2. SA 200 Overall Objectives of an Independent
Auditor and the conduct of Audit in accordance
with Standards on Auditing
What is Auditing?
Auditing is an independent examination of Financial
Statements with an objective to give opinion on such
Financial Statements.
3. Financial Statements comprises of
Balance sheet
Statement of Profit and loss
Cash Flow statement
Notes to Accounts
Receipts and payments in case of Government entities
4. Professional skepticism
It is an attitude of an Auditor
Not accepting Critical Analysis Critical Reasoning
evidence as it is
given by the client
5. Ethical requirements while conducting Audit ,to
be followed by an Auditor.
Independence (not influenced by any person)
Integrity (straight forward, honest)
Confidentiality
Professional behavior
Audit Planning
6. Objectivity
a) To give opinion on financial statement
b) Financial Statement are prepared as per financial
reporting Frame Work(format of Balance Sheet and
P&L)
c) Whether the Financial Statement are free from any
mis-statement arising due to fraud and Errors?
Audit Evidence
Audit Documentation
7. Inherent Limitations of an Audit
Audit is Judgmental
(Due to Random/Test checking, lack of time, Huge Volume, Not
a 100% verification)
Complex Internal control
Fraud
Audit is based on Test Check
8. Audit Evidence is persuasive in nature rather than
conclusive in nature
Persuasive ConclusiveVs
Not possible
Auditor gather evidence
as test basis(this sample
may or may not be
representative)
Error is humane(both
client and auditor)
Documents could be
forged(now a days with
latest technology)
Client personnel may not
always tell the truth
9. Audit Risk
Risk of giving wrong opinion on the Financial
Statement is known as Audit Risk
10. Inherent Risk
Control Risk
Internal control is unable to detect any
mis- statement
Ie. Internal controls are not functioning properly in
the Organization
Detection Risk
The Auditor is unable to detect any material mis-
statement(Auditor can’t verify each and every
transaction)
11. SA 210 Agreeing the Terms of Audit
Engagement
This SA relates to Audit Engagement letter
Auditor will send the engagement letter to the Client
and the client has to confirm the Terms of Engagement.
12. Engagement Letter contains the following
Introductory line
1.Auditors Responsibility
2.Managements Responsibility(Maintain Books of Accountants,
prepare Financial Statement etc )
Scope (using sampling technique, evaluates internal control, using
professional skepticism, Audit is based on Companies Act or as per IT
Act(in case of proprietor firm/partnership firm))
Fees
13. Peer review (it is board of ICAI to verify the audit
working papers of an auditor(here the auditor
informs the client that our working papers are
subject to peer review) )
Acknowledgment (above said terms are acceptable
then sign and return to us)
Whether Engagement letter is send in case of
recurring or repetitive Audit.
Yes, in case of
1. Change in the Management , Board of Directors
2. Change in Law and Regulation
14. SA 220 Quality Control for an Audit of
Financial Statements
This SA deals with
specific
responsibilities of the
auditor regarding
quality control
procedure for an audit
of financial statement.
15. Objective
The objective of the auditor is to implement quality
control procedure at the engagement level that provide
the auditor with reasonable assurance that,
1. The audit complies with professional standard,
regulatory and legal requirement, and
2. The auditor’s report issued is appropriate in the
circumstances
16. The requirement of this SA are as follows
Human Resource
Right person for right job
Proper staff policies
Engagement Performance
Compliance of audit principle
Proper training in audit and accounting
Acceptance & Continuance of Clients
whether client is doing illegal business
whether client is putting pressure to complete
the work
17. Leadership Responsibility
1. Whether requirement are properly communicated
2. Whether proper review policy has been established
3. Whether quality policies have been formed &
communicated
Monitoring
1. The work of the audit assistant should be monitored
or reviewed on a regular basis
2. The review should be conducted by senior staff
18. Ethical Requirement
The audit assistant should comply, with
1. Independence
2. Integrity
3. Confidentiality
4. Objectivity
5. Professional behavior
19. SA 230 Audit Documentation
It refers to working
papers prepared and
maintained by the
auditor to show that
the work is done
without negligence.
20. Purpose of working papers
a. To plan the audit based on previous year Working
Papers
b. To guide the Audit engagement team
c. To form conclusion on Financial Statements
d. To show that auditor is not negligent of his duties
21. Working paper should be prepared and completed
before the Audit report is issued ,and maintained for a
minimum period of 7 Years.
22. Assembly of Working Paper can be done even after the
audit is completed. Ie; within 60 days
Working Paper should be prepared in a manner even
an in-experienced auditor understand the contents
23. Form of Working Paper either in electronic form or
physical form
Ownership of Working Paper is with auditor and he
can make available the Working Paper at his own
discretion
Types of Working Paper files
Permanent audit file Current audit file
(MOA ,AOA, Partnership (It comprises of the WP
deed, significant a/c policies) relevant to current year
of Audit(minutes of meeting,
CY observations,
engagement letter))
24. SA 240 The Auditors responsibilities
relating to Fraud in an Audit of Financial
Statements
Auditor detects mis-statement due to fraud or error.
Inform the Management
Agrees & Rectifies Disagrees or Do not Rectify
Fraud is disclosed Error is rectified Inform to TCWG
in Report
Agrees & Rectifies Disagrees or Do not Rectify
Fraud is disclosed in Report Error is rectified Qualify the report Resign
25. If fraud is done by management then inform TCWG
If fraud is done by TCWG then auditor can qualify the
report or resign
Prime responsibility to detect fraud is vested with
Management
26. It refers to
conditions,situations,
opportunity,Incentive
and pressure to
commit fraud
Types of fraud
Fraudulent Financial Reporting Mis-appropriation of Asset
passing fictitious entries ,Over or
under valuation of assets ,Fake
journal entries
Stealing of Inventory ,Using the
Asset for personal use
Fraud risk factor
28. Non compliance:-Acts of omission or commission
which is not as per prevailing law and regulations
Eg: Non payment of Service Tax, non filing of TDS return ,
Failure to pay sales tax, Labour Law.
Management is responsible for compliance of Law &
Regulation. The auditor should apply procedures to
find out the compliance of law is done on regular basis
29. Following are the indicators which may show that
there is non compliance of Law and Regulation
Unusual payment towards legal fees
Being payment for fines and penalties
Enquiry with Management and TCWG
Adverse media comments
Litigation & claims as per legal council
30. Following are the Management responsibility
Monitoring legal requirement
Monitoring of compliance of Conduct
Better internal control
Engaging legal advisors
31. Auditor detects non compliance of Law
Inform the Management
Management Agrees Management disagrees
No issue Inform TCWG
Agrees Disagree
No issue Qualify the report
32. SA 260 Communication with
TCWG
It oversea the functions of Management
It takes strategic decision about the organization
The management complies the requirement of TCWG
Management is required to provide information and
explanation to the auditors .If Management doesn’t co-
operate then the auditor should escalate the matter to
TCWG.
33. Under following circumstances matters are escalated
to TCWG
1. Difficult encountered while conducting Audit
2. Expected modification to audit report
3. Accounting policy undergoing significant changes
4. Independence is less
5. Disagree with Management
Modes of communication to TCWG
Orally Writing
34. The following factors are also considered for modes of
communication,
Size , operating structure and controlling environment
of the organization
Legal requirements
Expectation of TCWG
Changes in TCWG or Governing body
35. SA 265 Communication of
Deficiencies in Internal Control to
TCWG
Internal Control is the plans, policies or procedures of
organization to ensure that business is conducted in an
efficient and effective manner.
36. Deficiency in Internal Control
When Internal Control When Internal Control
are unable to prevent, are missing to prevent,
detect any mis statement detect any mis statement
37. The following factors are considered for the purpose of
communication
1. Disclosure of material mis-statement due to fraud or
error where the Management also involved
2. Evidence of ineffective response by Management
3. Management failure to implement remedial action
4. Identification of fraud where Management is also
involved
5. Evidence of ineffective Risk assessment procedure
38. SA 299 Responsibility of Joint Auditors
When more than one Chartered Accountant
are appointed to conduct the audit of entity,
they are known as joint auditors
39. Why Joint Auditors are appointed?
High volume of High complexity of
transaction transaction
How work is divided among joint auditors?
Based on Based on Nature Based on
time of work location
40. Important points relating to SA 299
Joint auditor should co-ordinate with each other share the
information.
Where the areas are specifically divided the joint auditors
will be specifically responsible for the respective area.
Where the work is not divided ,the joint auditors will be
jointly and severally responsible for those undivided area.
If something goes wrong on a particular area which is
being divided then only the respective auditor will be
responsible.
Joint auditor can issue one report but where they have
difference of opinion in such case separate report can also
be issue.
