectiveness
Other matters (as per Rule 11 of Companies (audit and
auditors) Rules 2014
a. whether CO has disclosed impact of pending litigations
on its financial position in the FS
b. whether CO has made provision for material
forseeable loss under long term contracts and derivative
contracts as per AS/Law
c. Whether there has been delay in transferring funds to
the Investor Education and Protection Fund.

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Statement of Facts
They are complimentary to the opinion
If facts are adverse favourable opinion cannot be given
Only very important and basic facts about the accounts are to be stated.
The Statement of facts indicates the credibility of the accounts.
REPORT UNDER SECTION 143(1) OF COMPANIES ACT 2013
1. Auditor has to make certain enquiries (& not investigation of matters specified here) during
the course of his audit.
2. He does not have to report on matters specified in this section unless he has special
comments to make on items specified here.
3. If he is satisfied with the result of the enquiries he does not have to report that he is satisfied.
Inquiries Explanation
a) Loans
& Advances
given:
Whether
loans and
advances
made by the
company on
the basis of
security have
been
properly
secured &
whether the
terms are
prejudicial to
the interests
of the
company or
its members
b)Transactio
ns:
Whether
transactions
of the
company
represented
merely by
book entries
are prejudicial
to interests of
company
All loans and advances as per Part I of Schedule III of the Act (which are not ‘deposits’)
should be considered here.
Such loans and advances should be made on the basis of security (movable/immovable,
belonging to borrower /not, of which physical possession is given/ only charge is given to
lender)
•The charge should be registered as per Sec 77
Terms imply the security, interest and repayment schedule.
•Other considerations: credit standing of borrower, market rate of interest, type of
security, purpose of loan
Loans to entities in which directors/ their associates are interested: to be checked for
prejudicial terms
Members: refers to the class of members (viewpoint of reasonable return & safety of
capital)
•Loan approved by members and/or Government: it is prima facie evidence that loan
is not prejudicial.
Book entries should correctly record transactions that have taken place.
•if not they should be corrected/ reported by auditor
•No entries should be made of transactions not taken place
Auditor should inquire about transactions only recorded as book entries for which there
is no other evidence
•Auditor should inquire if transactions actually taken place & whether they are
prejidicial to interest of company.

CA Piyali Parashari
c)Investments:
Whether the Co not
being an
Investment/Banking Co
has sold assets consisting
of shares, debenture and
other securities at a
price less than purchase
price
d) Deposits:
Whether Loans and Advances
made by the Co have been
shown as Deposits.
e) Personal Expenses
Whether personal expenses
have been charged to
revenue.
f) Allotment of Shares
Where any shares have been allotted for cash, if cash has been received for such allotment and if no cash
has been received whether position as stated in the books/BS is correct, regular and not misleading.
AUDIT REPORT VS AUDIT CERTIFICATE
AUDIT REPORT AUDIT CERTIFICATE
It is used where expression of opinion is involved. Certificate is used when the auditor comments on
or verifies facts such as verification of investment
by inspection
Reasonable Assurance Absolute Assurance
Eg: Audit Report u/s 143 of Companies Act 2013 is
an opinion based report.
Eg: Certificate is required from an auditor when a
company proposes reduction of capital. (Sec 66
of Companies Act 2013)
Payment of Bonus Act 1965- CA is required to issue
report on computation of bonus.
Regulation 54 of SEBI (Mutual Funds) Regulations
1993- Auditors Report
All MFs are required to get their a/cs audited by a
CA. The auditor shall report to the Board of Trustees
and not to unit holders.
Certificate from a CA towards Application for
grant of Export/Trading Star Trading House
Certificate vide Appendix 19 of the Handbook of
Procedures (Export and Import Policy) 1997-
2002.
Auditor has to inquire whether shares, debentures & other securities have
been sold at a price less than cost.
•If sale is bonafide, price realised is reasonable as per circumstances he has
no further duty to report
Deposit means placing money or moneys's worth with a third party for
safe keeping or for earning interest or as security for performance of
depositor's obligation
•Enquiry to be made whether Loans & Advances have been shown under
deposits & not vice versa
Certain personal expenses of employees met by Co is recognised by IT Act
& Company Law Board. Charging of such personal expenses to revenue as
per Co's contract or generally accepted practice is Normal and is not to be
reported.
•Eg rent free quarters, conveyance for personal use, medical expenses,
maternity benefits, canteen facilities, leave expenses
•Where personal expenses not covered by contract/ generally accepted
principles are charged to revenue , auditor is bound to disclose.

CA Piyali Parashari
AUDIT REPORTS AND CERTIFICATES FOR SPECIAL PURPOSES
(Covered by Guidance Note, SA 800,805,810)
CIRCUMSTANCES WHEN SUCH AUDIT REPORT IS REQUIRED
1. Under various laws/government authorities may require reports, certificates from auditor in
support of statements/information prepared by an enterprise.
2. An enterprise may require certificates on specific matters from auditors for its own special
purposes.
3. For an audit report or certificate for special purposes the format of general purpose audit report
is not applicable.
Scope of Special Purpose Audit Reports and Certificates:
Audit reports or certificates for special purposes may be issued in connection with:
(a) financial statements which are prepared in addition to general purpose FS.
(b) specified elements, accounts or items of financial statements:
(c) compliance with requirements of any agreement or statute or regulation;
(d) financial information given in special purpose formats or schedules: or
(e) compilation of statistics or ascertainment of basic figures e.g., for the purposes of fixed quotas or
levies.
Responsibility for Preparation of Special Purpose Statements
The primary responsibility for the contents of special purpose statement rests with the enterprise and
this should be mentioned on the face of the statement by a suitable declaration or authentication by
the management.
Scope of Reporting Auditor's Function
(a) A reporting auditor should have a clear understanding of the scope and nature of the terms of his
assignment.
(b) He should obtain the terms in writing to avoid any misunderstanding.
(c) A reporting auditor is not an expert on purely technical matters and as such, when he is required
to report on or certify such matters (e.g., composition or quality of a product) which constitute
the very basis of the figures contained in the statement, he should state his limitations clearly in
the report or certificate.
(d) At the same time he should indicate the extent to which he has been able to exercise his own
professional skill and judgment. Eg he may state that he has relied on the certificate of technical
experts but he should satisfy himself about the technical qualifications of the expert and also
review the certificate of the expert.
Content of Reports and Certificates for Special Purposes
Depends on
1. Auditors choice
2. Specified by statute
Consider the following while drafting report/certificate.
(a) Where specific elements, accounts or items covered by the report/certificate it should be identified
(b) The manner in which the audit was conducted e.g.. by the application of generally accepted
auditing practices, or any other specific tests.
(c) If there was any limitations in scope it should be mentioned.
(d) Assumptions on which the statement is based should be clearly indicated, if they are fundamental to
the interpretation of the statement.
(e) Reference should be given to the information and explanations obtained (general reference to
information obtained and also specific information obtained)

CA Piyali Parashari
(f) The title should clearly indicate its nature, i.e., whether it is a report or a certificate. Hence the
language should be unambiguous, i.e., it should state clearly whether the reporting auditor is
expressing an opinion (as in the case of a report) or whether he is only confirming the accuracy of
certain facts (as in the case of a certificate). The choice of proper words and phrases is important.
(g) If the special purposes statement is based on general purpose FS the report or certificate should
contain a reference to such statements. It should be state whether the statutory audit of the
general purpose FS has been completed and also whether such audit has been conducted by the
reporting auditor or by another auditor. In case the general purposes FS have been audited by
another auditor, the reporting auditor should specify the extent to which he has relied on them. He
may communicate with the statutory auditor for taking his co-operation also to discuss relevant
matters with him.
(h) Where a report requires the interpretation of statute the reporting auditor should state that he is
merely expressing his opinion in the matter. When matters which are capable of more than one
interpretation, his report is should not be wrongly interpreted as representing a settled legal
position.
(i) The report/certificate should be a self-contained document. It should not merely refer to another
report or certificate issued by the reporting auditor but should include all relevant information
contained in such other report or certificate.
(j) The reporting auditor should clearly state the extent of responsibility which he assumes. When the
statement on which he has to report/ issue certificate includes some information which has not
been audited by him, he should clearly indicate such information.
Common issues encountered under reports covered under special considerations.
1. Analysis of the requirement
2. Applicability of the Standards and Guidance Note on Audit Reports and Certificates for Special
Purposes
3. Form of the Report
4. Modifications by way of:
•Emphasis of Matter
• Other Matter
 Qualifications
Reports covered under SA 800, SA 805 and SA 810
Audit of FS prepared in
accordance with special
purpose framework
SA 800 SA 805
Covers audit of single
FS or a special element,
account or item of FS.
SA 810
Audit of summary FS

CA Piyali Parashari
Applicability: Some Examples
1. Amalgamated accounts for tax purposes
2. Determining the financial position before a Scheme of Arrangement/ Acquisition
3. Reports on single FS
How much reliance is to be placed on general purpose audit for special purpose audit?
Reports/Certificates on specified items of accounts of FS- Considerations
1. Test of materiality that the reporting auditor will use for special purpose audit may be different
from the test he would use in a general purpose audit
2. Examination of records in a special purpose audit will be more intensive than examination of
records by statutory auditor in a general purpose audit.
3. Communication of report/certificate in special purpose audit maybe to the client/government
authority/ person requiring it.
4. Communication with previous reporting auditor is required when the work was previously
done by a different member.
Special purpose framework- An
FRF designed to meet the
financial informationneeds of
specific users.
A single FS (eg Cash
Flow Statement) or
specific element of an FS
(eg. Cash and bank
balances). It includes
related notes. The
related notes comprise
the significant
accounting policies and
other explanatory
information relevant to
the FS/ specific element.
Summary FS derived
from audited FS.
Special purpose audit is taken
after statutory audit is
completed.
Reporting auditor should
review the statutory auditor
report to find out if there are
matters which have a bearing
on his report.
When a reporting auditor is required to
report /certify certain specific matter
arising from the FS taken as a whole
Report should be issued only after
statutory audit is completed.
Eg; computation of gross profit
under Payment of Bonus Act 1965

CA Piyali Parashari
REPORTING REQUIREMENTS IN CASE OF COMPARATIVE INFORMATION
(SA 710 REVISED) Comparative information-Corresponding Figures and Comparative Financial Statements
There are 2 different approaches to auditor’s responsibility regarding comparative information in
audit of FS.
Audit Procedures for comparative Information:
AUDIT REPORTING
Corresponding
figures
Comparative
FS
Here the auditor’s
opinion on the FS
refers to the current
period only
Here the auditor’s
opinion refers to each
period for which FS are
presented
The essential
audit
reporting
differences
are
Perform specific audit
procedures to
determine that the
comparative info is
properly classified
Steps:
 Ensure that comparative information agrees with the amount
and other disclosure presented in the prior period.
• The accounting policies are applied consistently in both periods
and in case of change they are properly disclosed.
Evaluating the impact on
FS if he becomes aware of
a possible misstatement
in the comparative
information
Steps:
 Perform necessary audit procedures to obtain SAAE
 If auditor had audited the prior period FS he should follow
SA560
Written
Representation
Steps:
 As per SA580 obtain Written Representation regarding any
prior period item that is disclosed in current year’s FS.
With reference
to
corresponding
figures
Auditors opinion should not refer to corresponding figs EXCEPT when
 Previous period audit report had a modified opinion or disclaimer.
 If in auditor’s opinion he has sufficient SAAE that a material
misstatement exists in prior period report which was not addressed
earlier.
 If prior period FS are not audited he should obtain SAAE that
opening balances do not have material misstatement

CA Piyali Parashari
With reference
to comparative
FS
Auditors opinion should refer to each period for which FS is presented
• Previous year audit report issued by same auditor:
When reporting on current period’s audit, if the auditor's opinion on the
prior period FS is different from the opinion previously issued on that FS
the auditor shall disclose the reason for the different opinion in “other
matter paragraph” in his report.
• Previous year audit report issued by different auditor: If the auditor
concludes that there is a material misstatement in the previously audited
figures of FS, he should report it to the appropriate level of management
and request that the predecessor auditor be informed. If then the prior
years statements are amended with new report by the predecessor auditor,
then the auditor shall report only on the current period.
Reporting
treatment
common to both
(CI & CF)
(i) When FS of prior period were audited by a predecessor auditor, the
auditor (is permitted by law or regulation to refer to the predecessor audit report
for corresponding figures) shall state in his audit report:
• That the FS of the prior period were audited by a predecessor auditor;
• The type of the opinion expressed by the predecessor auditor;
• The date of that audit report
(ii) If the prior period FS were not audited than he shall report the same in “other
matter paragraph” in his audit report that the corresponding/ comparative
figures are unaudited.
The disclosure does not relieve him from his responsibility of obtaining SAAE
that the opening balances do not contain misstatements that materially affect the
current period's FS

CA Piyali Parashari
DECISION TREE-COMPARATIVE INFORMATION & CORRESPONDING FIGURES
Courtsey: ICAI Study Materials on Auditing FOR CA FINAL
Compiled by: CA Piyali Parashari
CA, CWA, BCOM (Hons)
98’88 piyali.sinha1@gmail.com

Audit report- SA 700. 705, 706

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Audit report- SA 700. 705, 706