Ca Final Auditing Revision Charts

CA FINAL – AUDIT
AUDIT (www.APNAMENTOR.com
www.APNAMENTOR.com))
www.APNAMENTOR.com May 19 (Old Course)
“SUMMARY CHARTS”
CA FINAL ““AUDIT
AUDIT”
AUDIT”
63.75% REGULAR &
FAST TRACK
Results BATCHES
“NOV 18” Test Series
69 in
Law
76 in
Audit
AUDIT SAGA by
by
CA SANIDHYA
40 & 42
SARAF
Rank
www. APNAMENTOR.com
(Old Course - MAY 19
19))
For Revisionary Voice Clips & Pendrive Classes: - Contact Author at 7838061193
__”ONE STOP SOLUTION” FOR CA FINAL AUDIT
AUDIT REVISION”__
CA FINAL – AUDIT
APNA MENTOR
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CA FINAL – AUDIT
“A
“A WORD FROM AUTHOR
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 ffor or 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 sanidhyasaraf@gmail.com
I would like to extend a warm heartedly thanks to my parents for their continuous love ttoo me in
my every step of life.
Special Thanks to Mr. AMIT GUPTA (9650557427) for Valuable Contribution to design &
format gr
graphics
aphics of 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 Autho
Author:
r: -
* Question Bank * PENDRIVE Class
* Main Book * Free Voice Revision Clippings
* 4 - 5 Day Crash Course * Revision Classes
Warm Regards
CA SANIDHYA SARAF (WIRC) AUDIT SAGA
(AUTHOR)
www. APNAMENTOR.com
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CA FINAL – AUDIT (www.APNAMENTOR.com
CA FINAL – AUDIT (www.APNAMENTOR.com) May 19 (Old Course)
“INDEX”
S.N. TOPICS COVERED Pg. No.
A. AUDITING STANDARDS (SA, SRE, SAE, SQC) 1 – 60
B. COMPANY AUDIT (Section 126 – 148 of Co. Act 2013) 61 – 71
C. PROFESSIONAL CODE OF ETHICS (PE) 72 – 79
D. COST AUDIT 80 – 82
E. OTHER TOPICS 83 – 141
1 Audit under GST Laws 83 – 85
2 Peer Review 86 – 87
3 Investigation 88 – 89
4 Due Diligence (DD) 89 – 91
5 Audit Strategy, Planning & Programming 92 – 93
6 Audit under CIS Environment 93 – 95
7 Risk Assessment & Internal Controls 96 – 97
8 SARBANES OXLEY ACT, 2002 (SOX) 98
9 Audit Report & CARO 2016 99 – 100
10 Audit Committee & Corporate Governance 101 – 105
11 Audit of Consolidated Financial Statements (CFS) 106 – 107
12 Audit of Banks 107 – 110
13 Audit of General Insurance Companies (GIC) 111 – 114
14 Audit of Co- Operative Societies 115 – 116
15 Audit of Non- Banking Finance Companies (NBFC) 117 – 119
16 Special Audit Assignments 120 – 127
17 Audit of Public Sector Undertakings (PSUs) 127 – 130
18 Internal Audit, Mgt & Operational Audit 131 – 135
19 Audit of Dividend 136 – 139
20 Liabilities of Auditor 139 – 141
21 Audit under Fiscal Laws (Tax Audit) 141 – 145
Compiled by CA SANIDHYA SARAF “APNA MENTOR” 976-040-0350
CA FINAL – AUDIT (www.APNAMENTOR.com) May 19 (Old Course)
Compiled by CA SANIDHYA SARAF “APNA MENTOR” 976-040-0350

AUDIT SAGA
STANDARDS ON AUDITING APNA MENTOR
NO. TITLE OF SQC/ SA/ SRE~

Quality Control for Firms that Perform Audits & Review of Historical Financial Info & other
SQC 1
Assurance & related service engagements
SA 200 Overall Objectives of Independent Audit& Conduct of Audit as per SA(s)
SA 210 Agreeing Terms of Audit Engagement
SA 220 Quality Control For An Audit of FS
SA 230 Audit Documentation
SA 240 Auditor's Responsibility in relation to Fraud in Audit of FS
SA 250 Consideration of Laws & Regulations in Audit of FS
SA 260 Communicating with TCWG
SA 265 Communicating deficiencies in Internal Control to TCWG
SA 299 Joint Audit of Financial Statements
SA 300 Planning an Audit of FS
SA 315 Identifying & Assessing RMM by understanding Entity & its Environment & Internal Control
SA 320 Materiality in Planning & Performing an Audit
SA 330 Auditor’s Responses to Assessed Risk
SA 402 Audit considerations relating to Entity using Service Organization
SA 450 Evaluation of Misstatements identified during Audit
SA 500 Audit Evidence
SA 501 Audit Evidence - Specific Considerations for Selected Items
SA 505 External Confirmations
SA 510 Initial Audit Engagements-Opening Balance
SA 520 Analytical Procedures
SA 530 Audit Sampling
SA 540 Auditing Accounting Estimate including Fair Value Accounting Estimates & Related Disclosure
SA 550 Related Parties
SA 560 Subsequent Events
SA 570 Going Concern
SA 580 Written Representations
SA 600 Using work of Another Auditor
SA 610 Using work of Internal Auditor
SA 620 Using work of Auditor’s Expert
SA 700 Forming Opinion & Reporting on FS
SA 701 Communicating Key Audit Matters in Independent Audit Report
SA 705 Modifications to opinion in Independent Auditor’s Report
SA 706 Emphasis of Matter Paragraphs & Other Matter Paragraphs in Independent Auditor’s Report
SA 710 Comparative Info - Corresponding Figures & Comparative FS
SA 720 Auditor’s Responsibility in relation to Other Information
SA 800 Special Considerations - Audit of FS prepared as per Special Purpose Framework
SA 805 Special Considerations - Audit of Single FS & Specific Elements, A/c or Items of FS
SA 810 Engagements to Report on Summary FS
SRE 2400 Engagements to Review FS
SRE 2410 Review of Interim Financial Info performed by Independent Auditor of Entity
SAE 3400 Examination of Prospective Financial Information
SAE 3420 Assurance Engagements to Report on Compilation of Pro-Forma Financial Info in Prospectus
SRS 4400 Engagements to Perform agreed upon Procedures regarding Financial Info
SRS 4410 Engagements to Compile Financial Info
SAs by CA SANIDHYA SARAF Pg 1 “APNA MENTOR” 976-040-0350

AUDIT SAGA
SQC 1: - Quality Control for Firms that Perform Audits & Review of
Historical Financial Info & other Assurance & Related Service Engagements
System of -Firm to establish System of Quality Control to provide Reasonable Assurance that: -
Quality * Firm & personnel comply to Professional Standards, Regulatory & Legal Requirements AND
Control * Reports issued by Firm or Engagement Partners are appropriate in circumstances.
Ethical considerations in Code of Conduct includes: - (IPCC OP = Same for SA 200)

Ethical
requirement • Integrity • Professional Competence • Confidentiality
• Objectivity • Professional behavior • Independence
* Firm's CEO or Managing Partner to assume ultimate responsibility for Quality Control.
Responsibility
* Importance of Quality Oriented Work Culture emphasized by all Levels of Firm's mgt to
Leadership
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.
KEY ELEMENTS OF SYSTEM OF QUANTITY CONTROL
Acceptance &
On acceptance of client relationship or on deciding on continuance of existing relationship,

Continuance
Relationship
of Client
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
Human • Responsibilities are clearly defined & communicated to that partner.
Resources 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
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.
Engagement
• Supervising Progress of engagement.
Performance • 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)
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.
Monitoring • 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)

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

* To obtain reasonable assurance that FS are free from MM resulting from either due to fraud
(Overall Objective
or error enabling Auditor to express an opinion on whether FS are prepared in all material
Responsibility
of Independent
respects as per applicable FRF

Auditor
Audit)
* 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
Professional * Reduces Risks of: -
Skepticism - 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
REQUIREMENTS OF SA 200
Area of work for Auditor determined by following factors: -

* Requirements of legislation.
* SA & other guidance by ICAI
Scope of
* Terms of engagement of Auditor
Audit
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.
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
Professional
* Evaluating whether SAAE has been obtained & whether more needs to be done to achieve
Judgment 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 * Auditor to obtain SAAE as per AS 500 & Reasonable Assurance (High but not Absolute
SAAE Level of Assurance) to decrease Audit Risk to Acceptable Low Level
Sufficient & * SAAE are interrelated i.e. Sufficiency = Measure of Quantity of Audit Evidence &
Appropriate Appropriateness = Measure of Quality of Audit Evidence i.e. its relevance & reliability to
Audit support conclusions on which auditor’s opinion is based.
Evidence * If Auditor fails to obtain SAAE = give disclaimer
Compliance * SA 200 & Section 143(9) of Co Act 2013 states that Auditor to comply with SAs
with SAs * Fail to comply & fail to depart attention to Departure = Guilty of professional misconduct

AUDIT SAGA
Nature of * Preparation of FS is responsibility of mgmt. involving Judgment & decision making by mgt.
Financial
Reporting * There are range of issues involving different interpretation &judgment.
INHERENT LIMITATIONS OF AUSIT
* Audit procedures used to gather audit evidence may be ineffective against fraud detection.
Nature of * Audit is not an official investigation into alleged wrong doings
Audit * Possibility that Mgmt. may not provide complete Info intentionally or unintentionally.
Procedure * 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 * Difficulty, time, or cost is not valid basis to omit Audit procedure for no alternative
& Cost * Pressure to finish audit quickly, in least possible time
Benefit * Because of limited audit fees there is budget & cost constraint.
* Frauds, particularly involving senior management or collusion.

Other
* Non-disclosure of related parties.
Limitations * 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)
Determine whether applied Financial Reporting Framework (FRF) is = Acceptable.

AND Obtain = Management Representation that it understand its responsibilities for: -
Pre Conditions * Acceptable FRF is used in preparation of FS
for Audit * 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.
Limitations Imposed by Mgt = Not accept unless required by Law

Acceptance/ Change in Terms of Audit Engagement/
No Limitations Imposed by Mgt = Ascertain existence of Pre Conditions if: -

Initial audit * Exist = Accept Audit
Engagement * Not Exist = Discuss Matter with Mgt & not accept Audit in case of: -
- Unacceptable FRF OR
- Mgt not agree to Responsibilities
Auditor to assess below: -

Recurring Audits
Recurring Audit * 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

During Audit/
of Assurance (If Change not conveys lower level of Assurance = Auditor not to
Before
agree unless reasonable justification from mgt)
Completion of
* If Terms Changed & Auditor & Mgt agree = Record new terms of engagement in
Audit
Engagement letter or other suitable form of written agreement
* If Reasonable Justification not given by Mgt OR Auditor unable to agree to
(Client or Mgt
Change & is not permitted by Mgt to continue Original Audit Engagement =
Requests for
Auditor shall: -
Changes in Terms
- Withdraw Audit Engagement where possible under Applicable Law
of Audit
- Determine whether any obligation to report circumstances to other parties,
Engagement)
such as TCWG, Owners or Regulators

AUDIT SAGA
* Change in Financial Reporting Framework

Circumstances * Change in-Senior mgt
Warranting * Significant change in Nature & Size of entity.
Revision in * Significant change in Ownership
Terms of * Revised/ Special Terms of Audit Engagement
Audit * Change in Reporting Requirement
Engagement * Indication that Entity Misunderstood Scope & Objective of Audit
* Legal or Regulatory Requirement
Form &Contents of Engagement Letter: - Agreed terms of Audit Engagement recorded in

Instructions Audit Engagement Letter or other suitable form of Written agreement & includes: -
Auditor gives * Objective & Scope of audit of FSs
to Client * Responsibilities of Auditor & Mgt
before Audit * Identification of Applicable FRF for Preparation of FS
* Reference to Expected form & content of any reports to be issued by Auditor
SA 220: - Quality Control For An Audit of FS
* Leadership responsibility = Engagement Partner appointed to take responsibility of Quality

Factors considered for
control in Audit Work

Incorporating 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.
* Communication = Firm’s Quality Control Policy/ Procedure communicated to personnel
Audit assistants informed of Nature of business & possible accounting or auditing problems &
Engagement Partner to take Responsibility of: -
Direction explained of what is expected of them & how to achieve it.

(Also informed = Importance of Audit program, Time budget & Overall Audit Plan)
Persons carrying out supervisory responsibilities should: -

Supervision • Monitor Progress of Audit
• Become informed of & address significant accounting & auditing questions raised in Audit
• Resolve Differences of professional judgment & consider level of consultation as appropriate.
Review of work of Audit staff to ensure: -

• Work performed as per Audit program & adequately documented
• All significant matters resolved or reflected in audit conclusions
• Objectives of Audit procedures achieved
• Conclusions expressed consistent with work performed
REVIEW
Following matters to be Reviewed on Timely basis: -
• Overall Audit Plan & Audit program
• Assessment of Inherent & control risks & modifications to Overall Audit Plan
• Documentation of Audit Evidence obtained from substantive procedures &
conclusions drawn there from
• Proposed adjustments to FS arising out of auditor's examination & observations.

AUDIT SAGA
Info assisting Auditor

* Integrity of Principal Owners, Key Mgt & TCWG of Entity
in Accepting,
* Whether Engagement Team is competent to perform Audit & has necessary
Continuing or to
Capabilities, Time & Resources
withdraw
* Whether Firm & Engagement Team can comply with relevant Ethical Requirements
Relationship with
* Significant matters in current or past Audit & implications for continuing relationship.
Client
Matters * Review of FS & Proposed Audit Report

evaluated by * Discuss Significant Matters with Engagement Team
Engagement * Review Audit docs, Judgments& Conclusions of Engagement Team.
QC Reviewer * Evaluate Conclusions reached
AUDIT OF LISTED ENTITIES
(EQCR) * Consider Audit Report is Appropriate
Additional * Appropriate Conclusions drawn

Considerations * Engagement Team Evaluation of Independence
in Audit * Audit Doc selected for Review = Reflect work done
* By Auditor = Issues Detected &Conclusion on Compliance & Nature & Scope

Documentation * By EQCR = Procedure for QC Review performed & whether EQCR work done on/
before Audit Report Date
There should be an Engagement Partner (EP) appointed to each Audit Engagement undertaken by firm to take
responsibility for engagement on firm's behalf (As per SQC 1 = for listed entity EP to be rotated every 7 years)
SA 230: - Audit Documentation

(Documentation = Collecting, Recording & Preparing Working Papers (Schedules, Lists, Confirmation)
* Record of Audit Procedures, Performance, Test of Controls, Substantive Procedures, Relevant

MEANING
Audit Evidence obtained (Oral/ Visual/ Documentary) & Conclusions reached (Modified/ Unmodified)
* Auditor may include abstracts or copies of the entity’s records like significant & specific contracts &
agreements) as part of Audit Documentation.
* Not a substitute for entity’s accounting records.
* Oral explanations by Auditor not represent adequate support for work auditor performed or conclusions
NATURE auditor reached, but may be used to explain or clarify info contained in Audit Documentation.
* Auditor need not include in Audit documentation: -
- Superseded drafts of working papers & FS
- Notes that reflect incomplete or preliminary thinking,
- Previous copies of docs corrected for typographical or other errors & duplicates of documents.
Assembly of * Auditor to assemble Audit documentation in Audit File in 60 days of Completion of Audit
Audit File as * Auditor to Retain Audit file for 7 yrs. (No working paper deleted/ discarded up to 7 yrs. From
per SQC 1 Audit Report.

AUDIT SAGA
• Records for Future Audit

Purposes • Assist Engagement Team to plan &perform Audit.
Served by • Assist in Supervision of Audit Work
Audit • Enable Engagement Team to be accountable for users
Documentation • Enable Conduct of Quality Control Reviews as per SQC 1
• Enabling Conduct of External Inspections in accordance with Legal, Regulatory framework.
Make • Who performed Audit work & date such work was completed
Documentation • Who reviewed Audit work performed & Date & Extent of such review
Sufficient to • Significant matters arising in audit, conclusions reached & professional judgments made to
Understand reach conclusions.
* To comply with the SAs & Applicable legal and regulatory requirements.
NTE of Audit
* In documenting NTE of Audit procedures performed, Auditor to record & identify
Procedures
Characteristics of Specific items or matters tested
FORM, CONTENTS & EXTENT OF AUDIT PROCEDURE
NTE of Audit Procedures to comply with laws: -

* Results of Audit Procedures & Audit evidences obtained
Other * Significant matters arising during Audit & Discussion of matters with TCWG
Significant * Reasons for Discarding/ Modifying/ Deleting working papers after 7 yrs.
Matters to * Sometimes some SA's require mandatory documentation.
Document * Conclusions reached thereon& their effect on audit report
* How Auditor addressed Inconsistent Info identified with Auditor’s Final Conclusion
* Alternative Audit Procedures performed to achieve SA requirement departed & its reasons
Documentation of Departure from a relevant requirement: -

* Reasons for the departure
* Alternative procedures performed
Specific Documentation of Discussions: -
Documentation * Significant Matters Discussed with Mgt & TCWG.
* When & with whom Discussion took place.
* How Auditor address inconsistency (if any detected during discussion)
If under Exceptional circumstances, Auditor performs New or Additional audit

procedures or Draws new conclusions, Auditor to document: -
After Date of * New or Additional Audit Procedures performed
Auditor’s * Circumstances encountered
report * Effect on Auditor’s report
* Audit Evidence obtained & conclusions reached
* When & by whom resulting changes to Audit documentation were made & reviewed.
* Identified risks of Material Misstatements (MM)

* Nature of Audit Procedures to be performed
Factors
* Size & Complexity of Entity
affecting Form,
* Significance of Audit Evidence obtained
Contents &
* NTE of exceptions identified
Extent of Audit
* Audit methodology & tools used.
* Need to document Conclusion

AUDIT SAGA
SA 240: - Auditor's Responsibility in relation to Fraud in Audit of FS
Intentional act by 1 or more Individual among Mgt, TCWG, Employees, or 3rd Parties to Deceive,
FRAUD
Mislead/ Conceal Truth or to obtain Unjust/ Illegal Advantage
• Obtain Reasonable Assurance that FS taken as whole are free from MM due to fraud or error
• Perform Risk Assessment Procedures i.e.: -

- Enquiry of Mgt.
- Enquiry of TCWG
- Evaluation of fraud risk factor
- Evaluation of identified unusual & unexpected relationship.
• Consider Impact of fraud on FS

• Consider Reliability of WR if mgt fraud found.
• Communicate to Chairman & BODs
• Maintain Professional Skepticism throughout Audit.
• Unless Doubtful = may accept BOA as Genuine
• Obtain Written Representation
• Conditions cause to believe docs not authentic or terms of docs modified = Investigate then
• Responses of Mgt or TCWG inconsistent = Investigate then
Auditor's • Additional Reporting responsibility in CARO & u/s & person committing fraud liable u/s 447
Responsibilities/
Duty in relation • When fraud is discovered by Auditor Report u/s 143(12) = if Auditor in course of
to Fraud in performance of his duties as auditor, has reason to believe that an offence involving fraud is
Audit of FS being or has been committed against co by officers or employees of co = immediately report
matter to Audit Committee in 2 days of knowledge (as amount < ₹1Crore) mentioning -
- Nature of Fraud & Description &
- Approximate amount involved &
- Parties involved
(Immediately report matter to CG in time & manner prescribed in Rule 13 if amount > ₹1Crore)
If Auditor is unable to continue Engagement: - Auditor to determine: -

• Legal & professional responsibility of auditor to report to persons appointing him &to
regulatory authorities
• Whether it is appropriate to withdraw, where withdrawal is legally permitted.
• If he withdraws, then: -
- Discuss with mgt & TCWG
- Give reasons for withdrawal.
- Determine legal & professional responsibility to report to persons appointing him &
regulatory authorities.
* Primarily of Mgt & TCWG

* Mgt Responsibility/ Representation i.e. Mgt commit to create culture of Honesty & ethical
Mgt.
behavior by: -
Responsibility
- Acknowledge for Design, Implement, Maintenance of Internal Control System to
for Prevention/
Prevent Fraud & Error
Detection of
- Disclose results of Mgt Fraud & Risk Mgt/ Assessment
Fraud
- Disclose knowledge of Fraud/ Suspected Fraud affecting Co by Mgt/ Employees/
Others or its Allegation

AUDIT SAGA
• Due to inherent limitations of Audit = there is an unavoidable risk that some MM of FS not
Risk Associated be detected even though auditor is properly planned & performed in accordance with SA's
for Non • Risk of Not Detecting MM resulting Management fraud is > than Employee fraud, because
Detection of mgt can easily manipulate accounting records as management in unique position to penetrate
MM fraud & manipulate accounting records & prepare FS by overriding controls.
• Risk of Not detecting MM from Fraud is > fraud from Error as Fraud is designed to Conceal
• Manipulate, Falsify, Alter A/c records & Supporting docs

• Misrepresentations or Intentional omission
CAUSES OF MISSTATEMENT
• Intentional Misappropriation of Assets

(Fraudulent FR involves mgt override of controls that may appear operating effectively)
Fraudulent FR Possible Source/ Ways of Fraudulent FR: - i.e. Recording Fictitious Assets/ Entries: -
• Engage in Complex transactions to misrepresent Financial Position
• Inappropriate Adjust Assumptions
•Omit, Advance, Delay Recognition
• Conceal or not disclose facts affecting FS
• Alter Records & terms related to Significant Transactions
• Embezzling Receipts
Misappropriation • Stealing Physical Assets/ Intellectual Property
of Assets • Using Entity's assets for Personal use.
• Causing Entity to Pay for Goods & Services (G& S) not actually received.
• Discrepancies in A/c Records = Due to improper Recording, Unauthorized

transactions, last minute adjustments
Conditions or
• Conflicting or Missing Evidences = Missing & Altered docs, Non Availability of
Events which
Originals, Unexplained items
Increases Risk
• Unusual relation in Auditor & mgt = Undue Time pressure, Unusual delay in providing
of Fraud or
Info, Unwilling to address weak Internal Control.
Error
• Others = Mgt not allow Auditor to meet TCWG, Varied A/c
policies, Frequent changes in A/c estimates.
* Personal Financial Obligation may put pressure on employees or mgt having access of
Characteristics of Fraud/ Fraud Risk Factors
Cash/ Assets to misappropriate it

related to Misstatement & Misappropriation
Incentive or
* Adverse Relationship in Company & Employees due to: -
Pressure to
- Pressure to achieve Unrealistic target.
Commit Fraud
- Anticipated/ Known lay off in Future
- Recent Unfavorable Changes in Promotion & Benefit Plan
* Individuals possess Attitude, Character or Set of ethical values that allow them knowingly
Rationalization & intentionally to commit a dishonest act.
OR Attitude to * Disregard need of Check on Assets Misappropriation
do so * Disregard check on Internal Control System Deficiency & timely remedial actions
* Behavior or Unjust Treatment with Employees
* Individual knows Internal Control System is weak or can be Forbidden or if Individual in

Trust Position
Perceived
* Inadequate Internal Control System
opportunity to
* Assets are marketable & lacks ownership observance
do so
* Small Size of Stock with High value/ demand (like Apple I Phone)
* Inadequate independent check, Investigation & Duty Segregation

AUDIT SAGA
SA 250: - Consideration of Laws & Regulations in Audit of FS
• Unless all of TCWG are involved in mgt of entity = Auditor to communicate with TCWG
To TCWG (Those Charged
matters involving non-compliance with laws & regulations that come to Auditor’s attention during
Reporting Responsibility on Non-Compliance of Law & Regulation
course of audit
with Governance)
• If in Auditor’s judgment non-compliance is intentional & material = Auditor to communicate

matter to TCWG as soon as practicable.
• If Auditor suspects that mgt or TCWG are involved in non-compliance = auditor to communicate
to Next higher level of authority at entity (Audit Committee or Supervisory board)
• Where no higher authority exists or if auditor believes communication may not be acted upon or is
unsure as to person to whom to report = auditor shall consider need to obtain legal advice.
* If Auditor concludes non-compliance has material effect on FS &not adequately reflected in FS

To Users in Auditor’s
i.e. not reflecting True & fair view {Required in SA 200 & Sec 143(2)} = Modify as per SA 705
Report
* If Auditor precluded (restricted) by Mgt/ TCWG from obtaining SAAE to evaluate non
compliance that may be material to FS or is likely occurred = Auditor to express Qualified
opinion or Disclaim an opinion
* If Auditor unable to determine if non-compliance occurred due to limitations imposed by

circumstances rather than by Mgt or TCWG = Auditor to evaluate effect on Auditor’s opinion.
Regulatory &
Enforcement
Authorities
If Auditor identified or suspects non-compliance with laws & regulations = Auditor to determine
To
whether auditor has responsibility to report identified or suspected non-compliance to 3rd Parties
•Auditor not responsible to prevent/ detect non compliances = only consider use of Law & Regulation in Audit.
• To Disclose whether co. has made provisions fines & litigations due to non compliance.
• Remain Alert to possibility suspected non-compliance with laws & regulation
Responsibilities of Auditor
• Obtain General understanding of: -

- Legal & regulatory framework applicable & industry or sector entity operates &
- How entity complies with such framework
• Not required to obtain expert understanding of other laws like Environmental Laws (not Tax laws or Labor
Laws) that do not have a direct bearing on FS
• Obtain WR & SAAE that all actual/ suspected non- compliances disclosed to him. Also Obtain SAAE that: -
- In relation to laws directly effecting determination of amount & disclosure in FS
- That whether misstatements found is due to fraud or error.
• Perform Audit procedures to help identify instances of non- compliance having material effect on FS by: -
- Inquiring of mgt
- Inspect correspondence with relevant licensing or regulatory authorities

AUDIT SAGA
* Ensure entity’s operations are conducted as per provisions of laws & regulations that determine
reported amounts & disclosures in an entity’s FS
* Examples of Policies & Procedures entity may implement to Prevent & detect non compliance: -
Mgt
- Monitoring legal requirements & ensure procedures designed to meet these requirements.
Responsibility
- Instituting & Operating appropriate Internal Control systems
for
- Developing, Publicising & Following a Code of conduct.
Compliance
- Ensuring Employees Proper Training& Understanding of Code of conduct.
with Laws &
- Monitoring compliance with code & Discipline employees who fail to comply it.
Regulations
- Engaging Legal Advisors to assist in monitoring legal requirements.
- Maintaining Register of significant laws & regulations which entity to comply in its
particular industry & a record of complaints.
• Payments of Unusual Type: - (PUT)

- Unusual payments in cash, purchase by bearer Cheque.
- Unusual payments towards legal & retainer ship fees (litigation claims indicated)
- Unauthorized Transactions or improperly recorded transactions.
Possible • Payments: - (P)
Indicators to
- Of fines, additional taxes or penalties.
verify
- For unspecified services or loans to consultants or to related parties, employees or
compliance
with Laws & government employees.
Regulation - For Goods & Services made other than to country from which G & S originated.
- Without proper exchange control documentation.
• Investigation (I) by Regulatory organization or Government departments
• Excess (E) Sales commission/ Agents fees or Purchase Prices significantly > Market Price.
SA 260: - Communicating with TCWG

Personnel responsible to perform day to day functions of business & responsible for making FS.
Mgt (Example: - Executive members of Governance Board .i.e. Executive Board)
Personnel who supervise performance of Mgt & responsible for approving FS like Audit Committee
They are Personnel having Two responsibilities: -
TCWG
- Overseeing Strategic Directions of Entity &
- Obligations related to Accountability of Entity.)
Communication to TCWG Communication to Shareholders

SA 260 Apply SA 700,705, 706 & Section 143 Apply
Focuses on NTE & Scope of Audit On True & Fair View of FS
Internal Report not on Public Domain External Report on Public Domain
Documentation • Oral Communication Matters = When, To Whom & What + Minutes Copy
• Written Communication Matters = Copy retained of documents
* Unavailability of Entity Personnel or Expected Info & * Significant delays

Significant
* Unwillingness by mgt to provide info necessary for Auditor to perform Auditor’s Procedures.
Difficulties
* Unreasonably brief time in which to complete Audit.
encountered in
* Extensive unexpected effort required to obtain SAAE
Audit
* Restrictions imposed on Auditor by mgt.
Communication
* Mgt unwillingness to make/ extend its Assessment of entity’s ability to continue as Going
to TCWG
Concern if requested.

AUDIT SAGA
* To form & express opinion on FS prepared by mgt with Oversight of TCWG.

Auditor's (Audit not Relieve Mgt or TCWG of their responsibilities)
Responsibility * Auditor responsible for forming & expressing an opinion on FS.
in Relation to * Auditor is required to communicate certain matters to TCWG.
Audit of FS (Due to Low size or Structure, entity may not have Separate committee for approval
of FS & so Mgt responsible for same & then circumstances auditor communicate to Mgt)
MATTERS TO BE COMMUNICATED
Planned NTE Auditor to communicate Overview of Planned Scope & NTE timing of Audit which includes
& Audit Scope communicating about significant risks identified by Auditor.
Audit • Auditor view on Qualitative aspects of Entity A/c practices, policies, estimates & disclosures
Findings • Significant matters from Audit that were discussed or subject to correspondence with mgt
• Written representations Auditor is Requesting

• Circumstances that Affect Form & content of Auditor’s report
Others • Other Significant matters that in Auditor’s professional judgment are significant to
Oversight of FR process.
• Material weaknesses if any in Design, Implementation or Operating effectiveness of Internal
Control that have come to Auditor's Attention & duly communicated to mgt.
In Case of Listed entities additional communication required i.e.: -

• Engagement Team & others in firm have complied with relevant ethical requirements
Auditors regarding Independence
Independence • All relationships & other matters between Firm, Network firms & entity that in Auditor's
professional judgment may reasonably be thought to bear on Independence.
• Related safeguards applied to eliminate identified threats to independence or reduce them to
acceptable level.
• Whether Discussion of matter will be included in Auditor’s report.

• Whether Matter satisfactorily resolved.
• Whether Mgt has previously communicated matter.
Factors affecting
• Whether Significant changes in membership of Governing body.
Mode of
• Size, Operating structure, Control environment & Legal structure of entity.
Communication
• If Audit of Special Purpose FS whether Auditor also audits entity’s General Purpose FS
• Legal requirements i.e. in some entities Written communication with TCWG under local law.
• Expectations of TCWG & arrangements for periodic meeting or communications with auditor
• Amt of ongoing contact & dialogue auditor has with TCWG
Establish Communication Communicate NTE, Form & Factors of Communication to TCWG
• Oral or written • Detailed or summarized • Structured or Unstructured

Forms of
COMMUNICATION PROCESS
= Auditor to communicate in WRITING with TCWG regarding significant deficiencies

Communication when in Auditor’s professional judgment Oral communication won’t be adequate.
= Auditor to communicate in WRITING with TCWG regarding Auditor Independence.
To TCWG on Timely basis (may vary with Significance & nature of matter & action
expected to be taken by TCWG i.e.): -
* Communications regarding planning matters = made early in audit engagement
Timing of * Significant difficulty encountered during audit =as soon as practicable
Communication * SA 701 apply = communicate preliminary views about Current year Key Audit Matters
* Communications regarding Independence when Threats to independence
* Communications on findings from Audit = made as part of Concluding discussion.
* When audit both General & Special purpose FS = coordinate communication timing
Adequacy of * Auditor to Evaluate 2 way communication adequate for Audit or not

Two way * If not adequate then Evaluate effect on RMM & get SAAE
Communication * Also Evaluate Role & of Effective 2 Way Communication:

AUDIT SAGA
SA 265: - Communicating Deficiencies in Internal Control to TCWG

* When Internal Controls is designed, implemented or operated in a way that it is either unable to
Deficiency prevent, detect or correct MMs on timely basis OR
in Internal * When internal control system does not exists.
Control (Individually or combined deficiencies significant to judgment of Auditor = communicated to
TCWG & Letter of Weakness describing such weakness communicated in writing to Mgt)
• Auditor to Determine on basis of Audit performed if he identified 1 or > deficiencies

• It depends on Occurrence of Misstatement & also on Likelihood to occur Misstatement (Ex: - Non
Identify
disclosure of Related Party Transactions; Assets are overstated & Liabilities are understated)
Deficiencies
• If Auditor has identified 1 or more deficiencies in internal control = Auditor to determine whether
individually or in combination, they constitute significant deficiencies.
Auditor to communicate in Writing on Timely basis: -

Communications - To TCWG = Significant deficiencies in internal control identified
of Deficiencies - To Mgt = Significant & Other deficiencies that in auditor’s professional judgment are
of sufficient importance to merit Mgt attention.
• Evidence of Ineffective Control Environment

• Absence/ Evidence of Ineffective Risk assessment process in Entity
Indicators of
• Evidence of Ineffective response to Identified Risk
Significant
• Misstatements detected by Auditor not prevented, detected & corrected by Internal Control
Deficiencies
• Evidence of mgt inability to Oversee Preparation of FS
• Disclosure of MM due to error or fraud as prior period items in current years Statement of P/L
• Description of deficiencies & Explanation of their potential effects

Content of Written
Communication of
• Sufficient info to enable TCWG & mgt to understand Context of communication

• In particular, Auditor to explain that: -
Deficiencies
Significant
- Purpose of audit to express an opinion on FS

- Audit include consideration of internal control relevant to preparation of FS to design
audit procedures appropriate in circumstances but not to expressing opinion on
effectiveness of Internal control
- Matters reported are limited to those deficiencies that auditor identified during audit &
that Auditor has concluded are of sufficient importance to merit being reported to TCWG.
SA 299: - Joint Audit of Financial Statements

(Applicable when more than 1 Auditor is appointed to conduct Audit of Large Entity)
Advantages of Joint Audit Disadvantages of Joint Audit

Pooling & sharing of resources. Sharing of fees
Everyone has expertise in different area. Lack of clear definition in case of joint responsibility.
Advantage of mutual discussion. Co-ordination problems in conduct of work.
Better quality & Low Costs of work performance Areas of common concern being neglected.
Improved services to Client Company. Problems when firms of different standing are associated.
* Engagement partner & key members of engagement team from each of joint auditors to be
involved in planning audit.
Requirements
* Joint auditors to jointly establish overall audit strategy that sets Scope, Time & direction of audit.
of SA 299
* Development of Audit Plan {Principles of SA 300 will be applicable}.
* Identification of RMM (Risk of Material Misstatements) * Allocation of work.

AUDIT SAGA
• Where Joint Auditors appointed = By mutual discussion divide Audit work in themselves
• Division of work = on basis or in terms of Audit of Identifiable Units or Specified areas like
Division of
Components of FS i.e. Assets & Liabilities/ Income/ Expense or reference to Period of time.
Work
• Certain Important Areas which can’t be divided is covered by both.
• Division adequately documented & Communicated to entity.
Coordination Matters Requiring Disclosure or Discussion or Application of Judgment & deserves attention
to be communicated to all Auditors in writing by concerned Joint Auditor
RELATIONSHIP OF JOINT AUDITORS
(a) Joint Auditor Solely or Individually responsible or liable for: -

• Professional Judgment • Obtaining Info & explanation.
• Reviewing Internal Control & Audit Reports of work allocated to him
Responsibility • Work Divided/ Allotted to each Joint Auditor in NTE of Audit Procedure whether or not
of Joint Separate Report is prepared by Joint Auditor
Auditors (b) Joint Auditors Wholly, Jointly & Severally responsible or liable for: -
• Work not divided & to be carried out together • Matter brought to notice of joint auditors
• Examine of FS as per Requirement of Statute • Matters on Agreement among Joint Auditors
• Statute requirement in relation to disclosure requirement of FS
• Ensure Audit Report comply to Laws, Regulations & Statutory requirements
• Decisions taken by All Auditor's with respect to NTE of Audit Procedures
Rights of Joint To assume that other joint auditors have carried out work as per Generally Accepted Auditing
Auditor’s Procedures so not necessary for 1Joint Auditor to view work of Other Joint Auditor.
* Normally Arrive at Single Agreed Report.

* If Disagreement on a matter in Joint Auditor = Each Joint Auditor to express his opinion by
Reporting Separate Report.
Responsibility * However efforts be made to arrive at agreed report so that users of FS not confused.
* If Joint Auditor Disagree to Majority Joint Auditors = then such Joint Auditor is not bound
by their views & so to issue a Separate Report.
SA 300: - Planning an Audit of FS

What * Description of NTE of planned risk assessment procedures, as explained in SA-315
Audit * Description of NTE of planned further audit procedures as determined under SA-330
Plan to * Description of Other planned audit procedures to be carried so that engagement complies with SAs
include? * Description of NTE of direction & supervision of engagement team members & review of their work
IMPORTANCE OF AUDIT PLANNING
• Facilitate Supervision & Direction • Coordination of Work

• Properly Manage & Organize Audit • Devote appropriate attention to important areas
• Identify & resolve potential problems • Assist in Selection of capable Engagement Team
Since Planning is Not a Discrete Phase it begins shortly after previous audit completion & end
Planning
on current Audit = Planning include considering prior to Auditor’s identification & assessment of
=
RMM misstatement matters: - • Analytical Procedure
Continuous
• Perform Risk Assessment Procedures • Determine Materiality
Process
• Obtain Good Understanding of Legal & Regulatory framework • Involve Experts

AUDIT SAGA
Audit Audit Plan + Audit Program + Audit Procedure + Audit Strategy

Planning (Audit Planning essential to plan in advance to complete audit in timely & efficient manner)
Who involved in Audit Preliminary Engagement Activities (ETC) Planning

Planning? Activities
Along with Senior Partner, • E = Evaluating compliance with ethical requirements, including Establish Overall
Engagement Team leader of Independence, as required by SA 220 Audit Strategy
Audit Engagement Team • T = Understanding of Terms of Engagements as required by SA 210 +
with his Key members •C = Perform procedures in SA 220 regarding continuance of client Development of
relationship & specific audit engagement Audit Plan
DEVELOPMENT OF AUDIT PLAN
• Terms of Engagement • Legal & Statutory Requirements

• Professional Responsibility • Effect of New Accounting Pronouncements
• Allocation of Work • Accounting Policies adopted & changes
• Work of Internal Auditor & Existence of Reliance • Reporting Responsibility & Objectives
• Coordination in Staff Needs • Nature, Mode & Time of Communication
• Identify Significant Matters & areas requiring Special Attention • Setting Materiality Level
• Degree of reliance on accounting system &internal control. • NTE of audit evidence to be obtained.
• Possible rotation of emphasis on specific audit areas. • Involvement of other auditors& Experts
• How Fix Assets shall be verified? • How Inventory will be witnessed?
• Methods of Physical verification of Cash & Investment. • Manner of Verifying Scrap records.
• Identify benchmarks in relation to which Actual results of Activities, Time Spent & Cost incurred to be measured.
CONSIDERATIONS IN ESTABLISHING OVERALL AUDIT STRATEGY
Identify Characteristics of Ascertain Reporting Objectives, Timing Significant Factors while Considering Preliminary
Engagement of Audit & Nature of Communication Engagement Activities results
Audit Strategy = Backbone of “Audit Planning” process/ Steps Involved in formulation of Audit Strategy
• Obtaining knowledge of business as per SA 315 & SA 330. • Evaluating Inherent Risk.
• Performing Analytical Procedures. • Evaluating Internal Control.
* Auditor to Update changes to Audit Plan & Audit Strategy

* Audit planning is Continuous Process but still Auditor may change audit plan or strategy during
performance of Audit engagement as a result of: -
Changes to
- Unexpected events or Change in conditions
Planning
- New Audit evidence obtained from result of Additional or Alternative Audit Procedures
Decisions * Based on Revised/ Modified Assessment of Risks due to Modified Strategy & Plan, auditor to change
NTE of Audit Procedure
* Auditor to Document = Audit Plan + Audit Strategy + Changes to these + Reasons for changes
* Audit strategy provides guidelines for developing audit plan. (It establishes Scope & conduct of
Relationship
Audit procedures & thereby works as basis for developing a detailed audit plan).
in Overall
* Detailed audit plan would include NTE of audit procedures to obtain SAAE
Audit
* Audit strategy is prepared before Audit Plan.
Strategy &
* Audit plan contains more details than overall Audit Strategy.
Audit Plan
* Audit strategy & audit plan = inter-related as change in one would result into change in other.

AUDIT SAGA
FACTORS IN RELATION TO AUDIT STRATEGY FORMULATION
General Factors to be considered in formulating Audit Specific Factors for Online Shopping
Strategy of Company
• Engagement objectives. • Nature of Transactions significant to FS

• Identified inherent risks considering risk of fraud. • Procedures in both IT & Manual systems by which those
• Results of business review. transactions are initiated, recorded, processed,
• Broad NTE of substantive tests. corrected as necessary, transferred to the general ledger and
• Degree to which Team should carry out further assessment reported in FS
of controls to reduce substantive testing. • System by which Info system captures events & conditions
• Main points relating to Planning & controlling Audit or (other than transactions significant to FS)
comments on Adequacy of existing arrangements. • Controls used to record non-recurring, unusual transactions or
• Preliminary judgments as to materiality. adjustments.
SA 315: - Identifying & Assessing RMM by understanding Entity & its

Environment & Internal Control
• Refers to RMM that relate pervasively to FS as a whole & potentially affect many
IDENTIFYING & ASSESS RISK OF MATERIAL MISSTATEMENT/ AUDIT RISK
assertion
Assessment of
• Risks at FS level may derive in particular form deficient control environment i.e.
RMM at FS
deficiencies such as mgt lack of competence may have a more pervasive effect on FS
level
• Auditors understanding of Internal Control may raise doubt over audit ability of FS i.e.: -
- Concerns about Integrity of Entity’s Mgt
- Concerns about condition & reliability of Entity’s Records
Assessment of
• RMM at Assertion level for classes of Transactions, A/ Balances & disclosures needs to be
RMM at
considered as assists in determining NTE of Further audit procedures to obtain SAAE.
Assertion Level
Steps in Assessing * Understanding Entities business * Enquiries trough mgt

RMM due to Fraud * Enquiries with Internal Auditor * Result of Auditor's Analytical Procedures
Evaluating/ • Relevant industry, regulatory, economic &other external factors

Obtaining • Applicable FRF& Internal Control System
Knowledge of • Nature of entity, including: -
Business - Its operations
- Its ownership and governance structures;
OR
- Types of investments entity makes & plans of investment in special-purpose entities
Understanding - Way entity structured & how financing to enable auditor understand transactions,
Requirements account balances & disclosures to be expected in FS
of Entity& its • Entity’s selection and application of accounting policies & reasons to change them
Environment • Entity’s objectives & strategies & those related business risks that may result in RMM
• Measurement and review of the entity’s financial performance.
• Discussion in engagement team & significant decisions reached

• Key elements of understanding obtained on aspects of entity & its environment sources of
Auditor
info from which understanding was obtained & risk assessment procedures performed
Documentation
• Identified & assessed RMM at FS level & Assertion level
• Risks identified & related controls about which auditor obtained understanding.

AUDIT SAGA
• Identify & assess RMM due to Fraud or Error at FS & Assertion Levels
Auditors • Understand entity & its environment
Responsibility • Understand entity Internal control
• Design & implement responses to assesses RMM
ASSERTIONS EVALUATED
Transactions occurred during yr A/c Balances at period end Presentation & Disclosure
* Occurrence = actually occurred in *Existence = A & L shown in B/S * Occurrence, Rights & Obligations =
yr actually exists Transactions occurred, A & L belong to
* Completeness = recorded completely * Right & obligations = Rights of entity
* Accuracy = recorded precisely Entity shown as Assets & * Completeness = Disclosures in FS completely
* Cut off = recorded in correct obligations as Liability * Classification & Understandability = FS
Accounting Period * Completeness = record complete presented & disclosures appropriately
* Classification = Transactions properly * Valuation & Allocation = A & L * Accuracy & Valuation = Financial & other
classified to Capital & Revenue in FS at appropriate Amt. info amt disclosed fairly
Process Designed, Implemented & Maintained by Mgt & TCWG to Provide Reasonable
Assurance about achievement of entity’s objective of: -
Meaning
• Reliability of financial reporting. • Effectiveness & Efficiency of operation.
• Safeguarding of Assets. • Compliance with laws and regulation.
• Transactions executed with proper authorizations of mgt

• Transactions recorded with Correct amt, period & value
Objectives • Assets safeguarded against unauthorized use/ disposal or access
• Framework Based Application of Accounting Policies & Practices
• Recorded assets tally to physical existence at Regular intervals & action on differences
•Mgt's consideration that Cost of Internal control not > Expected benefits to be derived
• Most Internal controls not tend to be directed at transactions of unusual nature.
* Human error by carelessness, distraction, mistakes of judgment & misunderstand instructions
Limitations
INTERNAL CONTROL
• Circumvention of Internal controls by collusion with employees or with parties outside entity.
• Person responsible to exercise Internal control abuse responsibility
• Manipulations by Mgt (Mgt Overriding of Controls)
Internal • Whether all transactions are RECORDED

Control •Whether recorded transactions are REAL
Objectives • Whether all recorded transactions are PROPERLY VALUED
for • Whether all transactions are RECORDED TIMELY
Accounting • Whether all transactions are PROPERLY POSTED
Control • Whether all transactions are PROPERLY CLASSIFIED AND DISCLOSED
System • Whether all transactions are PROPERLY SUMMARIZED
Internal • Adherence to company’s policies. • Safeguarding of its assets.

controls not • Prevention and detection of frauds and errors. • Risk assessment procedures.z
in use • Timely preparation of reliable financial information. • Supervisory and Physical controls.
throughout • Compliance with applicable laws and regulations. • Ensure segregation of duties.
Audit • Effectiveness and efficiency of its operation. • Proper authorization of transactions.
period • Monitoring of accounting/financial controls. • Systematic information processing.
covered = • Accuracy and completeness of the accounting records.
Controls • Changes occurred in the accounting and internal control systems during the period.
objectives • NTE of substantive procedures which the auditor plans to carry out.
for it • Nature and amount of the transactions and other events and the balance involved.

AUDIT SAGA
• Program developed & maintenance has some defect since inception.

Areas Examined for
• System software support is improper.
deficiencies & Risk
• Operations including processing of data are not regulated and ungoverned.
Identification in CIS
• Physical CIS security may be lacking.
Environment
• Control over access to specialized utility program is improper.
(Causes of RMM at
(These deficiencies would tend to have negative impact on all application systems
CIS Environment)
processed through computer)
Specific * Unauthorized changes to data in Master files. * In appropriate manual intervention.

Risk to * Failure to make necessary changes to systems or programs. * Unauthorized change to system/ program
Entity’s * Reliance on systems/ programs inaccurately processing data or processing inaccurate data
Internal * Potential loss of data or inability to access data as required.
Control * Unauthorized access to data resulting in destruction of data or improper changes to data, including
posed by recording of unauthorized or non-existent transactions or inaccurate recording of transactions.
IT * Possibility of IT personnel gaining access beyond those necessary to perform their assigned duties
System thereby breaking down segregation of duties.
• Changes in operating environment • New personnel • New technology

CAUSES • New or revamped information systems • Rapid growth of operations
OF • New business models, products, or activities • Corporate restructurings
RISKS • Expanded foreign operations like additional or changed risks from foreign currency transaction
• Adopting New/ Changing accounting principles may affect risks in preparing financial statements.
Monitoring of Controls (SA-220) = To assess the quality of internal control performance over time.
Control Activities Auditor to obtain understanding of control activities relevant to audit like: -
Relevant to Auditor * Authorization * Segregation of duties * Safeguarding & Asset accountability
Components of Internal Control
- Captures information relevant to FR - Transfer Info

- Initiate, Record, Process & Report Entity Transactions
Info System - Resolve Incorrect Processing of Transactions
- Process & A/c system overrides or bypasses to controls
- Ensure information required to be disclosed by applicable FRF
Understanding Control environment, whether mgt, with TCWG has created & maintained
Culture of honesty & ethical behavior. Control environment encompasses below elements:
- Communication and enforcement of integrity and ethical values.
Control
- Commitment to Competence& Skills to accomplish tasks defining individual’s job.
Environment
- Management’s philosophy and operating style - Participation by TCWG
- Assignment of authority and responsibility - Organizational structure
- Human resource policies and practices
Entity Risk Assessment Audit Procedures performed to understand Entity & its environment & internal
Procedure & Process Controls to identify & assess RMM due to Fraud/ Error at FS & Assertion Levels.
Components of Risk Assessment Risks that require Special Audit Consideration Risk Assessment Process
Procedures
• Enquiries of management &TCWG • Risk of Fraud • Identify Risks

who can assist in identifying RMM • Risk of economic, accounting/ other changes • Assess & Evaluate Identified Risks
• Observation and Inspection. • Risk involved in complex transactions. • Relate identified risks to what can
• Enquiry of others. • Significant transactions with related parties. go wrong at Assertion Level
• Analytical Procedures (SA-520). • Risk involved significant unusual transaction. • Likelihood of Misstatement

AUDIT SAGA
SA 320: - Materiality in Planning & Performing an Audit

Concept of • Auditor considers materiality from point of view of Overall financial info & Individual a/c balances.
Materiality • Materiality is judged at time of: - - Planning
- Evaluation of Audit Evidence - Conclusion of Reporting
• Auditor can revise materiality level based on progress of Audit.

• If he finds MM then reduce materiality level to cover more items
• Consider whether NTE of further Audit Procedures will remain appropriate
Revision/ Re- • If Auditor gets additional info then he should revise materiality
Evaluation of Example: - If there is new requirement under Law/ Regulation/ FRF OR
Materiality Levels - Entity has made major decision to dispose of major part of entity’s business
(Auditor to revise materiality level & if materiality is more, auditor to perform more audit
procedures & reduce overall Audit risk. Auditor may decide to evaluate misstatements
even if it is less than materiality level set by him)
Auditors Assessment of Materiality = To Consider Aggregate of all Uncorrected Misstatements & Estimates
SA requirement Aggregate of Uncorrected Misstatements Impact of Misstatements

comprises of: -
• In forming opinion on (a) Specific Misstatements identified by Auditor • If Aggregate of uncorrected misstatements that
financial info, Auditor including net effect of uncorrected auditor identified approaches materiality level
to consider all material misstatements identified during audit of or if auditor determines aggregate of
aspects important for previous periods & uncorrected misstatements causes financial
True & fair view of FS. (b) Auditor’s best estimate of other misstatements info to be materially misstated = Consider
• To consider if Effect of which cannot be specifically identified i.e. Requesting Mgt to adjust financial info or
Aggregate uncorrected Projected errors. extending his audit procedures.
misstatements on = Analytical procedures employed by Auditor may • Mgt may Adjust Financial Info for known
Financial Info is give him some indication about existence of misstatements.
material. misstatements, which can be further • If Mgt refuses to adjust Financial info &
• Qualitative substantiated by him through estimates process. results of extended audit procedures do not
considerations also = When Auditor uses audit sampling to test an enable auditor to conclude Uncorrected
influence Auditor to account balance or class of transactions, he misstatements is not material = Auditor to
reach conclusion projects amt of known misstatements identified express a Qualified or Adverse opinion
whether misstatements by him in his sample = Projected misstatement
are material.
Performance
= Amount set by the auditor at less than materiality level for the financial statement as a whole.
Materiality
= To ensure aggregate of uncorrected & undetected misstatements < Materiality for FS as a whole.
= To reduce risk to an appropriately low level.
Example: - Materiality level of ₹5 Lakh decided says 40% = ₹2 Lakh decided as performance materiality.
(If 3 mistakes of ₹2 Lakh each identified & detected, then aggregately main materiality level is exceeded)
Factors
• Elements of the financial statements (Example: A & L, Equity, Revenue, Expenses)
affecting
• Whether there are items on which attention of users of particular entity’s FS tends to be focused
Identification
(Example: for evaluating financial performance users may focus on profit, revenue or net assets)
of Benchmark
• Nature of entity, Life cycle and industry & economic environment in which entity operates
in
• Entity’s Ownership Structure & way it is financed (Example: if entity is financed solely by debt
Determining
rather than equity, users may put emphasis on Assets & claims on them rather entity’s earnings)
Materiality for
• Relative volatility of benchmark.
FS as a Whole

AUDIT SAGA
SA 330: - Auditor’s Responses to Assessed Risk

It is an Audit Procedure designed to detect MM at assertion level. Substantive Procedures comprise: -
SUBSTANTIVE PROCEDURES
- Tests of details (of classes of transactions, account balances &disclosures)

- Substantive Analytical Procedures.
- External Confirmations
- FS Closing Process
- Response to Risks
• Irrespective of assessed risk of MM, auditor shall design & perform substantive procedures for each material
class of transactions, account balances & disclosure.
• Example: - Auditor's Substantive Procedures in relation to FR Closing Process includes: -
- Agreeing or reconciling FS with underlying accounting records
- Examine material journal entries & other adjustments made during course of preparing FS
• To ensure Internal Control designed & effectively operating throughout period.

TEST OF CONTROLS • If control risk is high, perform more tests of controls.
• Communicate material weakness in Internal Control to TCWG.
FACTORS THAT MAY RE- WARRANT TEST OF CONTROLS
•Deficient Control environment • Significant Manual Element to relevant Controls.

•Deficient Monitoring of control. • Changing circumstances that indicate need for change in controls
•Deficient General IT controls. • Personnel changes
* Nature of risk & assertion is relevant to design of tests of details.

* Example, Tests of details related to existence or occurrence assertion may involve selecting
Substantive Procedures Performed to Assess RMM
Test of
from items contained in FS amount & obtaining relevant Audit Evidence
Details
* Tests of Details related to completeness assertion may involve selecting from items that are
expected to be included in relevant FS amt &investigating whether they are included
* In designing Tests of Details, extent of testing is ordinarily thought of in terms of sample size.
* Applicable to Large Volumes of transactions that are predictable over time.

* Application of planned analytical procedures is based on expectation that relationships among
data exist & continue in absence of known conditions to contrary.
Substantive
* Suitability of particular analytical procedure will depend on Auditor’s assessment of how
Analytical
effective it will be in detecting misstatement that, individually or when aggregated with other
Procedure
misstatements may cause FS to be materially misstated.
* Trade ratios like Profit margins can be used effectively in substantive analytical procedures to
provide evidence to support reasonableness of recorded amt.
* Performing only substantive analytical procedures will be sufficient to reduce

Depending on Audit Risk to low level
circumstances, * Only Tests of Detail are appropriate
Auditor Determines * Combination of Substantive Analytical Procedures & Tests of Details is Responsive
to Assessed risks.

AUDIT SAGA
SA 402 : - Audit considerations relating to Entity using Service

Organization
Service Auditor Auditor at request of service organization (org.) provides assurance report on controls of service org.
Service Org. 3rd party organization that provides services to user entities that are part of those entities that are part
of those entities info system relevant to FR
User Auditor Auditor who audits & reports on FS of user entity.
User Entity Entity that uses Service organization &who’s FS is being audited.
Auditor * User Auditor Determine whether sufficient understanding of Nature & Significance of services
Considerations provided by service organization & their effect on user entity’s internal control relevant to audit
(Procedure if has been obtained to provide a basis for identification &assessment of RMM.
User Auditor * User Auditor Evaluate design & implementation of relevant controls of user entity that relate to
can’t obtain services provided by service organization.
Sufficient * If User Auditor is unable to obtain Sufficient understanding from User entity, user auditor: -
Understanding - Obtaining Type 1 or Type 2 report (if available)
from user - Contacting Service Organization, through user entity to obtain specific info
Entity) - Use other auditor to perform procedures to get info on relevant control at service org.
- Visiting Service organization & performing procedures for the same
Obtain • Nature of services provided by Service Organization & significance of those services to
Understanding/ User Entity including effect thereof on User Entity’s Internal Control
Assessment of • Nature & Materiality of Transactions processed or A/c or FR processes affected by
services provided Service organization
by Outsourcing • Degree of interaction in activities of Service organization & those of User Entity
PRECAUTIONS/ CHECKS FOR AUDIT UNDER SA 402
Agency/ Service • Nature of Relationship in User entity & Service organization including Relevant
organization Contractual terms for activities undertaken by Service Organization.
Determine sufficiency& appropriateness of Audit Evidence provided by a Type 1 or Type 2
report satisfied as to: -
Determine • Service auditor’s professional competence
SAAE Use • Adequacy of standards under which Type 1 or Type 2 report was issued i.e. if it was prepare
as per SAE 3402.
• If Auditor of user org. not able to obtain Info = Give Qualified or Disclaimer.
Type 1 Report: -
Obtain - Report on description & design of controls designed & implemented at service org.
Type 1 - Report by Service auditor that comprises of service org. system, control objectives
& & related controls that have been designed & implemented at a particular date.
Type2 Type 2 Report: -
Report - More comprehensive & includes Type 1 report & additionally it includes Description of
Test of Controls performed to arrive at the opinion
(These 2 methods are also known as Inclusive methods &Carve out method)
* If Service org. uses subservice org, service auditor’s report may either include or exclude
subservice org. relevant control objectives & related controls in service org. description of its
Obtain Info system & in scope of service auditor's engagement.
on Controls * These 2methods of reporting are known as Inclusive & Carve-out method respectively.
at Sub- * If Type 1 or Type 2 report excludes control at Sub service organization & services provided
Service by subservice organization are relevant to audit of user entity’s FS, User auditor is required
Organization to apply requirements of SA 402 for subservice org.
* NTE of work performed by User auditor of services provided by sub-service organization
depend on nature & significance of services to user entity & relevance of services to audit.

AUDIT SAGA
SA 450 : - Evaluation of Misstatements identified during Audit

• Difference in amounts, classification, presentation, or disclosure of a reported FS item that is required
Misstatement
to be in accordance with the applicable FRF

• Include adjustments of amounts, classifications, presentation, or disclosures that in auditor’s judgment are
necessary for FS to give a True & Fair view or present fairly in all material respects.
• An item is said to be misstated when it is reported in FS in way which is different from that prescribed in FRF
may be due to error &fraud i.e. Misstatements can arise from error or fraud
Uncorrected misstatements = Misstatements that Auditor accumulated during audit & not been corrected.
If Misstatement is Immaterial If Misstatement is Material

* Document all misstatement treated as material.
* Obtain Written Representation that uncorrected misstatement are immaterial
If misstatement is material or Aggregate of Uncorrected misstatement becomes material
Consider adjustment of NTE of Audit Procedures
Communicate them to appropriate level of mgt & request them to correct it

If Management: -
Refuses to correct Corrects Them
Consider reasons & effect on Audit Report Perform additional procedures to determine if other misstatement remains.
• Inaccuracy in gathering/ processing data from which Financial statements prepared

• Omission of Amount or Disclosure
SOURCES OF
• Incorrect accounting estimate arising from overlooking or clear misinterpretation of facts
MISSTATEMENT
• Judgments of mgt concerning accounting estimates that Auditor considers unreasonable;
• Selection & application of accounting policies that Auditor considers inappropriate.
SA 500 : - Audit Evidence

Audit Evidence = Info contained in A/c Records + Other Info used by Auditor to arrive at conclusions to base opinion
(Auditor should obtain SAAE as per SA 200 read with SA 500)
AUDIT PROCEDURE TO OBTAIN SAAE

Procedures in SA 500 read with SA 315 & SA 330 i.e. Risk Assessment procedures + Test of controls
(Compliance procedures) & Substantive procedures.
{Substantive procedures further compromises of Test of details & substantive analytical procedures}
Test of Controls Substantive Procedures
* Designed to check if internal control system designed & operating effectively * Designed to detect MMs at assertion level
* Evaluate operating effectiveness of internal controls at assertion level * Compromise Test of details &Substantive
* Auditor performs Audit procedures so that he can obtain Audit Evidence analytical procedures (SA- 520)
regarding adequacy of internal controls in Enterprise. * Substantive Tests conducted in areas not
* After performing Test of Controls, if auditor finds controls are Inadequate/ subject to internal controls & are hence
absent = communicate same to TCWG as per SA-265. judgmental in nature.
Assessing • Original documents are more reliable than mere photocopies& Written docs more reliable then Oral
Reliability • Evidences obtained from outside entity (Independent Sources) more reliable than obtained in entity.
of Audit • Evidences are more reliable when internal control system is sound.
Evidence • Evidences obtained directly by auditor are more reliable than obtained indirectly.

AUDIT SAGA
Re -Performance Auditor’s Independent execution of procedures originally performed as part of entity’s

(R) internal control.
* Evaluations of financial info made by Study of relationships in financial & non-

Analytical
financial data.
Procedure
* Encompass Investigation of identified fluctuations & relationships inconsistent with
(AP)
(RAP IN2 RECO)
other relevant info or deviate significantly from predicted amounts.
* Seeking info of knowledgeable persons financial & non- financial in or outside entity.
Inquiry * Used extensively throughout audit in addition to other audit procedures.
(IN) * May range from formal written inquiries to informal oral inquiries.
* Evaluating responses to inquiries is an integral part of Inquiry process.
METHODS TO OBTAIN AUDIT EVIDENCE
* Examine records or doc (Internal or External) in Paper or E form or other media/ physical examine Asset
* Inspection of Records & docs provides Audit Evidence of varying degrees of reliability depending on
Nature & Source & Effectiveness of controls over their production.
Inspection (IN)
* Example of Inspection used as a Test of Controls is Inspection of records for evidence of authorization.
* Some docs represent direct audit evidence of existence of Asset like a document constituting financial
instrument such as a Stock or Bond.
* Inspection of such documents may not necessarily provide audit evidence about ownership or value
* Inspecting executed contract may provide audit evidence relevant to entity’s application of a/c policies,
such as revenue recognition.
* Inspection of Tangible assets may provide reliable audit evidence with respect to their existence not
necessarily about entity’s Rights & Obligations or Valuation of Assets.
* Inspection of Individual Inventory items to accompany observation of inventory count.
Recalculation (R) * Recalculation consists of checking the arithmetical accuracy of documents or records.
* Recalculation may be performed manually or electronically.
External Confirmation (EC) Refer SA 505 for details

Observation
* Looking at Process or Procedure being performed by others like auditor’s observation of inventory
counting by entity’s personnel or of performance of control activities.
(O)
* Provides Audit evidence about performance of process or procedure, but limited to point of time at
which observation takes place
* It may affect how process or procedure is performed.
C = Competence = Nature & level of Expertise C = Capability = Ability to exercise competence

Evaluate Work of Mgt/ Outside Expert
O = Objectivity = Personal effect of not being biased & no conflict of interest

Evaluate
CCO of Obtain info regarding CCO of mgt expert from Variety of sources by Auditor: -
Expert • Personal experience with previous work of that expert • Discussions with that expert
• Published papers/ books written by Expert • Knowledge of expert’s qualifications
• Discussions with others who are familiar with that expert’s work
Obtain Aspects of mgt expert’s field relevant to auditor’s understanding may include what
Understanding of assumptions & methods are used by mgt expert & whether they are generally accepted in
Work of Expert that expert’s field & appropriate for FR purposes.
• Relevance & reasonableness of that expert’s findings or conclusions, their consistency

with other audit evidence & whether they have been appropriately reflected in FS
Evaluate
• If expert’s work involves use of significant assumptions & methods, relevance &
Appropriateness
reasonableness of such methods
of Expert’s work
• If expert’s work involves significant use of source data, relevance, completeness &
accuracy of that source data.

AUDIT SAGA
SA 501 : - Audit Evidence Specific Considerations for Selected

Items
(When inventory is material to FS = Auditor to obtain SAAE
• Evaluate mgt instructions & procedures for recording & controlling results of
entity’s physical counting
Attending
• Inspect Inventory
Physical Count
• Observe performance of mgt count procedures
Special Consideration To Inventory
of existence & condition of inventory)
• Perform Test Counts
Audit Procedures * To Determine if they accurately reflect actual inventory count results
on Final * Inspecting inventory when attending physical inventory counting assists auditor in
Inventory ascertaining existence of Inventory (though not necessarily its ownership) &
Records identifying obsolete, damaged or ageing inventory.
• Due to factors such as Nature & Location of Inventory like Inventory held in location
that may pose threats to safety of Auditor.
Attending
• If Attendance Impracticable = Alternative audit procedures like Inspection
Physical Count
of documentation of subsequent sale of specific inventory items acquired or
Not Practicable/
purchased prior to physical inventory count provides SAAE to existence & condition
Impracticable
• In some cases though it may not be possible to obtain SAAE regarding existence &
condition of Inventory by performing alternative audit procedures. In such cases, SA
705 requires Auditor to modify opinion in Auditor’s report due to Scope limitation.
INVENTORY LITIGATION& CLAIMS
Mandatory to: - Perform Audit Procedures to obtain

1. Attend physical inventory counting unless impracticable SAAE of its existence by: -
2. Evaluate mgt procedure for inventory counting 1. Inquiry from Mgt
3. Inspect Inventory 2. Review minutes of meeting of TCWG &
4. Perform Test Counts. correspondence in entity & external
council
Situation- 1 3. Review legal expense account.
 If impracticable = Perform Alternative Audit Procedures to obtain
SAAE regarding existence & condition of Stock It includes:
 If not possible to perform alternate procedures = Modify Audit Report - Obtain WR that all litigations & claims
as per SA 705. presented in FS &disclosed to auditor.
- If audit procedures indicate other
Situation- 2 litigations or claims, seek
* If Unable to attend inventory counting due to unforeseen circumstances communication with entity's external
* Perform physical counts on alternative date & perform Alternate audit legal counsel.
procedures including: -
- Reconcile changes in inventory between date of physical count If mgt refuses to give permission to auditor to
& period end date. communicate with external legal counsel &
- Observe treatment given for discrepancies observed. unable to obtain SAAE = Modify Report
- Ensure appropriate cut off procedures followed or not.
- Obtain Written Representation.

AUDIT SAGA
SA 505 : - External Confirmations

External Confirmation = One of methods of obtaining Audit evidence as enumerated under SA-500
(Obtaining & evaluating audit evidence by direct communication from 3rd party on certain assertions by mgt in FS)
•Selecting items for which confirmations are needed.

•Designing form of confirmation request.
Process of External
•Communicating confirmation request to appropriate third party.
Confirmation
• Obtaining response from third party.
• Evaluating Info
Factors affecting Auditor • Willingness of Confirming party to Respond or Ability

in Determining use of • Knowledge to confirming party about Subject matter.
External Confirmations • Objectivity of Intended Confirming Party.
• Response mandatory in case of agreement or disagreement.

• If response is not received in reasonable time, send additional confirmation request.
• Regarded as a better mode of confirmation request.
• Advisable where: -
- Risk or materiality level is high
- Internal control system is not so sound
- Exception rate is high
Positive
confirmation Effects of using Positive External Confirmation Request: -
• A positive external confirmation request asks confirming party to reply to auditor in all cases
• Response by either by indicating Confirming party’s agreement with given info or by asking
TYPES OF CONFIRMATION REQUEST
confirming party to provide info

• Response to Positive confirmation request is expected to provide reliable audit evidence.
• Risk that confirming party may reply to confirmation request without verifying info.
• Auditor may reduce this risk by using positive confirmation requests that do not state amt (or
other info) on confirmation request & ask confirming party to fill.
• Response from external party is required only in case of disagreement.

• It is to be used when risk of MM or materiality level is low, internal control is effective &
exception rate is low.
• Limited use i.e. it is Advisable where: -
- Risk or materiality level is low
- Internal control system is sound& effective
- Exception rate is low
Negative - Population of Large No. of Homogeneous & Small Account balances or transactions.
confirmation
• Confirming party respond directly to auditor only if party disagrees with info in request.
• Provide less persuasive audit evidence than positive confirmations
• Failure to receive response to Negative confirmation request not indicates receipt by intended
confirming party of confirmation request or verification of accuracy of info in request.
• Accordingly failure of confirming party to respond to negative confirmation request provides
less persuasive audit evidence than response to positive confirmation request.
• Confirming parties also may be more likely to respond indicating their disagreement with
confirmation request when info in request not in their favor & less likely to respond otherwise

AUDIT SAGA
• Assertions being addressed

Factors • Specific identified risks of MM, including fraud risks.
considered • Layout & presentation of confirmation request.
while • Prior experience on audit or similar engagements.
Designing • Method of communication (in Paper form, or Electronic or other medium).
Confirmation • Mgt authorization or encouragement to confirming parties to respond to auditor. Confirming
Request parties may only be willing to respond to confirmation request containing mgt authorization.
• Ability of Intended confirming party to confirm or provide requested Info
SITUATIONS WHERE EXTERNAL CONFIRMATIONS CAN BE USED
• Bank balance from bankers • Long outstanding share application money

• Account receivable balances • Account payable balances
• Inventories held by third parties • Loan from lenders
• Property title deeds held by third parties • Investments purchased but delivery not taken
AUDITOR RESPONSE OR PROCEDURE WILL BE: -

• Inquire of Mgt reasons for refusal & seek audit evidence to their validity & reasonableness
Mgt refusal • Evaluate implications of mgt refusal on Auditor’s assessment of relevant RMM including risk of
to allow fraud & on NTE of other audit procedures
Auditor to
send • Ask mgt to submit its request in written form giving in details reason for such request.
Confirmation
Request • If auditor agrees to mgt request, document reasons for acceding to mgt request.
• Perform alternative audit procedures designed to obtain relevant & reliable audit evidence.
(If auditor Concludes Mgt refusal is unreasonable/ can’t obtain SAAE = auditor to communicate
with TCWG & determine its implication for audit & his opinion)
SA 510 : - Initial Audit Engagements - Opening Balances

Applicability of SA 510 = Opening Balance Present + Previous year Audit not done or done by another auditor
Opening Balances Balances existing at Beginning of yr
Predecessor Auditor Other Audit firm who audited FS in Prior period
Engagement in which either: -

Initial Audit
• FS for prior period were not audited OR
Engagement
• FS for prior period audited by Predecessor auditor.
REPORTING REQUIREMENTS
Audit Evidence Regarding Opening Balance Reporting Responsibility
Available & MM can be corrected Issue Unqualified report

Available & MM can’t be corrected/ accounting policies not consistent/ not disclosed Issue Qualify or Adverse report
Not Available & MM cannot be corrected Issue Qualified or Disclaimer report

AUDIT SAGA
Auditor to Obtain SAAE whether: -

• Opening balance contain MM in opening balances is materially effecting FS of current period.
• A/c Policies in preceding yr = consistent with current year & any change appropriately disclosed.
• Closing balances of preceding yr are correctly brought forward in current period.
Auditor’s
• If Previous FY audited by Other Auditor CA in practice = then in current yr new auditor not required
Objective
to re-audit previous FS, but obtain SAAE regarding MP plus read most recent FS.
• If Previous FY were unaudited = then in current yr, new auditor is not required to re-audit previous
FS, but to disclose this fact in his audit report in Other Matters Para plus read most recent FS.
Audit Procedure for Sufficiency & Appropriateness of Opening Balances & ensure it’s free from Misstatement
FS Audited for preceding period by Other Auditor FS Audited for 1stTime
• If prior period’s FS are audited by Predecessor Auditor, • Auditor to perform auditing procedures to obtain SAAE.
auditor may be able to obtain SAAE regarding opening • Since opening balances represent effect of transaction & events
balances by perusing copies of FS including other of preceding period & accounting policies applied in preceding
relevant docs relating to prior period FS such as period, auditor need to obtain evidence having regard to nature
supporting schedules to audited FS. of opening balances & materiality of opening balances
• Current Auditor can place reliance on closing balances • Since it will not be possible for auditor to perform certain
in FS for preceding period, except when performing of procedures, e.g., observing physical verification of inventories,
audit procedures for current period possibility of etc. auditor may obtain confirmation, etc. & perform suitable
misstatements in opening balances is indicated. procedures in respect of fixed assets, investments, etc.
• Auditor can obtain Mgt WR for Opening balances
SA 520 : - Analytical Procedures (AP)

• Evaluation of Financial Info through analysis of relationships in Financial &Non- Financial data.
• Involves = Comparison with-Prior period info; Anticipated results i.e. Budgets & Similar industry Info.
MEANINIG
• Refers to comparisons & ratio analysis (i.e. analysis of significant ratios & trends.
Purpose: -
- To assist auditor in planning NTE of other audit procedures.
- Investigating unusual fluctuations.
- Analysis of significant ratios & trends.
- Used as substantive procedures more effectively than test of details in reducing detection risk
• Depending on materiality of items involved: -

- If more materiality level = perform analytical procedure plus other substantive procedures
Extent - If less material = may rely solely on analytical procedures.
Reliance on • Depending on other inherent risk & control risk-more risk = more reliance on comprehensive
Analytical test of details & not solely on analytical procedures.
Procedures • Accuracy of results of analytical procedures.
• Other audit procedures directed towards same objective.
• To obtain relevant & reliable audit evidence when using substantive audit procedure.
Auditor's • To design & perform SAP near end of audit.
Objective • If there is unusual fluctuations, then make enquiry of mgt & perform extended procedures (further
investigation, obtain more explanations, more evidence)

AUDIT SAGA
FACTORS CONSIDERED WHILE PERFORMING Determine suitability of particular substantive Analytical Review Procedure for given assertion
Suitability taking a/c of assessed RMM & Tests of details if any for these assertions.
(Example: - In case of predictable relationships, analytical procedures is more suitable.)
ANALYTICAL PROCEDURES:
Evaluate Reliability of data from which auditor’s expectation of recorded amt or ratios is
developed, taking to a/c: - - Controls over Preparation of Info
Reliability
- Nature of data/ Info - Source of Info
- Relevance of Info - Comparability of Info
Expectations To develop an expectation of recorded amount & evaluate whether expectation is sufficiently
precise to identify misstatement
Difference of recorded amt from expected values i.e. acceptable without further investigation
& if analytical procedures performed as per SA, identify fluctuations or relationships
inconsistent with other relevant info or that differ from expected values by significant amt,
Difference
Auditor to Investigate such differences as result of Analytical Procedures by: -
- Inquiring mgt & obtaining SAAE relevant to mgt responses.
- Performing other audit procedures as necessary in circumstances.
SA 530 : - Audit Sampling

(Audit Sampling = Refers to application of Audit Procedures to less than 100% of FS)
(Non Sampling Risk = Erroneous conclusions reached)

Risk that auditor's conclusion based on sample is different from conclusion if entire population were
SAMPLING
subjected to same audit procedure.
RISK
• Conclusion based on Sample selected not consistent with Whole population based Sample)
• Opinion based on 100% FS/ Larger sample size (-) Opinion based upon Selected sample size
Risk Impact on Opinion

Under reliance and incorrect rejection More audit work. Report not erroneous.
over reliance and incorrect acceptance Erroneous report by the auditor
TYPE OF SAMPLING RISK

Situation Risk Type
Arises in Test of Controls Risk of over reliance and under reliance
Arises in Test of Details Risk of incorrect rejection and incorrect acceptance
Risk factors Kept in mind to apply Sampling Techniques Auditor concerned with this type
Sampling risk can lead to two types of erroneous conclusions: - of erroneous conclusion as it
affects audit effectiveness & is
If Test of Controls If Test of Details
more likely to lead to
Inappropriate Audit Opinion
That controls are more effective That material misstatement
than they actually are or in case of not exist when in fact it does This type of Erroneous
Test of Details
conclusion affects audit
That material misstatement not efficiency as it leads to
That controls are less effective than exist when in fact it does not additional work to establish that
they actually are or in case of Test initial conclusions were incorrect
of Details

AUDIT SAGA
* Sample size selected on professional judgment, personal experience & knowledge of auditor.
* Every item would have equal chances of selection or de-selection.
Random * Commonly used for many years due to its simplicity in operation.
selection/ * Auditor on basis of his personal experience will determine size of sample & express it in terms
Non – that no. of pages or personal accounts in purchases or sales ledger to be checked.
Statistical * Example: - March, June & September may be selected in yr one &different months would be
selected in next yr. Attempt would be made to avoid establishing pattern of selection yr after
METHODS OF SELECTION OF SAMPLE SIZE
yr to maintain element of surprise as to what auditor is going to check.
* Sample size select on basis of Permutations & Combinations, Simulation models & Probability.
* More scientific than testing only on auditor’s own judgment as it involves use of math laws.
Systematic
* Reasonably wide application where population tested consists of large no. of similar items.
Selection/
Statistical * Helpful in transactions involving compliance testing, trade receivables’ confirmation, payroll
checking, vouching of invoices and petty cash vouchers.
Monetary
Value-weighted selection in which sample size, selection &evaluation results in conclusion in
Unit
monetary amt
Sampling
* Selection of a block(s) of contiguous items from within population.

Block * Block selection cannot ordinarily be used in audit sampling because most populations are
Selection structured such that items in a sequence can be expected to have similar characteristics to each
other, but different characteristics from elsewhere in population.
Adopted by auditor in cases where sample does not follow a structured sampling.
Haphazard
- Haphazard selection is not appropriate when using statistical sampling.
Selection
- All items in a population should get a chance of being selected.
Misstatement
* Tolerable error is amount of error that is acceptable to auditor in making a sample choice.
Tolerable
* While designing Sample, auditor determines tolerable misstatement to address risk that MMs may cause FSs
to be materially misstated to provide a margin for possible undetected misstatements.
* Tolerable misstatement is application of performance materiality, to a particular sampling procedure.
* Tolerable misstatement may be same amt or an amt lower than performance materiality.
Sample
* While designing, consider purpose of audit procedure & characteristics of population.
Design, Size
* Sample size sufficient to reduce sampling risk to Acceptably low level.
AUDITOR RESPONSIBILITY
& Selection
* Selection in way that each sampling unit in population has equal chance of selection.
of items
* Perform audit procedures on each item selected.

Perform * If audit procedure not applicable to selected item = perform procedure on replacement item.
Audit
Procedures * If auditor unable to apply designed audit procedures/ alternative procedure to selected item,
consider that item as a deviation
Evaluation
of results of To determine whether use of audit sampling has provided reasonable basis for conclusions about
Audit population that has been tested.
Sampling

AUDIT SAGA
SA 540 : - Auditing Accounting Estimate including Fair Value

Accounting Estimates & Related Disclosure
• Approximation of monetary amount in absence of precise means of measurement

• Used for amt measured at Fair Value where there is estimation uncertainty as well as for other amt
that require estimation.
• Degree of estimation uncertainty affects RMMM of accounting estimates.
Meaning & • Difference in outcome of accounting estimate & amount originally recognized in FS not
Nature of necessarily represent MM. This is particularly case for Fair Value Accounting Estimate.
Accounting
Estimates Indicators of Possible Mgt Bias to Accounting Estimates: -
• Changes in accounting estimate or method for making it
• Use of entity’s own assumptions for Fair Value A/c estimates inconsistent with market assumptions
• Selection of a point estimate that may indicate a pattern of optimism or pessimism
A/c estimates with Low Estimation Uncertainty/ RMM A/c Estimates with High Estimation Uncertainty
• A/c estimates in business activities that aren’t complex • A/c Estimates highly dependent on Judgment
• A/c estimates frequently made & updated as routine nature (Outcome of pending litigation)
• A/c estimates derived from data i.e. readily available such • A/c Estimates not calculated using recognized
as published interest rate data or share exchange-traded
measurement techniques.
prices
• Fair value A/c estimate where method of measurement • A/c Estimates where Auditor’s review of similar A/c
prescribed by Applicable FRF is simple & applied easily estimates made in prior period FS indicate substantial
• Fair value A/c estimates where model used to measure A/c differ in original A/c estimates & actual outcome.
estimate is well-known or generally accepted provided that • Fair value A/c estimates for which a highly
assumptions or inputs to model are observable. specialized entity developed model is used.
• Allowance for doubtful accounts. • Inventory obsolescence.

• Depreciation method or asset useful life. • Warranty obligations.
Examples
• Provision against carrying amount of Investment where there is uncertainty of its recoverability.
of A/c
Estimates • Outcome of long term contracts.
• Financial Obligations / Costs arising from litigation settlements and judgments.
Estimates where current transaction cost basis is used or based on condition prevailing in market.
Situations/ Examples where Fair Value Accounting Estimates required: -
• Property or equipment held for disposal • Share-based payments
Fair Value
• Complex financial instruments, which are not traded in an active and open market
Accounting
Estimates • Assets or Liabilities acquired in business combination including goodwill & intangible assets.
• Exchange of assets or liabilities between independent parties without monetary consideration.
(Ex: non-monetary exchange of plant facilities in different lines of business)
If there is difference between auditor's range & estimate by mgt: -

Reporting
under SA 540 • Ask Mgt to adjust OR • Qualified or Adverse Opinion if not adjusted by mgt.

AUDIT SAGA
Auditor should obtain sufficient & appropriate accounting estimate that all estimates by mgt used in
Duties of preparation & presentation of FS are: -
Auditor - Reasonable &
- Disclosed properly as per FRF.
Risk Assessment Procedures Further Audit Procedures

• Understand Nature of entity business & • Auditor may apply his own audit procedures to get his point
significance of use of estimate. estimate & should compare with Management Point Estimate.
• How Mgt identifies events, transactions & • Evaluate whether mgt has used Mgt Expert under SA 500.
conditions giving rise to need for a/c estimates • Auditor may also use Expert under SA 620
• Make Enquiry of mgt for same
• Evaluate process used by mgt to make estimate • Consider consistency of estimation procedures applied by mgt.
• Assumptions used • If changed, whether change is justified.
• Confirm from mgt, how they ensure reliability • Evaluate reasonableness of accounting estimates, disclosures,
of data used in estimates & method obtain Written Representation.
• Assumptions used.
Material FS assertions based Estimates by Mgt = Auditor to minimize RMM
Obtain understanding for identification & assessment of Estimation making process adopted by mgt includes: -
RMM for accounting estimates by: -
• Requirements of applicable FRF relevant to A/c • Method where applicable model used in making A/c estimates.
Estimates, including related disclosures. • Relevant controls.
• How Mgt identifies those transactions, events & • Whether management has used an expert?
conditions that may give rise to need for A/c estimates to • Assumption underlying the accounting estimates.
be recognized or disclosed in FS. • Whether change from prior period in methods for making
• Make Inquiries of mgt about changes in circumstances accounting estimates & if so why?
giving rise to new or revision of existing a/c estimates. • How mgt assessed effect of estimation uncertainty
SA 550 : - Related Parties

(Audit Sampling = Refers to application of Audit Procedures to less than 100% of FS)
a) Holding, Subsidiary &Co-Subsidiary, Associates, Joint Venture & Co-Venture

b) Individuals having control or significant influence over entity.
c) Key mgt personnel & their relatives.
d) Enterprises over which (c) & (d) above have significant influence.
MEANING
* A person or other entity that has control or significant influence through 1 or more intermediaries,
Related over Reporting entity (Holding company) OR
parties * Another entity over which Reporting entity has control or significant influence, directly or
(RP) as indirectly through 1 or more intermediaries (Subsidiary company) OR
* Another entity under common control with reporting entity through having (Fellow Subsidiary): -
per AS 18
- Common controlling ownership or
- Owners who are close family members or
- Common key mgt.
(Entities under common control by State i.e., National, Regional or Local Government not related
unless they engage in significant transactions/ share resources to significant extent with 1 another)

AUDIT SAGA
Auditor Duties/ Objectives/ Procedures in relation to Related Parties
GENERAL SPECIFIC procedures if FRF establish accounting &

Disclosure for RP Relationship & Transactions
Obtain Understanding of RP Relation & Transactions: • Perform Audit Procedure to identify, assess & respond to RMM
- To recognize Fraud Risk factors • Evaluate whether identified RP relationships & Transactions
- To conclude whether F.S. in so far as that are appropriately accounted &disclosed as per FRF.
affected by those relations & transactions achieve: • Obtain WR from Mgt/ TCWG for: -
- - Disclosure to auditor identity of RP they are aware
a) True & Fair presentation & - Appropriate accounting & disclosure as per FRF
b) Not misleading.
(a) Auditor shall Inquire of mgt regarding: -

• Identity of entity's related parties, including changes from prior period
• Nature of relationships between the entity & these related parties
• If entity entered into any transactions with these related parties in period & if so type &
Understanding purpose of transactions.
Entity’s RP (b) Auditor to Inquire of mgt &others in entity & perform other risk assessment procedures
Relationships
considered appropriate to Obtain Understanding of the controls that Mgt established to: -
& Transactions
• Identify, A/c for & disclose RP Relationships & transactions as per applicable FRF
• Authorize & approve significant transactions & arrangements with related parties
RISK ASSESMENT PROCEDURE & RELATED ACTIVITIES
• Authorize & approve significant transactions & arrangements outside normal business.
Remain Auditor Remain Alert when Inspecting records or documents: -

Alert for RP To arrangements or other info indicating existence of RP relationships or transactions that
Info when mgt has not previously identified or disclosed to auditor.
Reviewing If Auditor Identify significant transaction outside entity’s normal business = Inquire mgt of: -
Records/ • Nature of these transactions
Docs • Whether Related parties could be involved.
• Entity Income Tax Returns (ITRs) • LIC Policies

• Info supplied by entity to regulatory authorities. • Internal Auditor's Report.
Possible • Shareholder registers to identify entity’s principal shareholders.
Sources for • Statements of conflicts of interest from mgt & TCWG.
identification of • Records of entity’s investments & those of its pension plans.
RP Info • Contracts & agreements with Key mgt or TCWG.
• Significant contracts & agreements not in entity’s ordinary course of business.
(Verify • Specific invoices & correspondence from entity’s professional advisors.
Existence/ • Significant contracts re-negotiated by entity during period.
Indications of • Docs associated with entity’s filings with a securities regulator (e.g., prospectuses)
Related Parties) • Minutes of meetings of shareholders & of TCWG.
• Bank, legal & 3rd party confirmations obtained as part of auditor’s procedures
• Other docs Auditor considers necessary. (MOA, AOA, Sec 189 Register, Annual Returns)
Domination of mgt by single person or small group of persons without compensating

controls is fraud risk factor
Identifying Indicators of dominant influence exerted by a related party include: -
Fraud Risk • Related party vested significant business decisions taken by Mgt or TCWG
Factors • Significant transactions referred to related party for final approval.
• No debate among Mgt & TCWG regarding business proposals initiated by related party.
• Transactions involving Related Party rarely independently reviewed & approved

AUDIT SAGA
• Have Attitude of professional skepticism. • Obtain WR on all RPT's.

Auditor • Ensure compliance of Financial Reporting Framework & Co's Act as far as related to RP
Responsibility • Obtain understanding of entity's Related Party’s Transaction
/ Audit • Perform Audit Procedures to identify , assess & respond to Risk of MM.
Procedures • Evaluate fraud risk factors in relation to related parties.
• Communicate to TCWG all significant matters arising in audit in relation to RPT's.
RESPONSE TO ASSESSED RISK
Auditor’s duties if identifies RP or RP transactions that mgt not previously

Where contract is of abnormally
disclosed to him high amt with RP/ Outside
entity's normal course of
business
Inquire Mgt regarding: - * Auditor to apply additional audit
• Business rationale (or lack thereof) of transactions suggests engagement in procedures in regards to contract
Fraudulent FR or to conceal misappropriation of assets terms, pricing & RP transaction,
• Terms of transactions are consistent with mgt explanations approve, authenticate & disclose.
• Transactions appropriately accounted for & disclosed as per applicable FRF. * Inspect contracts/ agreements &
evaluate transactions consistency
Remain alert when inspecting records/ docs for info indicating existence of RP with Mgt explanation & disclosure
relationships or transactions that mgt not prior identified or disclosed to auditor. as per FRF.
• Promptly communicate info to other members of Engagement team * Inspect Fraud Risk Factors.
• Where applicable FRF establishes related party requirements: - * If found unreasonable = Auditor
- Ask mgt to identify all transactions with newly identified RP to
- Inquire as to why entity’s controls over RP relationships & transactions failed modify audit report as per SA705.
to enable identification or disclosure of that RP
• Perform appropriate substantive audit procedures relating to such newly RP info Documentation by Auditor:-
• Reconsider risk & perform additional audit procedures as necessary • Name of RP identified
• If non-disclosure by mgt appears intentional & indicative of RMM due to fraud = • Nature of Relationship
Evaluate implications for audit. • Amt involved
Communicate to Mgt & TCWG & Request mgt to disclose it.

If Mgt agrees to disclose = Unqualified Report & If Mgt refuse = Modify Report & document reasons for refusal.
SA 560 : - Subsequent Events

1. Events occurring between Date of FS (Date of end of latest period covered by FS) & Date of Auditor's report &
2. Facts that become known to auditor after Date of Auditor's report (Date auditor dates report on FS by SA-700)
• When Auditor draws Audit plan = Check Subsequent Events irrespective of level of test checks employed
Auditor's Responsibility regarding
for checking of transactions during yr.

• More detailed check required for subsequent events to confirm certain assertions in FS (like payment made
by debtors after close of accounting period confirms outstanding debtors on B/S date have been realized)
Subsequent Events
• SA 560 = Establishes standards on auditor's responsibility regarding subsequent events.

• SA states that term "subsequent events" refers to events occurring between date of FS & date of auditor’s
report, & facts that become known to auditor after date of auditor’s report.
• AS 4 = "Contingencies & Events Occurring after Balance Sheet Date" deals with significant events, both
favorable &unfavorable, that occurs between B/S date & date on which FS are approved.
• AS 4 = Only those events contingency of which existed at B/S Date can be adjusted. Exceptions being: -
- When Going Concern is affected
- Proposed dividend. (Proposed Dividend not requires any adjustment under Revised Schedule III).
• SA 560 lays down that auditor should consider effect of subsequent events on FS & on auditor's report. (
(When Time between close of yr- end &adoption of A/c is about to take place, examination of subsequent
events gains more importance)

AUDIT SAGA
• Perform audit procedures designed to obtain SAAE that all events occurring between Date of FS & date of
auditor’s report that require adjustment of or disclosure in FS = have been identified.
Audit Procedures on Subsequent Events
• Risk Assessment in Determining NTE of such audit procedures to include following: -

- Obtaining Understanding of procedures mgt established to ensure subsequent events are identified.
- Inquiring mgt& TCWG whether any subsequent events have occurred which might affect FS.
- Reading minutes of meetings of entity’s Owners (GM), Mgt (BODs) & TCWG (Executive committees)
held after date of FS & inquiring matters discussed at such meetings for which minutes not available.
- Collect info from other sources like Budgets/ Estimates, Cash Flows, Forecasts, Interim FS etc.
- Make enquiries and hold discussions with Top Mgt.
- Details from company's lawyers for any Litigation matter.
- Reading entity’s latest subsequent interim FS
• If auditor identifies events that require adjustment of or disclosure in FS =auditor shall determine whether each
such event is appropriately reflected in those FS.
• Request mgt to provide WR that all events occurring subsequent to Date of FS requiring adjustments or
disclosures have been adjusted or disclosed.
• As per SA 560, if auditor is aware of any of matter after date of audit report & auditor is of opinion that, if
Matters Arising After Date of
matter had been known to him at date of auditor's report it may have caused auditor to amend his report,
auditor to perform additional procedures.
Auditor's Report
• If in exceptional circumstances, auditor performs new or additional audit procedures or draws new
conclusions after date of auditor’s report, auditor shall document: -
- Circumstances encountered
- New/ Additional Audit Procedures performed, SAAE obtained & conclusions reached & their effect
on Auditor’s report
- When & by whom resulting changes to audit documentation were made & reviewed.
Whether: -
• New commitments, borrowings or guarantees have been entered into.
• Sales or acquisitions of assets have occurred or are planned.
Matters • Increases in capital or issuance of debt instruments, such as issue of new shares or debentures,
where or an agreement to merge or liquidate has been made or is planned.
Specific • Any Assets have been appropriated by government or destroyed, for example, by fire or flood.
Inquiry
from • There have been any developments regarding contingencies.
Mgt • Any Unusual accounting adjustments have been made or are contemplated.
• Events have occurred or are likely to occur, questioning appropriateness of A/c policies used in FS
• Any Events have occurred calling into question Validity of Going Concern assumption.
• Any events have occurred that are relevant to measurement of estimates or provisions made in FS.
• Any events have occurred that are relevant to Recoverability of Assets.

AUDIT SAGA
SA 570 : - Going Concern

While planning & performing audit procedure & in evaluating results thereof = Auditor to consider appropriateness of
Going Concern Assumption underlying Preparation of FS.
• Consider events, conditions that may cast significant doubt on going concern.
• Determine whether Mgt has performed assessment of entity available to consider as Going Concern.
• Maintain Professional Skepticism.
AUDITOR RESPONSIBILITY
• Review latest interim FS, Subsequent Events after B/S Date, Review BODs minutes &Budgeted Cash flow
• Communicate to TCWG events/conditions that may cast significant doubt on entity's ability on Going Concern.
• If Material Uncertainty exists &Mitigating Factors present = Auditor may include matter in EOM Para +
Unmodified Report & as per Revised SA 570 also include matter in “Material Uncertainty Relating to Going
Concern Basis of Accounting” (MURGA).
• Obtain SAAE & conclude on Appropriateness of mgt use of Going Concern basis of in preparation of FS
• Conclude based on SAAE, whether material uncertainty exists about ability to continue as Going Concern.
• These responsibilities exist even if FRF used in Preparation of FS does not include Explicit requirement for
mgt to make Specific assessment of Entity’s ability to continue as Going concern.
• Absence of any reference to material uncertainty about Entity’s ability to continue as Going concern in auditor’s
report cannot be viewed as Guarantee as to Entity’s ability to continue as Going concern.
• Net liability or net current liability position. • Adverse key financial ratios.
Financial Indicators
• Withdrawal of financial support by trade payables • Arrears or discontinued of dividends.

CONDITIONS THAT MAY CAST DOUBT ON GOING
• Negative operating cash flows in historical or prospective FS

• Substantial operating losses or significant deterioration in the value of assets used to generate cash flows.
• Inability to pay Trade Payables on due dates.
• Inability to comply with the terms of loan agreements.
• Change from credit to cash-on-delivery transactions with suppliers.
• Inability to obtain financing for essential new product development or other essential investments.
• Shortages of important supplies • Labor difficulties.

• Emergence of a highly successful competitor. • Loss of key mgt without replacement.
Operating
Indicators • Loss of a major market, key customer(s), franchise, license, or principal supplier(s).
• Management intentions to liquidate the entity or to cease operations.
• Non-compliance with capital or other statutory requirements.

• Pending legal or regulatory proceedings against the entity that may, if successful, result in claims that
entity is unlikely to be able to satisfy
Others
• Changes in law or regulation or government policy expected to adversely affect the entity. Uninsured
or underinsured catastrophes when they occur
• It is management responsibility to assess Entity’s ability to continue as Going concern even if FRF not
Continue as Going
Entity’s Ability to
Responsibility for
include an explicit requirement to do so.

Assessment of
• Mgt assessment of entity’s ability to continue as Going Concern involves making a judgment, at
Concern
particular Point of Time about inherently uncertain future outcomes of events or conditions.
• Following factors are relevant to that judgment: -
- Degree of uncertainty associated with the outcome of Event or Condition.
- Size, complexity, nature & condition of business & degree to which it’s affected by external factors

AUDIT SAGA
Management’s
exists by performing Additional Audit Procedures including consideration of

Additional Audit Procedures When Events or Conditions Are Identified
= Request mgt to make it
(Auditor to obtain SAAE to determine whether or not material uncertainty

Assessment of Ability
= Evaluate mgt plans for future actions for its going concern assessment.
to Continue as Going
= Evaluate if mgt plans are feasible in circumstances& also whether
concern if not
outcome of it is likely to improve situation.
prepared yet
mitigating factors. These procedures includes: -
= Determining the adequacy of support for any planned disposals of assets.
Cash
that may cast Doubt on going concern
= Analyzing &discussing cash flow, profit & other relevant forecasts with mgt by: -
Flow
- Evaluating Reliability of underlying data generated to prepare forecast
Forecast
- Determine whether adequate support for assumptions underlying forecast.
= Analyzing & discussing entity’s latest available interim financial statements.

Subsequent
= Performing audit procedures regarding subsequent events to identify those that
Events
either mitigate or otherwise affect entity’s ability to continue as going concern.
Representation
= Confirming existence, legality and enforceability of arrangements to provide or

Written
maintain financial support with related &third parties & assessing financial ability of
such parties to provide additional funds.
= Requesting WR from Mgt& TCWG regarding their plans for future actions &
feasibility of these plans.
= Obtain & review reports of regulatory actions.

= Read terms of debentures & loan agreements & determine whether any breaches.
Others
= Read minutes of meetings of shareholders, TCWG & committees for financing difficulties.
= Inquire of entity’s legal counsel on existence of litigation & claims& reasonableness of
mgt assessments of their outcome & estimate of their financial implications.
= Evaluate entity’s plans to deal with unfilled customer orders.
REPORTING RESPONSIBILITY AS PER SA 570

Going Concern Assumption Auditor's Opinion
Appropriate Unmodified Opinion.
Uncertainty relating to Going Concern disclosed by Mgt Unmodified Opinion but disclose in (MURGA) Material
Uncertainty Relating to Going Concern Para.
Uncertainty relating to Going Concern not disclosed by Mgt Qualified Opinion.
Inappropriate Adverse Opinion.
Govt. department ordered closure of Plant (Pending outcome of law suit) (Inability to continue as Going Concern)
Material Uncertainty exists & When auditor concludes that use of Going Concern assumption is appropriate in
circumstances but a material uncertainty exists, Auditor shall determine whether FS: -
• Adequately describe principal events or conditions that may cast significant doubt on Going Concern
• Include Mgt plans to deal with these events or conditions
• Disclose clearly that there is a material uncertainty that may cast significant doubt Going concern & so that it may be
unable to realize its assets & discharge its liabilities in normal course of business.
= Para 10 of AS 1- Going concern + SA 570 Reporting Responsibility + Auditor Responsibility
 If mgt fails in adequate disclosure in FS about it as asked by Auditor = Modify opinion & include in report
 If In-appropriate assumption used in FS is material & pervasive as to make FS misleading = Adverse opinion
 If adequate disclosure is made FS = Unmodified opinion & include matter in EOM Para & also as “Material
Uncertainty Relating to Going Concern Basis of Accounting” (MURGA) as new heading in Auditor’s Report to: -
- Highlight existence of material uncertainty relating to event or condition casting doubt on Going Concern
- Draw attention to note in FS that discloses matters

AUDIT SAGA
SA 580 : - Written Representations (WR)
A written statement by mgt provided to auditor to confirm certain matters or to support other audit evidence.
(FS, Supporting books records & assertions do not constitute WR)
MEANING
• As per Section 143 of Co. Act 2013, Auditors are required to report as to whether they have obtained Info &
explanation as may be necessary for purpose of audit evidence. (WR is one of ways of obtaining such Info)
• WR not relieve Auditor of Reporting Responsibility as still Auditor will have to perform Substantive
Procedures irrespective of fact that WR has been received.
If mgt does not provide WR responsibilities of auditor are as under: -

- Discuss matter with mgt
- Re-evaluate Integrity of mgt & Evaluate its Potential effect.
- If doubt about mgt integrity or WR not provided = Take possible actions.
- Also consider effect on auditor opinion in Audit report.
- Additionally not providing of WR will be regarded as Limitations on auditor scope. Auditor hence to communicate
same to TCWG as per SA 260.
Its Professional Judgment of Auditor to obtain WR but some SAs requires mandatory obtaining written WR.
(SA 250, SA 501, SA505, SA 540, SA 550, SA 560 & SA 570)
• If Auditor has concerns about Competence, Integrity, Ethical values or Diligence of mgt or about it
commitment, auditor shall determine effect that such concerns may have on Reliability of
representations (Oral or Written) & Audit Evidence in general.
• If WR is inconsistent with other audit evidences obtained = Perform additional audit procedures to
Extent of resolve it.
Reliance - If matter remains unsolved, reconsider reliability of WR.
on WR - Example: - Mgt provides WR that no frauds in organization but other evidences indicate
by existence of it.
Auditor
• If Auditor concludes that WR are not reliable: -
- Re-Evaluate Integrity of mgt &Evaluate its Potential effect.
- If doubt about mgt integrity or WR not provided =Take appropriate possible actions.
- Also consider effect on auditor’s opinion in Audit report.
* A Written statement provided to Auditor to confirm certain matter or to support other audit evidence.
Mgt Representation
Basic Elements of
* Not include FS, Assertions, or Supporting Books & records.

* Auditor to request Mgt to provide WR, that it fulfilled responsibility to prepare FS as per applicable FRF.
* WR shall be for all FS & periods referred to in Audit Report.
* WR can’t be a substitute for other audit evidence, that auditor could reasonably expect to be available.
* WR provides necessary audit evidence for purpose of SA 500 but not provide SAAE.
* Auditor cannot form his opinion solely on WR.

AUDIT SAGA
SA 600 : - Using work of Another Auditor

This SA does not deal with: - * 2 or more Joint auditors OR * Auditor’s relationship with Predecessor Auditor
Another Auditor: - Person other than principal auditor of company. (Example: - Branch Auditor or Auditor of Subsidiary)
{In case Other auditor may happen to be Person other than a professionally qualified auditor like where component is
situated in a foreign country & applicable laws permit a person other than a professionally qualified auditor to audit FS of
such component. In such circumstances, procedures outlined above assume added importance}
Relevance of SA 600 while Auditing Consolidation of FS: -

* Principal Auditor use work of Subsidiary co. auditor, Associates & Joint ventures
* Considerations by Principal Auditor + Reporting + Division of Responsibility + Documentation
• Before Use of work of other auditor = Principal Auditor to evaluate competence of another auditor.
(Principal auditor is not required to evaluate professional competence if another auditor is a member of ICAI)
Considerations by Principal Auditor
• Principal auditor normally entitled to rely on work of such auditor unless special circumstances make it essential
to visit component and/ or to examine BOA & other records of said component.
• Advice/ May give directions in writing to other auditor regarding specific procedures/ observations to be done.
• Obtain SAAE regarding fact whether work of other auditor is sufficient for his purpose.
• Review Written Summary of other Auditors audit procedure & ask another Auditor to furnish questionnaire &
perform supplementary test.
• Consider significant findings of other auditor.
• May discuss with other auditor & mgt of component, Audit findings or other matters affecting financial info
• If there is modification in another auditor's report then = Principal auditor to consider whether modification in
his report is required.
• Obtain representation from other auditor that accounting, auditing &reporting requirements complied.
• If Principal auditor uses work of another auditor, Principal auditor to determine how work of other auditor will
affect Audit (SA-705 = Principal auditor to modify report if he can't use work of other auditor or perform
sufficient additional procedures
Coordination in Principal Auditor & Other Auditor
Principal auditor to properly another auditor as below: - Other Auditor to coordinate as below: -
• There should be Sufficient Liaison between Principal • Adhering to Time Table.

Auditor & Other Auditor. • Bringing to attention of Principal Auditor any Significant
• For this purpose, Principal auditor may find it necessary Finding.
to issue Written Communication to other auditor
• Compliance with relevant Statuary Requirements.
• Principal Auditor should advise other auditor of any
matters that come to his attention that he thinks • Respond to detailed Questionnaire.
may have important bearing on other auditor’s work.
Role of Other Auditor (Auditor of Subsidiary Company) Role of Principal Auditor (Auditor of Parent Company)
• On knowing context in which his work is to be used by • Necessary to issue Written Communication(s) as Principal
Principal Auditor = should co-ordinate with principal auditor auditor to Other auditor.
• Ensure compliance with relevant statutory requirements. • Principal auditor may require other auditor to answer
• Respond timely to Questionnaire sent by Principal Auditor. Detailed Questionnaire regarding matters on which
principal auditor requires Info to discharge his duties

AUDIT SAGA
Principal Auditor to document in his working papers following: -

• Components whose financial info was audited by other auditors
Documentation
• Their significance to financial info of entity as a whole

• Names of the other auditors
• Any conclusions reached that individual components are not material
• Procedures performed & conclusions reached
• Manner of dealing with Modifies Report of other Auditor while finalizing Principal Auditor’s Report.
Example: - Principal Auditor would document results of discussions with Other auditor & Review of Written
Summary of Other auditor's procedures.
• Materiality of Assertion in financial info which he audits

Considerations • Principal auditor's degree of knowledge regarding business of components
in accepting
• RMM in financial info of components audited by Other Auditor
position as
Principal • Performance of additional procedures regarding components audited by Other Auditor resulting in
Auditor Principal Auditor having significant participation in such audit.
Auditor working papers by
• Principal auditor not have right to access to audit working papers of Branch auditor's
Auditor of Holding Co.
Access to Subsidiary’s
• SA 230 & SQC 1 = Audit documentation property of Auditor & may at his discretion, make it available
• SA 230-working paper is property of auditor.
• Clause 1 of Part 1 of Second Schedule & SA 200 i.e. Confidentiality requirement.
• ICAI clarification: - Auditor not required providing client or other auditor access to working papers.
• SA 600 = Auditor can rely on work of other auditor without right of access to working papers if due
diligence exercised.
Holding Co. Auditor can’t access Working Papers of Subsidiary Co. but can ask Questions & seek
clarifications
Principal auditor to express Qualified opinion or Disclaimer of opinion due to Limitation on Scope
of audit if: -
• Principal auditor concludes based on his procedures that work of Other auditor cannot be used &
• Principal Auditor not able to perform Sufficient Additional procedures regarding financial info of
Reporting component audited by Other auditor
Considerations = If other auditor issues or intends to issue modified auditor's report, Principal Auditor should
consider whether subject of modification is of such nature & significance in relation to Financial
info of Entity on which Principal auditor is reporting that it requires modification of Principal
auditor's report.
• Principal auditor is not responsible for work carried out by other auditor unless there are circumstances,
which should have aroused suspicion about Reliability of work performed by other auditor.
Responsibility
• When Principal Auditor has to base his opinion on Financial info of Entity as whole relying on Statements &
Division of
Reports of Other auditors = His report should state clearly Division of Responsibility for Financial info of
entity
• It should indicate extent to which financial info of components audited by the other auditors have
been included in financial info of Entity
Example: - Number of Divisions/ Branches/ Subsidiaries or other components audited by Other Auditors.

AUDIT SAGA
SA 610 : - Using work of Internal Auditor

• SA 610 N/A if entity does not have Internal Audit Function.
APPLICABILITY
• SA not deal when Individual Internal Auditors provide Direct Assistance to External Auditor in carrying Audit
• If entity has Internal audit function, requirements of SA relating to using work of that function do not apply if: -
- Responsibilities & activities of function are not relevant to audit
- Based on auditor’s preliminary understanding of function obtained as result of procedures performed
under SA 315, External auditor not expect to use work of function in obtaining audit evidence.
• Requirements in SA relating to direct assistance not apply if External auditor not plans to use internal auditors
to provide direct assistance.
Internal Audit A function of Entity that performs Assurance & Consulting Activities designed to evaluate &
Function improve effectiveness of entity’s governance, risk mgt & internal control processes
External Solely responsible for opinion expressed & responsibility not reduced by use of Internal Audit work or
Auditor Direct assistance. (SA 200 = Internal Audit Function & Internal auditors are both independent of entity)
External Auditor shall discuss planned use of Internal Auditor work with function as a basis for
Discussion
coordinating their respective activities.
External Auditor shall read reports & findings of Internal Audit function relating to work of
Internal Audit
Reports function that External Auditor plans to use, to understand NTE of audit procedures performed
USING WORK OF INTERNAL AUDIT FUNCTION
Determine if work * Objectivity of Internal Audit Function

of Internal Auditors * Technical competence of Internal auditors
is Adequate by * Whether work of Internal auditors is likely to be carried out with due professional care
evaluating * Whether there is likely to be effective communication in Internal & external auditors.
performed by Internal Auditors
for External Auditor evaluated
• Work was performed by internal auditors having competence & skill

Adequacy of Specific work
• Work was properly supervised, reviewed and documented i.e. due professional care has been take
• Adequate audit evidence obtained to enable the internal auditors to draw reasonable conclusions
• Conclusions reached are appropriate in circumstances & any reports prepared by Internal Auditors
are consistent with results of work performed
• Exceptions/ unusual matters disclosed by Internal Auditors are properly resolved.
= External Auditor to Test Check few items & observe procedures performed by Internal Auditors.
= If satisfied about Appropriateness of work = can rely on report but if he finds that it’s not in order =
decide otherwise.
= Final responsibility to express opinion on FS remains with Statutory/ External Auditor.
NTE of External Auditors audit procedures shall be responsive to his evaluation of : -

- Amount of judgment involved& Assessed RMM
Factors
- Extent to which Internal Audit function organizational status &relevant policies &
procedures support objectivity of Internal Audit
- Level of competence of function & include re–performance of some of work.
External Auditor shall evaluate whether his conclusions regarding Internal Audit function &
Evaluation determination of NTE of use of work of Internal Audit function remain appropriate.

AUDIT SAGA
Internal audit function may assess governance process in its accomplishment of objectives
Activities Relating
on ethics & values, performance mgt & accountability, communicating risk to appropriate
to Governance
areas of organization.
SCOPE OF INTERNAL AUDIT FUNCTION
Internal audit function may assist entity by identifying & evaluating significant exposures
Activities Relating
to risk & contributing to improvement of risk mgt & internal control (including
to Risk Mgt
effectiveness of FR process).
Evaluation of internal control: - Internal Audit function may be assigned specific responsibility for
reviewing controls, evaluating their operation & recommending improvements thereto.
Activities Relating to Internal
Examination of financial and operating information: - Internal audit function may be assigned to review
means used to identify, recognize, measure, classify & report financial & operating info & to make specific
inquiry into individual items, including detailed testing of transactions, balances & procedures.
Control
Review of operating activities: - Internal audit function may be assigned to review economy, efficiency &
effectiveness of operating activities, including non- financial activities of an entity.
• Review of compliance with laws & regulations: - Internal Audit function may be assigned to review
compliance with laws, regulations & other external requirements & with mgt policies & directives and
other internal requirements.
Examples of • Testing of the operating effectiveness of controls.

work of Internal • Substantive procedures involving limited judgment.
audit function • Observations of inventory counts.
that can be used • Tracing transactions through the information system relevant to financial reporting.
by External • Testing of compliance with regulatory requirements.
Auditor • Audits or Reviews of financial info of subsidiaries that are not significant components to group
DIRECT ASSISTANCE
• Use of Internal Auditors to perform audit procedures under direction, supervision &review of external auditor.
• External auditor may be prohibited by law or regulation from obtaining direct assistance from internal auditors.
Statutory Auditor will determine NTE on which direct Direct assistance is not advisable on following: -
assistance can be taken. Statuary auditor has to determine • Matters involving Significant Judgments in Audit i.e.
whether direct assistance can be used i.e. to use work of - Assessing RMM
internal auditor under his direction, supervision & review. - Evaluate Sufficiency of Tests performed & A/c estimates
It is allowed when: - - Evaluate Appropriateness of mgt use of GC assumption
• It is not prohibition by law or regulation - Evaluating Adequacy of disclosures in FS & other
• There should be no significant threats to objectivity of matters affecting auditor’s report.
Internal Auditor • Matters on which RMM is high.
• Internal auditor should be competent & capable. • Matters in which Internal Auditor is already involved.
• When internal auditor not objective, competent & capable.
Precautions to be taken while using Direct Assistance: -

• External auditor shall not use internal auditors to provide direct assistance to perform procedures that prior to using internal
auditors to provide direct assistance for purposes of audit.
• External Auditor to Direct, Supervise & Review work of Internal Auditors on engagement as per SA 220
• External auditor in SA 505 to maintain control on external confirmation requests & evaluate result of external confirmation
procedure but not to assign this responsibility to Internal Auditor
(Internal Auditors may assist in assembling info for External Auditor to resolve exceptions in confirmation responses).

AUDIT SAGA
SA 620 : - Using work of Auditor’s Expert
• This SA deals with Auditor’s Responsibilities regarding use of Individual or org. work in field of expertise other
than accounting or auditing, when that work is used to assist auditor in obtaining SAAE
• This SA does not deal with: -
SCOPE
- Situations where engagement team includes member with expertise in specialized accounting or auditing
- Auditor’s use of work of Individual or org possessing expertise in field other than accounting or auditing,
whose work in that field is used by entity to assist entity in preparing FS (Mgt Expert)
• Auditor has sole responsibility for audit opinion expressed & that responsibility is not reduced by Auditor’s use
of work of Auditor’s expert.
• Individual or organization possessing expertise in field other than accounting or auditing, whose work
Auditor's in that field is used by auditor to assist auditor in obtaining SAAE.
Expert • An auditor’s expert may be either an auditor’s internal expert (who is a partner or staff, including
temporary staff, of the auditor’s firm or a network firm) or an auditor’s external expert.
(Procedures by Statutory Auditor to verify Certificate of Actuary): -

A = Assumptions to be used by expert & their consistence with previous year.
Procedure
S = Scope of experts work
to Evaluate
K = Knowledge of expert in particular field.
Experts
U = Understanding of experts work
Work
C = Competence, Capability & Objectivity of expert.
(ASK U
C = Contents of expert's report & usefulness to auditor.
CID)
I = Independence of expert & his relationship with client.
D = Data to be used by expert & its reliability
* Yes, but only after prior consent of expert.

Can Experts name be included in
* Auditor not to refer to work of Auditor’s expert in auditor’s report
Auditor's Report
containing unmodified opinion unless required by law or regulation & if
(Reference of Auditor’s Expert in
so required, auditor to indicate that reference not reduces auditor’s
Auditor Report)
responsibility for audit opinion .
Need for
* Auditor’s expert will have access to sensitive or confidential entity Info.
detailed &
* Respective roles or responsibility of auditor & auditor’s expert are different from those normally
written
expected
agreement
* Multi-jurisdictional legal or regulatory requirements apply
in Auditor
* Matter to which auditor’s expert’s work relates is highly complex
& Auditor’s
* Auditor has not previously used work performed by that expert
expert.
* Greater extent of auditor’s expert’s work, & its significance in context of audit
(Factors)
AREAS OF • Valuation of complex financial instruments, land & building, plant & machinery, Jewellery, works
USE/ of art, antiques, intangible assets, impaired assets & liabilities.
MATTERS • Actuarial calculation of liabilities associated with insurance contracts or employee benefit plans
OF • Estimation of oil & gas reserves.
EXPERTISE • Valuation of environmental liabilities & site Cleanup costs.
OF EXPERT • Interpretation of contracts, laws & regulations.
WORK • Analysis of complex or unusual tax compliance issues.

AUDIT SAGA
Auditor’s expert may be needed to assist auditor in 1 or more of following
Determine Need for

Auditor’s Expert
• Obtaining an understanding of the entity and its environment, including its internal control.
• Identifying and assessing the risks of material misstatement.
• Determining and implementing overall responses to assessed risks at the financial statement level.
• Designing and performing further audit procedures to respond to assessed risks at the assertion
level, comprising tests of controls or substantive procedures.
• Evaluate sufficiency and appropriateness of audit evidence obtained in forming an opinion on FS
• Nature of the matter to which that expert’s work relates

Determine • RMM in matter to which that expert’s work relates
(Before using experts work auditor should also apply professional skepticism as per SA-200)
.PROCEDURES FOLLOWED WHILE USING WORK OF AUDITORS EXPERT
NTE of • Significance of that expert’s work in the context of audit

those • Auditor’s knowledge & experience with previous work performed by that expert
procedures • Whether that expert is subject to auditor’s firm’s quality control policies &procedures.
Evaluating
Relevance, • Expert’s Findings or Conclusions & their consistency with other audit evidence
Adequacy & • Assumptions & methods used by Expert in his work
Reasonableness • Significant Source Data & its use to expert’s work.
(RAR) i.e. = If auditor determines that work of auditor’s expert is not adequate for auditor’s
Appropriateness purposes, auditor shall: -
/ Extent of - Agree with that expert on NTE of further work to be performed by that expert OR
reliance on - Perform further audit procedures appropriate to the circumstances.
Expert Work
Evaluate CCO of that Expert
C = Competence = Nature & level of Expertise

C = Capability = Ability to exercise competence
O = Objectivity = Personal effect of not being biased & no conflict of interest
Obtain info regarding CCO of mgt expert from Variety of sources by Auditor: -
(SA 500)
• Personal experience with previous work of that expert

• Discussions with that expert
• Discussions with others who are familiar with that expert’s work
• Knowledge of that expert’s qualifications
• Published papers or books written by that expert
Obtaining Understanding To enable Auditor to determine Nature, scope and objectives of that expert’s
of Field of Expertise of work for auditor’s purposes = Evaluate adequacy of that work for auditor’s
Auditor’s Expert purposes
Auditor shall agree, in writing when appropriate, on following matters with auditor’s expert: -
• Nature, scope and objectives of that expert’s work
Agreement
• Roles and responsibilities of the auditor and that expert
with
Auditor’s • NTE of communication in auditor & that expert, including form of any report to be provided
Expert by that expert
• Need for the auditor’s expert to observe confidentiality requirements.

AUDIT
AUDIT SAG
SAGA
Scope
SA 70
7000 : - Forming Opinion & Reporting on FS
* SA 700 is in context of general purpose FS only as FS under special purpose framework dealt by SA 800 & 805
* Not deals with audit of particular FS out of complete set or any particular component of FS
= Auditor to form an opinion on whether FS are prepared in all material respects as per applicable FRF.
= Auditor
uditor needs to conclu
conclude
de whether he obtained reasonable assurance FS as whole are free from MM
Auditors Responsibility
= Auditor to conclude that reasonable assurance has been obtained, auditor to consider: -
• If SAAE has been obtained.
• Whether uncorrected misstatements are material, individually or in aggregate & appropriate steps taken.
• Results of evaluation where auditor required to evaluate if FS prepared as per applicable FRF by evaluat
evaluating:
ing: -
- Significant policies Selected & Applied are adequately disclosed.
- Accounting policies so selected & applied are consistent with framework requirements.
- Mgt's estimates are reasonable.
- FS fulfill Qualitative requirements i.e. Relevance, Relia
Reliability,
bility, Understandability & Comparability, etc.
- Adequate disclosures has been made.
- Terminology used, including Title of FS is Appropriate.
BASIC ELEMENTS/ CONTENTS OF AUDIT REPORT

Title Independent Auditor
Auditor’ss Report
Addressee Audience Addressed (To Members of XYZ Ltd.)
1st section of Auditor’s Report to include Auditor’s opinion & have heading “Opinion.”
Opinion section of Auditor’s Report shall also: -
Auditor’s Identify entity whose FS are audited
Opinion State that FS have been audited
Identify Title of FS that comprise complete set of FS
Refer to Summary of Important policies & other explanatory info
Specify Time period covered by audited FS
Auditor’s report to include a section, directly following Opini
Opinionon section, with heading “Basis
for Opinion” that: -
 States Audit was conducted in accordance with SAs.
Basis for  Refers to section of auditor’s report that describes auditor’s responsibilities under SA.
Opinion  Includes Statement that Au Auditor
ditor is independent of entity as pe
perr relevant ethical
requirements relating to Audit & fulfilled auditor’s other ethical responsibili
responsibilities
ties as per
these requirements. Statement shall refer to Code of Ethics issued by ICAI.
 States if Auditor believes Audit evidence obtained is SAAE to provide basis for Opinion.
Going Concern Where applicable, the auditor shall report in accordance with SA 570.
Key Audit  For Audits of complete sets of General Purpose FS of listed entities, auditor shall
Matters communicate Key Audit Matters in Auditor’s report as per SA 701.
(KAM)  When Auditor is otherwise required by law or regulation or decides to communicate
key audit matters in auditor’s report, auditor shall do so in accordance with SA701.
Management's Preparation of F
FSS as per FRF Giving WR that Mgt is responsible for same
Responsibility Designing and Implementation of internal control
Auditor's Express opinion on FS Compliance with SA
Location of description of Auditor’s responsibilities for audit of FS.
Responsibility
OtherReporting
OtherReporting Sub heading “Report on Other Legal & Regulatory Requirements”
Responsibilities
esponsibilities
Audit Report to be S
Signed
igned in Auditors Personal Name
Signature of If Firm was appointed as Auditor = Signed in Personal & Audit Firm Name
Auditor Also mention Membership No.
As applicable Registration No. of Firm allotted by ICAI.
Place ; Date City where Audit report is signed & Date
AUDIT SAGA
KAM
SA 701: - Communicating KAM in Independent Auditor’s Report
• Matters that in auditor’s professional judgment were of most significance in Audit of FS of current period.
• Key Audit Matters (KAM) selected from matters communicated with TCWG.
Communicating KAM = not a substitute for modified opinion or for reporting as per SA 570
Auditor not to communicate matter in KAM when already required to modify opinion in SA705 as a result of matter
Factors/ * Areas of higher assessed RMM or significant risks identified in accordance with SA315.
Considerations while * Highly uncertain management estimates.
Determining KAM * Effect of the audit of significant events or transactions that occurred during the period.
Purpose of
• To enhance communicative value of audit report by providing greater transparency about audit performed
KAM
• To provide additional info to intended users of FS

• To assist intended users in Understanding entity & areas of Significant mgt judgment in audited FS
• To provide a basis to further engage with Mgt & TCWG about certain matters
Matters not to • A matter giving rise to modified opinion as per SA 705 (Revised)
be reported as • A material uncertainty related to events or conditions that may cast significant doubt on entity’s
KAM ability to continue as a going concern in accordance with SA 570.
Circumstances Auditor to describe each Key Audit Matter in Auditor’s Report unless: -
where KAM • Law or Regulation precludes (already includes) Public Disclosure about matter
not required in • Auditor determines that disclosure of such matter in Audit Report will have adverse
Auditor’s consequences as would outweigh Public Interest benefits of such communication.
Report • Entity has already disclosed info about such KAM.
SA 705 : - Modifications to opinion in Independent Auditor’s Report

Nature of Matter giving rise to Auditor's Judgment on Pervasiveness of Effect or Possible Effect on FS
Modification Material but not Pervasive Material and Pervasive
FS materially misstated Qualified opinion Adverse opinion
Inability to obtain SAAE Qualified opinion Disclaimer of opinion
Drafting of Qualified Opinion: -

"In our opinion & to best of Info & explanation given to us, except for matter
described in Basis of Qualified Opinion paragraph, FS reflect a True & Fair view.
Drafting of Disclaimer of Opinion Para: -

"Because of significance of matters described in Basis for Disclaimer of Opinion paragraph, we have not been able to
Obtain SAAE to provide a basis for an audit opinion; Accordingly, we do not express an opinion on FS.” OR
“In our opinion, because of significance of matter discusses in Basis for Adverse Opinion paragraph, consolidated
F/S do not give a True & Fair view in conformity with accounting principles generally accepted in India”.
• Before drafting Qualified/ Disclaimer Para = Auditor must prepare Basis for Qualified/ Disclaimer
opinion drawing intention of users of FS towards reason of giving Qualification/ Disclaimer.
POINTS
• Most of time auditor is not able to obtain SAAE due to: -
TO
- Limitations imposed by circumstances. - Limitations imposed by mgt.
NOTE
• FRF v/s Law-conflict = Discuss conflict with mgt
(If additional requirement can't be met even by additional disclosure, modify audit report as per SA 705)

AUDIT SAGA
MODIFICATIONS TYPES IN REPORT Auditor shall express Qualified Opinion when: -

Qualified
Opinion
• Auditor Obtained SAAE + Concludes Misstatements is Material but not pervasive to FS or
• Auditor unable to Obtain SAAE to base opinion + Concludes Possible effects on FS of undetected
misstatements (if any) could be Material but not Pervasive.
Auditor shall express Adverse opinion when: -

Opinio
Auditor Obtained SAAE + Concludes misstatements individually or in aggregate are both Material &
e
pervasive to FS.
Auditor shall disclaim an opinion when: -

Disclaimer of
• Auditor unable to Obtain SAAE to base opinion + Concludes possible effects on FS of undetected
Opinion
misstatements (if any) could be both Material and Pervasive.

• In extremely rare circumstances with multiple uncertainties = Auditor concludes that he obtained SAAE
regarding each of individual uncertainties it is not possible to form Opinion on FS due to potential
interaction of uncertainties & their possible cumulative effect on FS.
Auditor concludes based on SAAE obtained that FS as whole are not free from MM due to: -
Circumstance - Inappropriate Accounting Policies
s requiring - Inappropriate Selection of Accounting Policies
Modifications - Inappropriate or Inadequate Disclosures in FS OR
in Audit Auditor unable to Obtain SAAE to conclude that FS as a whole are free from MM due to: -
Report - Limitation Imposed by Mgt
- Circumstances beyond Entity Control (Example: Records destroyed by Fire)
- Circumstances relating to NTE of Auditor’s Work
PHYSICAL STOCK & FA VERIFICATION CAN’T BE CARRIED & SAAE CAN’T BE OBTAINED
Reporting Responsibility
* SA 501 = if attend physical count impracticable, Auditor to perform alternative audit procedures to obtain SAAE
(If it is not possible to do so = modify opinion in auditor’s report as per SA 705)
* Issue DISCLAIMER of opinion because auditor is unable to obtain SAAE that FS are free from MM & matter is
MATERIAL AND PERVASIVE.
Factors are to be considered in auditor’s reporting responsibility: -
• Inventories & Fixed Assets are material and PERVASIVE to FS
• Auditor unable to attend physical verification of inventories & FA as impracticable
• Auditor failed to obtain SAAE even by alternative audit procedures.
Draft Report to be incorporated in main Audit Report
AUDITORS RESPONSIBILITY PARA: - Our Responsibility is to express opinion on these FS based on our audit as per
SA issued by ICAI. Because of matters described in Basis for Disclaimer of Opinion paragraph, however we were not able
to Obtain SAAE to provide a basis for Audit Opinion.
Basis for Disclaimer of Opinion PARA: - We were appointed as auditors of Company & we report that we could not
observe counting of Physical Stock & Physical verification of FA due to civil & political unrest in foreign country where
the company has significant operation. We were unable to satisfy ourselves by alternative means concerning inventory
quantities and fixed assets of company held at March31st 20XX, which are stated in B/S at ₹XXX & ₹XXX respectively.
Disclaimer of Opinion: - Because of significant matters described in Basis for Disclaimer of Opinion paragraph, we have
not been able to Obtain SAAE to provide a basis for audit opinion. Accordingly, we do not express Opinion on FS.
Report on Other Legal and Regulatory Requirements: -As u/s 143 (3) of Co Act, 2013, we report that: -
As described in the Basis for Disclaimer of Opinion paragraph, we were unable to obtain all info & explanations which to
best of our knowledge and belief were necessary for purpose of our audit.

AUDIT SAGA
SA 706: - Emphasis of Matter Paragraphs & Other Matter

Paragraphs in Independent Auditor’s Report
• If auditor considers necessary to draw user’s attention to matter presented or disclosed in FS that in
MEANING
auditor’s judgment is fundamental to user’s understanding of FS = Include EOM Para

• EOM Para only if Auditor Not required to Modify opinion & matter isn’t KAM
• EOM highlights matter affecting FS included in note to FS by more extensively discussing matter.
• EOM Para does not affect Auditor’s Opinion.
• Large use of EOM Para = may diminish effectiveness of Auditor’s communication about such matters.
“Without qualifying our opinion, we draw attention to Note X of Schedule ………. to FS.”
EMPHASIS OF MATTER PARAGRAPH (EOM Para)
The Entity is defendant in lawsuit & filed counter action & Ultimate outcome of matter cannot
Drafting presently be determined & no provision made in FS for it.
of EOM Addition of paragraph, emphasizing Going Concern problem or significant uncertainty is
Para ordinarily adequate to meet auditor's reporting responsibilities regarding such matters. If multiple
uncertainties that are significant to FS, Auditor may consider it appropriate to express Disclaimer
of opinion instead of adding EOM Para.
Auditor to * When FRF prescribed by law or regulation unacceptable.

specifically include * To alert users that FS are prepared as per Special purpose framework.
EOM Para in * When facts known to Auditor after Date of Auditor’s report & auditor provides new/
Auditor’s report amended auditor report (SA 560)
Circumstances
include EOM
Auditor may
* Uncertainty relating to the future outcome of exceptional litigation or regulatory action.

Para
* Significant subsequent event that occurs between Date of FS & Date of Auditor’s report.
* Early application (where permitted) of a new AS that has Material effect on FS
* Major Catastrophe had or continues to have significant effect on Entity’s financial position.
EOM which may have Adverse effect on functioning of company: -

• Factors leading to material uncertainty casting doubt on ability to continue as going concern.
EOM effect
• Material uncertainty regarding outcome of litigation
on
Examples of EOM which may not have Adverse effect on functioning of company: -
functioning
• Excess managerial remuneration paid
of
• Accrual of contractually receivable claim based on mgt estimate if ultimate realization
Company
different from amt accrued
• On Frauds dealt with in FS of company & not having continuing effect on FS.
OTHER MATTERS PARAGRAPH (OM Para)
MEANINIG EXAMPLE
• If auditor considers necessary to draw user’s If auditor of CFS = Report includes an OM Para in respect of
attention to matter other than those presented or auditor's responsibility in respect of subsidiaries not audited by
disclosed in FS that in auditor’s judgment is him but which form part of consolidated FS under report.
fundamental to user’s understanding of FS = Auditor
“We didn’t audit FS of 1 subsidiary, whose FS reflect Total Assets
to include OM Para
• OM Para only if not prohibited by law & matter not (net) of ₹XXX as at March 31, 2016, total revenues of ₹XXX &
being KAM. net cash outflows amounting to ₹XXX for yr then ended. These
• If auditor to include EOM/ OM Para = communicate FS audited by other auditors M/s B& Co. CAs whose reports
with TCWG regarding this & wording of Para furnished to us by Mgt & our opinion is based solely on reports of
other auditors. Our opinion is not qualified in respect of this matter.”

AUDIT SAGA
SA 710: - Comparative Info & Figures & Comparative FS

Comparative Info Amt & disclosures included in FS in respect of 1 or more prior periods as per applicable FRF
• Where amt & other disclosures for prior period are included as an integral part of Current FS
Corresponding & are intended to be read only in relation to amt & other disclosures relating to current period
Figures • Not presented as Complete FS capable of standing alone but are Integral part of current period
FS intended to be read only in relationship to current period figures.
• Where amt & other disclosures for prior period are included for comparison with FS of
Comparative
current period but if audited are referred to in Auditor’s opinion.
FS
• Level of info included in those Comparative FS is comparable with FS of current period.
Obtain SAAE if Corresponding figures meet requirement of FRF by Assessing: -

• Accounting policies are consistent& if changes then adequately accounted, presented & disclosed
Auditor's • Whether Corresponding figures agree with prior period figures.
Duty • Appropriate Adjustments/ Disclosures made for any changes in Accounting Policies
Auditor to Request WR for all periods referred to in Auditor’s Opinion.
(Also Obtain Specific WR for any prior period item separately disclosed in current yr P/L)
As per SA 610& 710, when auditor’s report on prior period as previously issued: -
• Included Qualified opinion, Disclaimer of opinion, or Adverse opinion &
Audit
• Matter giving rise to modification resolved & properly accounted/ disclosed in FS as per FRF
Report
Auditor to: -
for
* Modify opinion on Current period’s FS in Basis for Modification Para in Auditor report.
Earlier yr
* Refer to both current period’s figures & corresponding figures in Description of matter giving
is
rise to modification when effects of matter on Current period’s figures are material.
Qualified
* In other cases, explain audit opinion modified because of effects or possible effects of
unresolved matter on comparability of current period’s figures & corresponding figures.
Audit Report for Earlier yr

AUDITOR’S REPORTING REQUIREMENTS
* Communicate misstatement with appropriate level of Mgt & TCWG

is Unmodified but Auditor
* Request that predecessor auditor to be informed.
obtains SAAE that MM
* Report only on current period if prior period FS are amended & predecessor
exists in prior period FS
auditor agrees to issue new auditor’s report on amended FS of prior period.
OR
* Verify whether misstatement has been dealt with as required under
Auditor concludes MM exists
applicable FRF & if that’s not case = Auditor to express Qualified opinion
affecting Prior Period FS on
or Adverse opinion in auditor’s report on Current period FS modified with
which Predecessor auditor
respect to corresponding figures included therein.
reported no modification
Auditor to State in OM Para in auditor’s report that corresponding figures = Unaudited

Prior Period FS
(Such statement does not however relieve auditor of requirement to Obtain SAAE that
Not Audited
opening balances not contain misstatements that materially affect Current period’s FS)
Predecessor Auditor
* Apply SA 510 to audit of opening balances.

Prior Period FS
* If prior period FS audited by auditor himself = Apply SA 560

Audited by
* If auditor permitted by law or regulation to refer to Predecessor Auditor’s Report on corresponding

figures & decides to do so = Then Auditor in addition to expressing opinion on Current Period’s FS
shall State in Other Matter paragraph in auditor’s report:-
- That FS of Prior period were audited by Predecessor Auditor &
- Type of opinion expressed by Predecessor auditor & if opinion was modified, Reasons therefore &
- Date of that report. (Unless Predecessor auditor’s report on prior period’s FS is revised with FS)
Comparative
• When Comparative FS presented = Auditor’s opinion shall refer to each period for which FS are
presented & on which audit opinion is expressed.
FS
• When Reporting on prior period FS in connection with current period’s audit, if auditor’s opinion on
such prior period FS differs from Opinion auditor previously expressed = Auditor shall disclose
substantive reasons for different opinion in Other Matter paragraph as per SA 706.

AUDIT SAGA
SA 720: - Auditor’s Responsibility in relation to Other Information

Meaning
Other information refers to Financial or non-financial information (other than F.S and the auditor’s report
thereon) included in the entity’s annual report.
Include
• Corporate Governance Report • Financial summaries • Financial ratios.

• Mgt Discussion & Analysis Report • Director’s Report • Chairman Speech • CSR Report
OTHER INFORMATION
SA Scope
• SA 720 deals with auditor’s responsibilities relating to other information relating to other info that is
included in entity’s annual report.
• These responsibilities do not require auditor to give assurance on other info.
Include separate section with heading “Other Info” when the auditor has obtained some or all of other info.
(It will be placed after heading Key Audit Matters).
Other information section shall include:
Reporting of Other Info
 Statement that Mgt is responsible for other info.

 Identification of other info obtained prior to the date of auditor’s report.
 For listed entity, identification of other info expected to be obtained after date of auditor’s report.
 Statement that auditor’s opinion on FS not covers other info & accordingly auditor does not
express any opinion or conclusion thereon.
 Description of auditor’s responsibilities relating to obtaining, reading, considering & reporting
other info as required by this SA.
 When other info obtained prior to date of audit report, a statement that auditor not identified
misstatement in other info & has nothing to report in this regard or a statement that describes
uncorrected misstatement of other info.
• Obtaining other info from Mgt by making appropriate arrangements to obtain such docs which
ROLE
consist of such info.

AUDITOR RESPONSIBILITY- SA 720 REQUIRE
• Auditor to Read Other Info to identify material inconsistency between other info & FS.
• If Material inconsistency identified in other info prior to audit report

Material • Ask Mgt to make correction.
misstatement/ • If mgt refuses to make correction, auditor to communicate matter with TCWG & request
Material that the correction be made.
inconsistency • If other info not corrected even after communicating to TCWG, then consider
exists in other implication for auditor’s report & communicate with TCWG about how auditor plans t
info address material misstatement in auditor’s report.
RESPONSE
• Possible implications may be reporting in the section “Other Information” Paragraph.
Material inconsistency • Material inconsistency identified in other information subsequent- to

/Material misstatement exists audit report = apply SA-560 if such misstatements effect FS.
subsequent to date of Audit • If not corrected by mgt, take appropriate action considering legal rights
Report & obligations.
Material misstatement exists Respond appropriately in accordance with other Standards. Example-SA
in FS 450, SA 315, 330, SA 705.

AUDIT SAGA
SA 800: - Special Considerations - Audit of FS prepared as

per Special Purpose Framework
In case of Special Purpose FS, financial info needs of Intended users are key factor in determining
Considerations
acceptability of FRF applied in preparation of FS. So auditor shall obtain Understanding of: - PIA
When
Accepting • Purpose for which FS is prepared • Intended user
Engagement • Acceptance of FRF (SA 210) {Mgt steps to determine applicable FRF acceptable in that case)
Special purpose FS FS prepared in accordance with Special purpose framework
AUDIT PROCEDURES TO BE FOLLOWED WHILE PLANNING &PERFORMING AUDIT UNDER SA 800
• Obtain Understanding of entity's Selection &Application of accounting policies.

• SA 200 (Revised) requires auditor to comply with Relevant Ethical Requirements, including those pertaining to
Independence & comply with SAs relevant for audit.
• Application of Requirements of SAs in Audit of Special Purpose FS = require special consideration by auditor.
• Communication with TCWG based on fact TCWG are responsible for overseeing preparation of FS.
• Alert Users = Include in EOM Para alerting users of Audit Report that FS prepared as per Special Purpose framework.
• SA-700 • PIA {Purpose FS is prepared + Intended user + Acceptance of FRF (SA 210)}
Form & Content
• Include in EOM Para to alert users that FS prepared as per Special Purpose framework.
of Audit Report
SPECIAL PURPOSE FRAMEWORK
MEANINIG EXAMPLE
* FRF designed to meet • Cash Receipts & Disbursements basis of A/c for Cash Flow that entity prepares for
financial creditor
info needs of specific users. • Financial Reporting provisions established by Regulator to meet requirements of regulator
* FRF may be a fair presentation
• FR provisions of Contract (Bond Indenture, Loan agreement or Project grant)
or a compliance framework.
SA 805: - Special Considerations - Audit of Single FS &

Specific Elements, A/c or Items of FS
• SA deals with special considerations in application of SAs to Audit of Single FS (Example: - Cash flow
Applicability
statement) or Specific element, a/c or item of FS (Example: - Cash & Bank Balances) including related notes.
• This SA not apply to Report of Component Auditor issued as a result of work performed on financial info
of a component at request of group engagement team for purposes of Audit of Group FS.
(Related notes = Summary of significant accounting policies &explanatory info relevant to FS or to element)

AUDIT SAGA
PERFORMING AUDIT
WHEN PLANNING &
CONSIDERATIONS
• SA 200 = SAs are written in context of Audit of FS i.e. to be adapted necessarily in circumstances
UNDER SA 805
when applied to audits of other historical financial info.
• In planning & performing Audit of a Single FS or of a specific element of a FS, auditor shall adapt all
SAs relevant to audit as necessary in circumstances of engagement.
• SA 200 = Comply all SAs relevant to audit irrespective auditor also to audit entity’s Complete set of FS.
• If auditor unable to comply with SAs relevant for his audit purpose (SA 240/ 550/ 570 i.e. Risk of
Fraud/ Related Parties/ Going concern) = he shall not accept engagement.
• Include in EOM Para to alert users it is audit of single purpose FS/ Specific item & not of entire FS.
Assure of PIA (Purpose for which FS is prepared + Intended users + Acceptance of FRF (SA 210)}
CONSIDERATIONS WHEN ACCEPTING
Application SA 200 requires auditor to comply with all SAs relevant to audit irrespective of whether
of SAs auditor is also engaged to audit entity’s complete set of FS or not
• SA 210 requires auditor to determine acceptability of FRF applied in preparation of FS

• In case of Audit of Single FS or of a specific element of FS, this shall include whether
Acceptability
application of FRF will result in presentation that provides adequate disclosures to enable
of FRF
intended users to understand info conveyed in FS or element & effect of material
transactions & events on Info conveyed in FS or Element.
• SA 210 requires agreed terms of audit engagement include expected form of reports to be
issued by auditor.
Form of
Opinion • In case of Audit of Single FS or of Specific element of FS, auditor shall consider whether
expected form of opinion is appropriate in circumstances.
• Auditor shall apply requirements in SA 700(Revised), adopted as necessary in circumstances of engagement.

Reporting considerations
• If auditor concludes that it is necessary to express Adverse opinion or Disclaim opinion on entity’s complete
Forming Opinion &
set of FS as whole, SA 705 does not permit auditor to include in same auditor’s report Unmodified opinion
on Single FS or specific element that forms part of those FS.
• He can give an unmodified opinion in such a situation only when he is not prohibited by law & both reports
are not published together & specific element does not constitute major part of entity’s complete set of FS.
• If also engaged to Report on Full FS, express Separate opinion on each Engagement.
• If Audited Single FS published with Entity Audited Full FS = Present Single FS clearly differentiated from
Full FS & auditor not to issue Audit Report on Single FS unless satisfied with the differentiation.
SA 810: - Engagements to Report on Summary FS

Historical financial info derived from FS but contains less detail than FS while still providing a
SUMMARY
FS structured representation consistent with that provided by entity’s FS

AUDIT SAGA
• Determine whether it is appropriate to accept engagement to report on Summary FS.

Auditor’s • Form Opinion on Summary FS based on an evaluation of conclusions drawn from evidence obtained.
Objective • Express clearly that opinion through written report that also describes basis for that opinion.
• Evaluate whether Summary FS adequately disclose their summarized nature & identify Audited FS.
Engagement to Report on Summary FS
• When Summary FS are not accompanied by Audited FS, Evaluate whether they describe clearly: -
- From whom or where Audited FS are available OR
- Law or regulation specifies that Audited FS need not be made available to intended users of Summary
FS & establishes criteria for Preparation of Summary FS.
• Evaluate whether summary FS adequately disclose applied criteria.
• Evaluate whether summary FSs are prepared in accordance with applied criteria.
• Evaluate whether audited FS are available to intended users of summary FS without undue difficulty, unless
law or regulation provides that they need not be made available.
• Evaluate in view of purpose of summary FS whether summary FS contain Info necessary &are at an
appropriate level of aggregation so as not to be misleading in circumstances.
• Compare Summary FS with related Info in audited FS to determine whether summary FS agree with or can
be re- calculated from related Info in audited FS.
MODIFICATIONS TO OPINION/ EOM PARA/ OM PARA IN
When
Auditor’s • But auditor is satisfied that Summary FS are: -
report - Consistent in all material respects or
contains - Are a fair summary of audited FS as per applied criteria
AUDITOR’S REPORT ON AUDITED FS
= Auditor’s report on Summary FS shall: -

Qualified
• State auditor’s report on audited FS contain Qualified opinion, EOM Para or OM Para &
opinion, • Describe Basis for Qualified opinion/ EOM/ OM Para in Auditor’s report on audited FS &
EOM Para or • Describe Effect thereof on Summary FS if any.
OM Para
When
Auditor’s Auditor’s report on Summary FS shall: -
report • State Auditor’s report on audited FS contains Adverse opinion or Disclaimer of opinion
contains • Describe basis for that Adverse opinion or Disclaimer of opinion
Adverse / • State as result of Adverse/ Disclaimer of opinion, it’s inappropriate to express Opinion
Disclaimer of
opinion
• If Summary FS not consistent in all material respects or not fair summary of audited FS
Modified
as per applied criteria &
Opinion on
Summary FS • Mgt does not agree to make necessary changes.
•Assure of PIA (Purpose FS is prepared + Intended users + Acceptance of FRF (SA 210)}
BEFORE • Whether applied criteria is acceptable & properly disclosed.
ACCEPTING
(If auditor concludes that applied criteria is not acceptable = he should not accept assignment)
ASSIGNMENT/
AUDIT • Ensure that available FS are available to intended users without undue difficulty.
PROCEDURE • This assignment may be accepted only by Auditor who conducted audit of Annual FS.

AUDIT SAGA
SRE 2400: - Engagements to Review FS

• This SRE shall be Adopted & Applied as Necessary in Review of Other Financial Information.
Applicability
•When it will be applicable: -

- It will be applicable when Practitioner engaged to Perform Review of Historical Financial Info. &
- He is not an auditor of Entity’s Historical FS.
• When not Applicable: -
- When auditor’s performing Quarterly Review Engagement. (Interim Financial Info.)
BASIS OF DIFFERENCE AUDIT REVIEW
Time More Less

Procedures Detailed till we obtain satisfaction Only inquiry and analytical procedures
Level of assurance Reasonable ( high ) Moderate (limited)
Nature of opinion Positive assurance Negative assurance
Wording of opinion FS gives true and fair view Did not receive any info which suggests MM
Example Company audit Quarterly review
Type of Standard Applicable SA SREs
Unless required by law or regulation, the practitioner shall not accept a review engagement if: -
Factors Affecting Acceptance
• Practitioner is not satisfied: -

& Continuance of Client
Relationships & Review
- That there is a rational purpose for the engagement OR

- That a review engagement would be appropriate in the circumstances.
Engagements
• Practitioner has reason to believe that ethical requirements including independence will not be satisfied
• Practitioner’s preliminary understanding of engagement circumstances indicates info needed to
perform review engagement is likely to be unavailable or unreliable.
• Practitioner doubts mgt integrity such that it is likely to affect proper performance of review.
• Mgt/ TCWG put Limitation on Scope of practitioner’s work in terms of proposed review engagement
such that Practitioner believes Limitation will result in Practitioner disclaiming conclusion on FS.
PRE-CONDITIONS TO ACCEPT REVIEW ENGAGEMENT OF HISTORICAL INFO
Pre—Conditions Response
* Determine whether FRF applied in preparation of FS is acceptable * Practitioner to discuss matter with Mgt or TCWG if
including Special purpose FS not satisfied to any matter given in preconditions
* Obtain understanding of purpose FS prepared & of intended users. * If changes cannot be made to satisfy practitioner as
* Obtain agreement of mgt that it acknowledges & understands its
to those matters = practitioner not accept proposed
responsibilities: -
(a) For preparation of FS in accordance with applicable FRF engagement unless required by Law or regulation
including where relevant their fair presentation. * If it is discovered after engagement accepted that
(b) For such Internal control as mgt determines is necessary to Practitioner is not satisfied as to preconditions =
enable preparation of FS that are free from MM Discuss matter with Mgt or TCWG & determine: -
(c) To provide Practitioner with: - - If Matter can be resolved
- Access to all info relevant to Preparation of FS such as - If Appropriate to continue with
records, documentation & other matters.
Engagement
- Additional info that Practitioner request from mgt for review.
- Unrestricted access to persons in entity from whom - If & How to communicate matter in
Practitioner determines necessary to obtain evidence. Practitioner’s Report.

AUDIT SAGA
• Obtain Understanding of entity's business & system for recording financial Info
ORDINARY TO • Discuss Terms of engagement with client & engagement team.
PROCEDURES/
REVIEW FS • Prepare Engagement letter deciding scope of engagement.

GENERAL
• Perform Analytical Procedures. • Reading minutes of Shareholders, Board of Directors.

• Obtain FS &discuss them with mgt • Obtain Written Representation from Mgt.
• Inquiries about: -
- Entity accounting policies & practices &procedures to record, classify & summarize transactions
- All material assertions in FS.
- Contingencies & Commitments, Plans to dispose of major Segments/ Assets.
- Action taken at meeting at meeting of Shareholders, BODs, & other committees.
DESIGNING & PERFORMING PROCEDURES

In designing analytical procedures, practitioner shall consider whether data from entity’s accounting
system and accounting records are adequate for purpose of performing analytical procedures.
Obtaining SAAE Practitioner’s inquiries of Mgt & others in entity
• How mgt makes significant accounting estimates required under applicable FRF
Practitioner shall • Identification of RP & RP transactions & purpose of it
design & perform • Whether Significant, Unusual or complex transactions affecting entity’s F.S., including:
Inquiry & analytical - Significant changes in entity’s business activities
procedures: - - Significant changes to the terms of contracts
- Significant journal entries or other adjustments
• To address all - Significant transactions occurring near the end of the reporting period
material items - Uncorrected misstatements identified.
in FS including - Effects or possible implications of transactions or relationships with related parties
disclosures • Existence of any actual, suspected or alleged: -
- Fraud or illegal acts affecting the entity.
• To focus on - Non-compliance with laws and regulations
addressing areas • Whether Mgt. identified events occurring between date of F.S. & date of practitioner’s
in FS where MM is report that require adjustment or disclosure.
likely to arise. • Basis for Mgt assessment of entity’s ability to continue as a going concern.
• Events/ conditions appear to cast doubt on entity’s ability to continue as a going concern
• Material commitments, contractual obligations or contingencies.
• Material non-monetary transactions or transactions for no consideration.
• Title which shall clearly indicate that it is report of Independent Practitioner for Review engagement
Practitioner’s Report for FS Review Engagement
• Addressee(s) as required by Circumstances of Engagement.

• Introductory Para that Identifies FS reviewed, Date & period covered & States that FS have been reviewed.
• Description of Responsibility of Mgt for Preparation of FS
• If FS are special purpose FS = A description of purpose for which FS are prepared & if necessary intended
users or reference to Note in Special purpose FS that contains that info.
• Description of Practitioner’s Responsibility to express Conclusion on FS.
• Description of Review of FS its limitations & following statements: -
- Review engagement under this SRE is Limited assurance engagement
- Practitioner performs procedures, primarily consisting of making inquiries of mgt & others in Entity as
appropriate & applying analytical procedures &evaluates evidence obtained.
- Procedures performed in Review are substantially less than those performed in Audit conducted in
accordance with SAs & accordingly, Practitioner does not express an audit opinion on FS.
• Paragraph under heading “Conclusion” that contains: -
- Practitioner’s conclusion on FS as a whole in accordance with this SRS as appropriate.
- A reference to Applicable FRF used to prepare FS.
• A reference to Practitioner’s obligation under this SRE to comply with relevant ethical requirements.
• Date of Practitioner’s report. • Practitioner’s signature. • Place of signature.

AUDIT SAGA
SRE 2410: - Review of Interim Financial Info performed by

Independent Auditor
Interim Financial Financial Info prepared & presented as per applicable FRF comprising either of Complete or
Info (IFI) condensed set of FS for period shorter than entity’s FY.
Scope Deals with auditor responsibilities when engaged to perform review of IFI of entity.
Objectives of To express a conclusion whether on basis of review, anything come to his attention that causes him
Auditor to believe that IFI is not prepared in all material respects in accordance with applicable FRF.
• Read documentation, to extent necessary, of Preceding year’s audit & reviews of prior interim period (s)
of current year & corresponding interim period(s) of prior year, to enable Auditor to identify matters that
Understand Entity, Environment &
may affect current-period IFI.

• Read most recent annual & comparable prior period IFI.
• Consider significant risks, including Risk of mgt override of controls identified in audit of prior yr’s FS.
Internal controls
• Consider materiality with reference to applicable FRF as it relates to IFI to assist in determining NTE of
procedures to be performed and evaluating effect of misstatements.
• Consider Nature of corrected MM & identified uncorrected immaterial misstatements in prior year’s FS.
• Consider financial& reporting matters of significance like material weaknesses in Internal Control
• Consider results of Audit procedures performed for current year’s FS.
• Consider results of Internal audit performed & subsequent actions taken by mgt
• Inquiring of mgt about: -
- Results of mgt assessment of Risk that IFI may be materially misstated due to fraud.
- Effect of changes in the entity’s business activities.
- Significant changes in internal control and potential effect of such changes on preparation of IFI
- Process by which IFI prepared & reliability of A/c records to which IFI agreed or reconciled.
PROCEDURES FOR REVIEW
• If unable to Complete Review: -

Limitation of Scope
- Communicate in Writing to Appropriate Level of Mgt & to TCWG with reasons of non completion
- Consider need & appropriateness to issue a Report.
• Do not Accept Review Engagements: -
- If preliminary knowledge indicates inability to complete review due to limitation on Scope by Mgt
• If After accepting engagement, limitation is imposed by Mgt: -
- Request Removal of Limitation
- If Mgt refuse, communicate with TCWG & Mgt in writing why Engagement can’t be completed.
- Consider legal & regulatory responsibilities
• Compare IFI with the IFI information of the immediately preceding interim period.
performed in review of IFI
procedures that may be
Examples of Analytical
• Compare current IFI with anticipated results, such as budgets or forecasts

• Compare current IFI with relevant non-financial information.
• Compare recorded amt/ ratios developed from recorded amt, to expectations developed by Auditor.
• Comparing ratios & indicators for current interim period with those of entities in same industry.
• Comparing relationships in elements in Current IFI with corresponding relationships in IFI of prior
period (Example: - Expense by type as a % age of sales, assets by type as percentage of total assets
& percentage of change in sales to percentage of change in receivables.)
• Comparing disaggregated data. For example: - - By Product line or source of revenue
- By Period (Revenue/ expense items disaggregated into quarterly, monthly or weekly amount)
- By Location, for example, by component. - By Attributes of the transaction.
* Analytical Procedures, Review & Inquiries * Collection of SAAE Evidences

Others
* Evaluation of Misstatements * Obtain Mgt Representation

* Communication. * Documentation.

AUDIT SAGA
SAE 3400: - Examination of Prospective Financial Info

Prospective Financial • Financial information based on assumptions about events that may occur in the future
Info (PFI) • Highly subjective in nature & requires judgment in preparation.
• Forecast = PFI prepared on basis of assumptions as to future events which management expects to take place.
Types of
(Best- estimate assumptions)

PFI
• Projection = PFI prepared on basis of hypothetical assumptions about future events which are not necessarily
expected to take place or a mixture of Best Estimate & hypothetical assumptions.
Management Mgt is responsible for preparation of PFI including: - • Identification and disclosure of PFI
Responsibility • Basis of forecast • Underlying assumptions
• Related to events & actions that have not yet occurred & might not occur.
Auditor’s • Examine and report on PFI. • Can provide only moderate assurance
Responsibility • Evidence future oriented and thus speculative.
• Auditor not in a position to express opinion as to whether results shown in PFI will be achieved.
• Title. • Addressee • Identification of PFI • Reference to this standard

Contents of • Statement that mgt is responsible for its preparation.
Report on • When applicable, a reference to purpose & for restricted distribution of PFI.
Examination • Statement supporting assumptions, amounts & other disclosures in PFI
of PFI • Statement of negative assurance as to whether assumptions provide a reasonable basis for PFI.
• Opinion whether PFI properly prepared on basis of assumptions & presented as per FRF.
To Determine NTE of Examination Procedures, auditor should consider matters below: -

Examination • Knowledge obtained during any previous Engagements. • Mgt Competence for Preparation of PFI
Procedures • Extent to which PFI is affected by Mgt Judgment • Likelihood of MM
• Stability of Entity Business • Sources of Info
• Engagement Team Experience in business & in industry it operates
Factors/ • Nature of assumptions i.e. whether they are best-estimates or hypothetical assumptions
Things • Whether Info will be for general or limited distribution • Intended use of Info
considered • Elements to be included in Info • Period covered by Info
before = Auditor not accept or to withdraw from engagement when assumptions are clearly unrealistic or
Acceptance of when auditor believes that Prospective financial info will be inappropriate for its intended use.
Engagement = SA 210 it is Necessary auditor & client to agree on terms of engagement.
• Assumptions made in arriving the forecasts • Basis of forecasts

Reporting on
Projected FS
Evidence for
• Hypothetical assumptions, evidence supporting assumptions • Sources of info

Audit
• Mgt acceptance of its responsibility for Info • Audit plan

• NTE of examination procedures performed
• Mgt representations on intended use & distribution of info, completeness of material assumptions
• If auditor expresses modified opinion or withdraws from engagement reasons forming basis of decision.
* Assumptions adequately disclosed in notes to PFI * Date PFI was prepared is disclosed.
Consideration to
&Disclosure PFI
Assess, Present
* Presentation of PFI is informative & not misleading. * A/c policies clearly disclosed PFI notes
&Underlying
Assumption
* If it is clear that assumptions represent mgt’s best- estimates or are hypothetical

* When disclosed this uncertainty & result for assumptions made in areas material
* Basis of range clearly indicated & range not selected in biased or misleading manner
* Change in A/c policy from that disclosed in most recent historical FS & reason too disclosed.

AUDIT SAGA
SAE 3402: - Assurance Reports on Controls at Service

Organization (SO)
Deals with assurance engagement undertaken by a member of ICAI to provide a report on controls at a
Scope
service organization (SO) for use by user entities & their auditors. It complements SA 402
CONSIDERATIONS FOR ACCEPTANCE
Auditor Determine whether: - Obtain Agreement of SO that it acknowledges & understands its responsibility: -
• Has Capabilities & competence • For preparation of the description of its system
to perform Engagement. • To have reasonable basis for SO assertions accompanying the description of its system
• Criteria to be applied by SO to • For stating in the assertions, the criteria it used to prepare the description of its system
prepare description of its system • For stating in description of its system, control objectives & party who specified them
will be suitable & available to • For identifying risks that threaten achievement of control objectives & designing &
user entities & their auditors. implementing controls to provide reasonable assurance that those risks will not prevent
• Scope of engagement & SO achievement of control objectives.
description of its system will • To provide the service auditor with: -
not be so limited that they are - Access to all relevant info
unlikely to be useful to user - Additional info that service auditor may request from Service Organization (SO).
entities & their auditors. - Unrestricted access to persons in SO from whom necessary to obtain evidence.
(Criteria = Benchmarks used to evaluate or measure a Subject Matter)

• In assessing Suitability of Criteria to Evaluate Service Organization description of its system, service auditor
Assessing Suitability of Criteria
shall determine if the criteria encompass, at a minimum: -

• Whether the description presents how the SO system was designed & implemented, including, as appropriate: -
- Types of services provided. - Procedures, by which services are provided.
- Related records and supporting information, including accounting records, supporting info & specific
accounts that are used to initiate, record, process and report transactions.
- How SO system deals with significant events and conditions, other than transactions
- Process used to prepare reports and other information for user entities.
- Specified control objectives and controls designed to achieve those objectives.
- Complementary user entity controls contemplated in the design of the controls.
- Other aspects of SO control environment, risk assessment process, information system &communication
• In Type 2 report, if description includes details of changes to SO system during period covered by description.
• Whether description omits or distorts info relevant to scope of Service Organization system being described,
while acknowledging that the description is prepared to meet the common needs of broad range of user entities.
Report on description, design & operating effectiveness of controls (Type 2 Report) includes: -
Elements Of Assurance Report (Type 2)
• Title that clearly indicates the report is an independent service auditor’s assurance report. • Addressee.
• Identify SO description of its system. • Identify criteria & party specifying control objectives.
• A statement that report is intended only for user entities & their auditors.
• A statement that SO is responsible for preparing the description of its system, including completeness, accuracy
& method of presentation of that description.
• A statement that the service auditor’s responsibility is to express an opinion on the SO description, design and
operating effectiveness of those controls.
• A statement that the engagement was performed in accordance with SAE 3402.
• Summary of procedures to obtain reasonable assurance. • A statement of the limitations of controls.
• Service auditor’s opinion, expressed in positive form in all material respects, based on suitable criteria: -
- Description fairly presents Service Org. system designed &implemented throughout the specified period.
- Controls related to control objectives stated in Service Organization description of its system were
suitably designed throughout the specified period.
- Controls tested, which were those necessary to provide reasonable assurance that control objectives stated|
in description were achieved, operated effectively throughout the specified period.
• Date of Service auditor’s assurance report. • Practitioner’s Sign. • Place of Sign.

AUDIT SAGA
* Clause (3) of Part I of II Schedule to CA Act, 1949, a CA in practice is deemed guilty of professional
Certification of Financial
misconduct if he permits his name or the name of his firm to be used in connection with an estimate of
earnings contingent on future transactions leading to belief that he vouches for accuracy of forecast.
* SAE 3400 provides that mgt is responsible for Preparation & presentation of PFI including Identification &
Forecast
Disclosure of Sources of info, Basis of forecasts & underlying assumptions

*Auditor may be asked to examine & report on PFI to enhance its credibility (usable by 3rdparties or internally)
* While making report on projection: -
- Auditor to mention his responsibility of examine Evidence supporting Assumptions & other info in PFI
- His responsibility not to verify accuracy of projections & so he not vouches for accuracy of same.
SAE 3420: - Assurance Engagements to Report on

Compilation of Pro-Forma Financial Info in Prospectus
Applies when: -
Applicability
• Such Reporting is required by securities law or regulation of securities exchange (“relevant law or regulation”)
jurisdiction in which prospectus is to be issued OR
• This Reporting is generally accepted practice in such jurisdiction.
Not applies: -
• With Circumstances where Pro forma financial Info provided for requirements of applicable FRF.
• To Non-assurance engagements in which practitioner is engaged by entity to compile its historical FS.
Applicable
Criteria
• Criteria used by responsible party when compiling pro forma financial Info
• Criteria may be established by authorized or recognized standard-setting organization or by law or regulation
• Where established criteria do not exist, they will be developed by responsible party.
In relation to unadjusted financial Info, these include: -

Adjustments
Pro Forma
• Adjustments to unadjusted financial Info that illustrate impact of a significant event or transaction if event had
occurred or transaction had been undertaken at an earlier date selected for purposes of illustration.
• Adjustments to unadjusted financial Info necessary for Pro forma financial Info to be compiled on a basis
consistent with applicable FRF of reporting entity & its accounting policies under that framework.
• Financial Info shown together with adjustments to illustrate impact of Event or transaction on unadjusted
financial Info as if event had occurred or transaction had been undertaken at earlier date
PFI
• In this SAE, it is presumed that PFI is presented in columnar format consisting of: -
- Unadjusted financial Info. - Pro forma adjustments - Resulting pro forma column.
Document issued pursuant to legal or regulatory requirements relating to entity’s securities on which it
Prospectus
is intended that a third party should make an investment decision
Published Financial Info Financial Info of Entity (or of ACQUIREE/ DIVESTEE) made available publicly
Unadjusted Financial Info Financial info of entity to which Pro Forma adjustments applied by responsible party

AUDIT SAGA
Purpose of
• Solely to illustrate the impact of a significant event or transaction on unadjusted financial info of entity
PFI
as if event had occurred or transaction had been undertaken at earlier date selected for Illustration.
included in
• This is achieved by applying pro forma adjustments to the unadjusted financial information
prospectus
• PFI not represent entity’s actual financial position, financial performance, or cash flows.
Involves responsible party gathering, classifying, summarizing &presenting financial info that illustrates impact
of a significant event or transaction on unadjusted financial info of Entity as if event had occurred or
Compilation of
transaction undertaken at Selected Date.

Steps involved in this process include: -
PFI
• Identifying source of Unadjusted financial Info to be used in compiling PFI & extracting Unadjusted financial
info from that source.
• Making pro forma adjustments to Unadjusted financial info for which PFI is presented.
• Presenting resulting PFI with accompanying disclosures
Practitioner shall evaluate presentation of PFI. This shall include consideration of: -
Engagement
Acceptance
• Overall presentation & structure of PFI & if it is clearly labeled to distinguish from historical or other info.
• Whether PFI & related explanatory notes illustrate impact of event/ transaction in manner not misleading.
Of
• Whether appropriate disclosures are provided with PFI to enable users to understand info conveyed.
• Whether practitioner has become aware of any significant events subsequent to date of source from which
Unadjusted financial info has been extracted that may require reference to or disclosure in PFI.
Practitioner to assess Appropriateness of info on the basis of following factors: -

Evaluating * Source of such information & extent to which it can be relied upon
Presentation of * Whether Financial info factually supportable
PFI * Consistency with entity’s applicable FRF & its A/c policies under that framework
* Determine whether the calculations within the PFI are arithmetically accurate.
• Title – indicating independent assurance report.

• Addressee(s), as agreed.
• Introductory paragraphs that identify: -
Elements of Assurance Report: -(Type 2)
- PFI. - Source of unadjusted financial info.

- Period covered by, or the date of PFI - A reference to the applicable criteria
• Statement that the responsible party is responsible for compiling the PFI
• Description of Practitioner’s responsibilities for expressing opinion about whether PFI compiled, on basis of
applicable criteria
• Statement that engagement was performed in accordance with SAE 3420.
• Statements that: -
- Engagement involves performing procedures to assess whether the applicable criteria used provide a
reasonable basis for presenting the significant effects directly attributable to the event or transaction.
- Procedures selected depend on the practitioner’s judgment.
- Engagement also involves evaluating the overall presentation of PFI.
• Practitioner’s opinion using one of the following phrases, which are regarded as being equivalent: -
- PFI compiled, in all material respects on basis of (applicable criteria OR
- PFI has been properly compiled on the basis stated.
• Practitioner’s signature.
• Date of the report.
• Place of signature.
• In Engagement performed under this SAE, Practitioner has no responsibility to compile Pro forma
Nature of
financial info for entity; such responsibility rests with Responsible party.
Practitioner’s
• Practitioner’s sole responsibility is to report on whether PFI compiled, in all material respects, by
Responsibility
Responsible party on basis of applicable criteria.

AUDIT SAGA
Practitioner to assess Appropriateness of info on the basis of following factors: -

Assessment of
* Source of such information & extent to which it can be relied upon
Unadjusted
* Whether Financial info factually supportable
financial Info
* Consistency with entity’s applicable FRF & its A/c policies under that framework
&PFI
* Determine whether the calculations within the PFI are arithmetically accurate.
(Common for SRS 4400 & 4410 & SRE 2400) SRE 2410 – Review of Interim Financial Info
Contents of Audit Report: -
* Title Procedure Followed: -

* Addressee * Negative Assurance.
* Management Responsibility * Follow SQC.
* Relevant SAs followed. * Enquiry, Analytical Review Procedure.
* Audit is not carried out *Ethical norms
* Departures from FRF * Key point-to be done by the independent
* Date of Report auditor of Client.
* Place
* Signature
- If not independent, disclose fact.
- Without reference-do not refer it as Audit Report.
- Fees-Fees not to be described as Audit Fees.
SRS 4400-ENGAGEMENT SRE 2400 -

TO PERFORM AGREED
SRS 4410 – COMPILATION
UPON PROCEDURES ENGAGEMENT REVIEW OF FS
Auditor carries agreed procedures Accountant issues Compilation report Practitioner (CA other than CA
to report on factual findings. of Client) reviews FS
Procedure: -
• Inquiry • Obtain WR from Mgt of responsibility for • Obtain evidence by Enquiry

• Re-Computation accuracy of accounting data & disclosure • Follow SQC.
• Analysis • Non compliance with AS communicate • Ethical norms (IPCC OP)
• Observation to Mgt & If not rectified, include in notes to • Planning & knowledge of
• Confirmation a/c & compilation report. entity's business.
• Report on agreed on procedures • However in case of misstatement, if mgt • Documentation = To support
must describe purpose & agreed refuses to amend financial info/ compiled info review report & to comply
on procedures in sufficient details & FS are misleading = Withdraw. to Professional Standards
to enable reader to understand NTE • If info supplied incomplete/ incorrect then: - • While giving Assurance word
of work performed. - Enquire from Mgt negative/ moderate assurance
- Assess internal control will be used (Nothing has come
- Verify Explanation in Practitioner knowledge stating
- Obtain WR. FS is not True & Fair.)

AUDIT SAGA
COMPANY AUDIT APNA MENTOR
SECTION - 128 (BOOKS OF ACCOUNTS TO BE KEPT BY THE COMPANY)

All sums of moneys Received & Expended Items of Cost u/s 148
Books of A/c Records of
All Sales & purchases of Goods & Services All Assets & Liabilities
Books or/ & Paper Books of A/c, Deeds, Vouchers, Writings, Documents, Minutes & Registers (in E or paper form)
Prepare & keep at Registered Office BOA & other relevant books & papers & Financial Statements (FS) giving True
& fair view of State of Affairs of co {also BOA, FS & docs of Branch office(s)}
Place of Books kept on Double Entry + Accruals Basis of Accounting (no cash basis BOA allowed)
BOA
All or any of BOA & papers if kept at other place in India as Board decide = in 7 days notice to be filed with ROC in
writing giving Full Address of that other place
Remain accessible in India to enable subsequent reference + Info in E records to be Complete & Unaltered
E-Form BOA, Rule 3
Retained completely in format Originally Generated, Sent or Received OR Format presenting accurately such Info
Info received from Br. Office not be altered & be kept in manner depicting it was Originally received from branches
Info in E record of document to be capable of displayed in Legible form
Proper system for Storage, Retrieval, Display or Printout of E records (not to be disposed of or rendered unusable)
Backup of E mode BOA at place outside India = Also be kept in Servers physically located in India periodcally
Co. to intimate ROC on Annual Basis at time of Filing of FS = Name, IP Address & Location of Service Provider
Branch BOA for transactions effected at Br office = kept at that office (whether in or outside India) & summarized returns
BOA periodically sent by to RO or other place decided by BODs.
BOA, Books & Papers to be Open for Inspection by Director at RO or other place in India during business hrs
BOA Inspection, Rule 4 (Sec 206)
Inspection of subsidiary Books & papers to be done only by Person Authorized for it by Board Resolution
Members no right to Examine/ Inspect BOA unless Table F apply i.e. where no Articles of Association exist
Read with Regulation 89 (ii) = Members can inspect BOA if : - Conferred by Co or Authorize by GM/ BODs
Inspection by : - Directors, ROC, Govt. Officers by CG order, SEBI officers & Co. officers & employees = assist
Financial info maintained o/s India= its copies to be maintained & produced for Inspection by Director by Rule 4
Summarized returns of BOA o/s India to be sent to RO at Quarterly Intervals & open to Directors for inspection
Other o/s India financial info required by Director = To furnish Request to co + Full details, Period of info asked
Co to produce such financial info to Director in 15 days of Date of receipt of Written Request
Financial info above be sought for by Director self (not by his Power of Attorney Holder/ Agent/ Representative)
Maintenance BOA + Relevant Vouchers to be kept in order by co for min 8 FYs immediately preceding a FY
period of (If co exists for less than 8 years = maintain books in respect of All such preceding years)
BOA
If Investigation ordered on co = CG may direct BOA may be kept for such longer period as it deem fit

AUDIT SAGA
SECTION - 129 (FINANCIAL STATEMENTS)

FORM, Give True & Fair view of State of Affairs Such Form & Content of FS Not apply (N/A) to: -
NATURE & Comply with Accounting Standards (AS) * Banking & Insurance companies
CONTENTS * Co. generating or supplying Electricity
OF FS In form provided in Schedule - III (S- III) * Co. whose form of FS specified in Act governing it
DEVIATION FROM AS To Disclose in FS: - Deviation from AS + Reason + Financial Effect of Deviation
Exemption may be granted either Central Govt. (CG) on own or on Application by Class of Co.
unconditionally or in relation to by notification exempt compliance to requirements of Sec 129
Exemption Terms & Conditions as in notification or Rules if consider necessary in Public Interest
At each AGM = BODs to lay before Co. FS & CFS for FY

CONSOLIDATED FS
Rule 6 N/A in preparing CFS by Co if: -

LAYING OF FS &
Prepare CFS of own Co. with subsidiaries (Joint Venture & * It’s a wholly or partially owned subsidiary
Associates including) in same form & manner as that of its own of other co & all its members intimated in
writing = not objects Co. not present CFS
Attach with FS = Separate Statement of salient features of FS of * It’s a Co. whose securities not listed or
subsidiaries in AOC–1 not in listing process on Stock exchange
in or outside India
Rule 6 = CFS to be made as per S –III & applicable AS
* It’s ultimate or intermediate holding Co.
(If Co. not required to make CFS by AS = it is sufficient if Co
files CFS with ROC in compliance to AS
comply to S –III in relation to CFS )
A Company shall not re-open its BOA & not recast its FS unless application in this regard is made by:-
• CG • Income-tax authorities • SEBI
• Other statutory regulatory body or authority or other person concerned & order is made by Court of
competent jurisdiction or Tribunal to effect that: -
130(1) - Relevant earlier accounts were prepared in Fraudulent manner. OR
Sec. 130 Re Opening of FS
- Affairs of company were mismanaged during Relevant period, casting Doubt on Reliability of FS.
(Provided that court or Tribunal to give notice to CG, Income-tax authorities, SEBI or Other statutory
regulatory body or authority concerned & shall take into consideration Representations made by that Govt. or
authorities, SEBI or body or authority concerned before passing any order under this section.)
Revised accounts shall be final: - • Accounts so revised or re-cast under sub-section (1) shall be final.
• Re-opening of FS on application made by CG, Income tax authorities, SEBI, other statuary /regulatory
body or other person concerned.
130(2) • Tribunal may pass an order to the effect that: -
- Relevant earlier accounts were prepared in a fraudulent manner. OR
- Affairs of company were mismanaged during relevant period, casting a doubt on reliability of FS.
• If Tribunal issues above order, company will need to re-open its BOA & recast its FS
No order u/s 130(2) earlier than 8 FYs immediately preceding current FY (And where u/s 128(5) BOA
130(3)
ordered to be kept > 8 years then 130 to apply i.e. books to remain reopened for such period)
BOARD REPORT (CONTENTS)

Extract of Annual Return Co. policy on Ds appointment & remuneration & Criteria for
No. of meetings of Board Qualifications, Positive Attributes, Independence , etc
Directors Responsibility Statement Listed Co. & Public co with paid up share capital of 25 Cr or more in
State of Co. Affairs preceding FY = A Statement showing manner Formal Annual
Contract & Arrangements with Related Parties Evaluation done by Board of own, committees & Ds performance
Amt proposed to be carried as Reserves Material changes & commitments affecting Financial position of Co.
Amt recommended to pay as Dividend between end of FY of Co. to which FS relate & Date of Report
Other matter as prescribed Explanations/ comments by Board on Qualification, Reservation or
Policy developed & implemented on CSR Adverse remark or Disclaimer made in Audit report of CA & CS
R & D Expense &Web address Annual Return placed Techn Controls = Effects, benefits got & Imported tech in last 3 yrs
Loan, Guarantees & investments details Statement on Declaration by Independent Ds
Conservation of energy, technology absorption, FOREX Statement of Develop & implement of Risk mgt policy of Co.
earnings & outgo in manner prescribed identifying elements of Risk that may threaten existence of Co.
BODs to give details about frauds reported by Auditor to BODs & not the CG
Conserve Energy = Steps TakeN & Impact, steps to use alternate energy by company & capital investment in such equipment

AUDIT SAGA
SECTION - 131 (VOLUNTARY REVISION OF FS or BOARD REPORT)
If appears to Directors that FS or Board Report: - Copy of order passed by Tribunal to be filed to ROC
Not comply to Sec 129 (FS) or Sec 134 (Board’s report)
;
= May prepare Revised FS or Report for any of 3 preceding FY
after obtaining approval of Tribunal on application by Co. Tribunal to: - Give notice to CG & Income Tax authorities
- Consider representations made by CG or
authoritiesbefore passing order u/s 131
CG may make rules w.r.t. revised FS or Director’s report
requiring Directors to take steps as be prescribed
* Such revised FS or report = not be prepared or filed more
than once in a Financial Year (FY)
If copies of previous FS or report sent already to members or
* Detailed reasons for revision = disclosed in Board’sreport
delivered to ROC or laid before Co. in GM = Revision must be
in relevant FY of revision
confined to Correction & necessary alternation being made
SECTION - 133 (CENTRAL GOVERNMENT TO PRESCRIBE ACCOUNTING STANDARDS)
CG may prescribe AS as recommended by ICAI in consult Till the time NFRA is constituted, CG may prescribe AS as
recommended by the ICAI in consultation with & after
with & after examination of recommendations by National
examination of the recommendations made by National
Financial Reporting Authority (NFRA)
Advisory Committee on AS (NACAS)
SECTION - 134 (FINANCIAL STATEMENTS, BOARD REPORT, ETC)
Auditors report to be attached to every FS
Signed copy of every FS & CFS to be issued, circulated or published with copy each of: -
1. Any notes annexed to or forming part of such financial statement + 2. Auditor‘s report + 3. Board‘s report
NOTE: - Specified IFSC Pvt. Co. i.e. Private ltd. co licensed to operate by RBI/ SEBI/ IRDA from IFSC (International Financial Service
Center located in SEZ) = No need to include in Board Report info which is already included in FS.
FS & CFS to be approved by BODs before signed on behalf of Board at least by: -
Company secretary (CS) Chairperson of Co. if authorized by Board

& OR
Chief Financial Officer (CFO) & 2 Directors (1 MD & other to be CEO if he is Director too)
In One Person Company (OPC): -

* FS to be signed by only 1 Director for submission to Auditor for his report
* Report of Board containing explanation & comments by Board on each of qualifications or adverse remark in Auditors Reports
Directors (Ds) Responsibility Statement
In preparation of Annual A/c = applicable AS followed with Ds of Listed Co laid Internal Financial Controls to be followed
proper explanation w.r.t. material departures & such are = adequate & operating effectively
Directors took proper & sufficient care for maintenance of Directors selected A/c policies & applied them consistently &
Adequate A/c records to Safeguarding Assets of Co. & for made reasonable and prudent judgments & estimates = to give
preventing & detecting fraud & other irregularities True & Fair view of State of Affairs of Co. at end of FY & of P
Directors had prepared Annual A/c on Going Concern basis & L of company for that period
Directors had devised proper systems to ensure compliance with laws & such systems were adequate & operating effectively.
(SECTION 135) - CORPORATE SOCIAL RESPONSIBILITY {CSR}

Co. with: • Net worth 500 Cr or more OR • Turnover 1000 Cr or more OR • Net profit 5 Cr or more
Applicability
= Constitute CSR Committee & spend least 2 % of Average NP (PBT) for Immediately preceding 3 YRs on CSR
Sec 135= N/A to Specified IFSC (International Finance Service Centre) from 5 yrs of commence of business
Co. ceases to fulfill Criteria for 3 Consecutive FYs = no CSR Committee & no Sec 135 till meets such criteria
Where co. not required to appoint Independent Director u/s 149(4) = To have CSR committee of > 2Directors

AUDIT SAGA
Duty Committee to: - * Formulate & recommend to Board, a CSR Policy indicating activities to undertake &
* Recommend amt of Expenditure to incur on CSR activities & * Monitor CSR Policy of Co. from time to time
3 or more Directors {Out of 3 = Least 1 director to be Independent Director (ID)}

Constitution of
Committee
Unlisted public Co. or Private Co. = To have its CSR Committee without any IDA
Private Co. with only 2 directors = Constitute CSR Committee with 2 directors only
Foreign Co. = CSR Committee of 2 persons (1 be resident in India authorized on behalf of co)
Board Report to include Composition of CSR Committee

CSR Activities under Schedule
Homes for Women, Orphan & Senior Citizen Eradicate hunger, poverty & malnutrition
Protect Natural Heritage, Art, & Culture Promote Healthcare, Education & Gender equality
Measures to reduce Inequalities faced by socially & economically backward groups
Contribute to PMs National Relief Fund/ other fund setup by CG for welfare of SC, ST, OBC & Minority
VII
Contribute to Technology Incubators in CG approved Academic Institutions & Rural development projects
Contribution to Clean Ganga fund or Swachh Bharat Kosh or Slum Area Development
Sustain Enviro, Ecological, Animal welfare Benefit Armed forces veterans, War widows & dependents
Training to promote rural, nationally recognized, Paralympics or Olympic Sports
Contribution to Political Party CSR activities undertaken in normal course of business

Activities
Not CSR
Activities outside India Expenses due to Act or Statute or Regulations (MCA Circular)
CSR expense benefiting only Co. employees (But MCA = Salaries to Regular CSR Staff, volunteer is CSR Expense)
If Co. has a website = CSR policy of Co. need to be disclosed on it

Note
Co. fails to spend CSR amt = Reason be specified in Board Report as no penalty in Co Act 2013 for it
How to undertake
Through Registered Trust/ Society or Co. established (Trust to be established by Co or its Holding or Subsidiary or
CSR Activities?
Associate and if not then Trust to have Track Record of 3 yrs in undertaking similar programs or projects)
Co. may collaborate with other companies for undertaking CSR projects or programs
Co. may build CSR capacities of their own personnel & of implementing agencies through institutions with Track
Record of at least 3 FYs but such exp must not exceed 5 % of Total CSR exp of Co. in 1 FY
CSR expense undertaken by Co. to be in Project or Program mode (Events like Marathon, Awards, Charity
Circulars on CSR
Notification &
contribution, Sponsorship of TV program, Advertisement = Not qualify as CSR Expense)

CSR policy relatable to Schedule VII = Interpretation liberally to capture Essence of Subject
Expense by Foreign Holding Co for CSR activities in India = deemed CSR by Indian Subsidiary (if CSR expense
routed by Indian subsidiary & also Indian co liable under CSR criteria u/s 135 for CSR expense)
Contribution to Corpus of Trust/ Society/ Sec 8 Co. will be CSR expense as long as such Trust/ Society/ Sec 8 Co is
exclusively created for doing CSR Activities as per Schedule VII
CSR Expense not to be Claimed as Business Expense or Professional Expense

CSR not to form part of Business expense already taken exemption of under Income Tax Act 1961
Remember
Points To
Sec 135 read as " Every co……." i.e. no specific exemption to Sec 8 Co. regarding its applicability & compliance
Contribution in Kind = can't be converted to monetary value to show as CSR expense as Sec 135 read as "…….shall
ensures that Co. spends…"(Hence no contribution in kind i.e. Co has to spend in monetary values)
Co with Small CSR funds take up CSR Activities/ Program/ Project can combine with other similar Co. by pooling
CSR resources in lieu of CSR Rules 2014

AUDIT SAGA
SECTION - 136 (CIRCULATION OF FS OR RIGHT OF MEMBERS TO COPIES OF AUDITED FS)

Copy of Audited FS laid in GM with CFS, Audit Report & Other docs as required by law = shall be sent
FS & other
Documents To every Member (Eq. & preference), Trustee of Debt holder, all other person (so entitled to get Notice)
copy to
Dispatch To be sent = in not less than 21 days before Date of such meeting
Co. to allow every member or trustee of debt holder to Inspect above docs at its RO in business hours
Provisions in Deemed complied with Sec 134 if = copies of docs available for Inspection at its Registered Office (RO) during
case of Listed working hrs for 21 days before Date of the meeting
Co. A Statement containing salient features of such docs in AOC-3 or Copies of docs is sent to Every Member of Co &
(Send to every Trustee for holders of any Debs issued by co. in not less than 21 days before Date of meeting unless
Abridged Shareholders ask for full FS
Accounts)
To place its FS & CFS & other docs on its website maintained by or on behalf of Co.
Section 8 Co. Rather 21 days = 14 days is considered
New
If copies of docs are sent < 21 days before meeting = deemed duly sent if it is so agreed by members: -
Insertion by
(a) Holding, if company has Share capital, majority in number entitled to vote and who represent not < 95% of such
Co
part of the paid-up share capital of company as gives a right to vote at the meeting OR
Amendment
(b) Having, if company has no share capital, not < 95% of Total voting power exercisable at meeting
Act 2017
Listed With > 1 Subsidiary = To Place Separate Audited a/c of each Subsidiary on its website
Company Listed company which has foreign subsidiary & where such foreign subsidiary: -
requirements * Is statutorily required to prepare CFS under any law of country of its incorporation = Requirement of
this proviso shall be met if CFS of such foreign subsidiary is placed on website of listed co
as per Co. * Is not required to get its FS audited under any law of country of its incorporation and which does not
(Amendment) get such FS audited = holding Indian listed company may place such unaudited FS on its website
Act 2017 (If such FS is not in English = translated copy of FS in English also be placed on website)
Rule 11 Listed & other Public Co having Net Worth of > Rs. 1 Cr & Turnover > Rs. 10 Cr may sent FS by: -
(Manner of
By E Mode = To members whose shareholding is dematerialized & Email ids registered with Co.
Circulation
in Certain By E Mode = To members not holding shares physically & given written consent to get FS by E Mode
Cases) By dispatch of Physical copies by Registered Post or Speed Post or Courier service.
Not to send FS to individual members in case of NIDHI companies if members not Individually or Jointly hold
Provisions shares of > Rs. 1000 in face value or more than 1 % of Total paid up share capital (whichever less)
for NIDHI
Co. Only intimation sent by public notice in newspaper circulated in district of RO of NIDHI stating Date, Time &
venue of AGM & FS with enclosures can be inspected at RO & too affixed in Notice Board
SECTION - 137 (FILING OF FINANCIAL STATEMENTS WITH ROC)

Docs + Form To file in 30 days from AGM Date: - * FS + * CFS + * All docs required to be attached with FS +
AOC-4 to * A/s of Subsidiaries incorporated outside India & not with established Place of Business in India
ROC In case of OPC = FS duly adopted to be filed to ROC in 180 days of Closure of FY
Financial To be filed to ROC in 30 days from Date of AGM or Date of Adoption in Adjourned AGM
Statements
Registrar to take note of Un-adopted FS on records as provisional till Audited & Adopted FS are filed
not adopted
at AGM Un-adopted FS & other docs if not filed in 30 days = filing may be done in 300 days with additional fee
AGM not held File in 30 days of Last Date before AGM due = FS & docs duly signed with reasons of AGM not held
ICAI View As per ICAI view expressed = Only Audited FS to be submitted to ROC

AUDIT SAGA
FS in XBRL All Listed Co. & their subsidiaries

(Extensible Bus All Co. with Paid up capital of Rs. 5 Cr or more OR Turnover of Rs. 100 Cr or more
Reporting
Language) filed (Co. in Banking, Insurance, Power sector, NBFC & housing finance co. = not to file FS under this Rule)
to ROC by: - (Co Required to furnish Cost Audit Report & other docs to CG = File report using XBRL
SECTION - 138 (INTERNAL AUDIT) + Rule 13

Appointment Listed Co
of Internal Unlisted Co satisfying any of below in Previous FY: -
Auditors or * Paid up Share Capital Rs. 50 Cr or more OR * Turnover Rs. 200 Cr or more OR
Firm of * Outstanding Borrowing from Bank/ PFI Rs. 100 Cr or more OR * Outstanding Deposits 25 Cr or more
Internal Pvt. Ltd. Co satisfying any of below in Previous FY: -
Auditors by: - * Turnover Rs. 200 Cr or more OR * Outstanding Borrowing from Bank/ PFI Rs. 100 Cr or more
Internal Auditor to be: - CA (in practice or not) or CWA or Other professional decided by BODs
Points to
Remember Audit Committee of Co. or Board = in consultation with Internal Auditor, formulate scope, functioning,
methodology & periodicity for conduct of Internal Audit
SECTION - 139 (APPOINTMENT OF AUDITOR) = INDIVIDUAL OR FIRM

Non - By BODs in 30 days of Registration of Co. If BODs fail = BODs to inform members
Govt. Co
{139(6)} Members in 90 days at EGM appoint 1st Auditor Auditor to hold office till 1st AGM Conclusion
1st Auditor
Govt./ By CAG in 60 days of Registration of Co. CAG fail = BODs appoint Auditor in 30 days
Govt.
Owned or Members in 60 days at EGM appoint 1st Auditor If BODs fail = BODs to inform members
Controlled
{139(7)} Such Appointed Auditor hold office till Conclusion of 1st AGM
Appointment at 1st AGM = till conclusion of 6th AGM & thereafter till every 6th AGM under Rule 3
Non - Constitute if required u/s 177 an Audit Committee & if not then BODs = Consider Auditor's Eligibility
Govt. Co
{139(1)} Consider Qualification & Experience of Proposed Auditor match Size & Requirements of Co.
Also consider any Pending Proceeding/ Order of Professional Misconduct against Proposed Auditor
+ Audit Committee (AC) if constituted or BODs = May call for further Information (Info)
AC to recommend Name of Auditor to Board If No AC u/s 177 = BODs recommend to AGM
SUBSEQUENT AUDITOR
If BODs agrees = BODs recommend to AGM to If Not agree = Refer Back to AC for
members reconsideration citing reasons for disagree
Rule 3 If AC not reconsiders original recommendation &

If AC reconsiders original recommendation &
continues to disagree with BODs = BODs to
agrees with BODs or BODs agrees with AC =
record reasons for disagreement with AC & send
Recommend Name in AGM to members
own recommend in AGM to members
Ratification for appointment = Not required at every AGM when auditors been appointed for 5yrs
+
Ratification will be through Ordinary Resolution (O/R) & If not ratified = BODs will appoint Auditor
1st - 4th Before appointment = Written Consent & Certificate from Auditor that he satisfy u/s 141 conditions
Proviso
Certificate Content = Rule 4 = * Eligible not Disqualified + * Appointment Proposed is as per Act + *
Within Limits + * List of pending proceeding disclosed & is true & correct
Co to inform Auditor & ROC in Form ADT-1 about appointment in 15 days of appointment meeting
{In case of IFSC Co. (International Financial Service Center) = 30 days taken rather 15 days above}
{139(5)} By CAG for FY in 180 days of Commence of FY Auditor hold office till Next AGM Conclusion

AUDIT SAGA
N/A to: - Specified IFSC Co (International Financial Service Center), Small Co. & OPC Co. (One Person Co.)
Listed & Other prescribed Co. not to Appoint

Rule 5 = Other Prescribed Co.: -
Individual as Auditor for > 1 Term of 5 * Unlisted Public Co. Paid up capital Rs. 10 Cr or
Consecutive yrs more
* Pvt. Ltd. Co. Paid up capital Rs. 50 Cr. or more
Audit Firm as Auditor for >2 Terms of 5 * Co. not covered above if Public Borrowings from
139(2) Consecutive yrs Banks & FI or Public deposits Rs. 50 Cr. or more
ROTATION OF AUDITORS
Cooling Off Period = Individual Auditor OR Audit Firm = Not eligible for Reappointment as Auditor in
+ same company for 5 years after completing of Tenure
1st - 4th Apply to Statutory but not to Internal Auditor Reappointment in Subsidiary nowhere Restricted
Proviso
Audit Firm = Having Common partner with A Audit firm whose tenure has just expired as on date of
appointment = Not be appointed as Auditor of same company for a period of 5 years
Every Co. existing before commencement of this Act = Shall comply with 139(2) not later than Date of
1st AGM after 3 yrs from Date of commencement of this Act
Sec. 139(2) not prejudice Right = Of company to Remove Auditor OR Right of Auditor to Resign
139(4) Central Govt. (CG) by Rules = Prescribe Manner of Rotation u/s 139(2) i.e. Rule 6 prescribed
+ AC to recommend to Board Auditor who may replace existing Auditor after expiry of Term
Board may itself consider & recommend too to AGM such replacement
Incoming Auditor Not Eligible if = associated with Outgoing Auditor under same Network or Control
Rule 6 Audit In charge Partner certifying FS = Retires from A & join B firm = B firm become Ineligible for 5 yrs
Joint Auditors appointed by Co. = Both Jt. Auditors taken as Separately for Rotation provisions
Members of Co. may Resolve to provide: - Audit to be conducted by > 1 Auditor

139(5)
Rotation of Auditing Partner & his Team = at such Interval as may be prescribed by Members
Meaning Death, Resign or Dissolution of Auditor/ Firm of Auditors ( Ex: - 1 of Joint Auditors died)
Other Reason Filled by BODs in 30 days

Filling of
Casual Non Govt. Co To be approved in GM convened in 3 months of BODs recommend
Vacancy Resignation
Sec. – If GM not ratify it = BODs appoint auditor by Board Resolution (B/R)
139(8) Govt. / Govt.
Owned/ Filled by CAG in 30 days If CAG fails = BODs fill in next 30 days
controlled Co
Retiring Not disqualified under Law No notice of Unwillingness of Auditor got from Auditor
Reappoint
reappoint at
– 139(9) No Special Resolution (S/R) appointing other Auditor or Providing No Reappointment
AGM if: -
139(10) - No Auditor Appointed/ Reappointed at AGM OR AGM not held Existing Auditor to continue
Recommendation by Audit If Co. required to constitute Audit committee u/s 177 = All appointments including
Committee 139(11) filling of casual vacancies to be made only after taking into a/c recommendations of AC
SECTION 140 - (REMOVAL & RESIGNATION OF AUDITOR & GIVING SPECIAL NOTICE)
AMENDMENT: - Earlier, appointment of auditor to be ratified every yr at AGM but no such requirement now.
140(1) Before taking action Principle of Rule 7 = Application to In 60 days of

Removal = Auditor provided Audi Alteram CG in 30 days of Passing Approval of CG
before Term Opportunity of being Partem to be Board Resolution (B/R) in = Convene GM
Expiry heard followed ADT-2 to pass S/R for it

AUDIT SAGA
140(2), (3) Auditor who Resigned = To file in 30 days from Date of Resign in ADT- 3 to Co. & ROC
Filing of
File to CAG also in Govt. Co case indicating facts & reasons for Resign
Statement
of Resign If auditor not comply to Sec 140 = 50,000 to 5,00,000 OR Audit fees/ Renumeration (whichever lower)
Retiring Auditor Copy of notice to Copy of Notice &

Special notice Representation sent
not Auditor
required to every person
Reappointed (Auditor has right of
to pass Special who got notice of
representation to be
Sec 140(4) resolution at AGM
Appoint as Auditor sent to Co. to a
Special AGM providing
other than Retiring reasonable length)
Notice
Co aggrieved may apply to Tribunal for not If copy of Auditor may
sending or reading Representation = If auditor Representation not sent demand reading
abused such right (Tribunal satisfied = Copy of as required = Copy Representation in
Representation not be sent nor read at meeting) filed to ROC Meeting
Either on own If satisfied Auditor Tribunal in 15 days

Tribunal may by order acted in Fraudulent of Receipt of
Sec. = Direct Co. to Or application manner or involved in Application
140(5) change Auditors by C.G. or fraud = Direct Co. to
Directions any person Change Auditor
for Order that Auditor
Change of Not be Eligible to be appointed as Auditor of Auditor against whom not to function as
Auditor Co. for 5 years from Date of passing of Order Final order passed by Auditor &C.G.
& Auditor also be liable for action u/s 447 the Tribunal u/s 140(5) may appoint other
auditor
SECTION - 141 (ELIGIBILITY, QUALIFICATIONS & DISQUALIFICATIONS OF AUDITOR)

141 (1), (2) – Only CA is Firm (LLP too) with Majority of Partners Only CA partners =
Eligibility for eligible for Practicing in India are CA = Eligible for Authorized to Act &
Appointment Appointment Appointment under Firm Name sign on behalf of firm
Body corporate (BC) Officer or Employee of Co.

Person whose
Any of Following Person = Ineligible for Appointment as Auditor
Person with Full Time Relative =

Partner or Employee of Officer / Employee of Co. Director or Key
141(3) Disqualify from Appointment as Auditor
Employment Elsewhere
managerial
personnel
Person who, directly or indirectly renders any service referred in Section 144 to (KMP) of Co.
company or its holding company or its subsidiary company.
Person or Partner on Date of such Appointment or Reappointment holding Appointment Person

as Auditor of > 20 Companies (Individual Auditor wise limit = 20) convicted by
Person indirectly/ directly engaged in services u/s 144 in Co. its Holding or Subsidiary Court of offence
involving Fraud
OPC, Small Co., Dormant Co. & Pvt. CA can do any No. of Audits of these & 10 yrs has not
Ltd. Co. having Share Capital <Rs. Companies but as per Council General elapsed from
100 Cr not included while counting Guidelines, Upper Limit = 30 including Date of such
Limit of 20 Co. above Companies conviction
Person or Firm who Directly or Indirectly has Business Relationship with Co. or Associate or Subsidiary or
Holding (CASH) except Professional services or Commercial Transactions in ordinary course of bus at Arm
Length Price by Telecom, Airline, Hospital, Hotels Co. or Similar Co.
Said Person or his Relative/ Partner: - * Is Indebted to CASH >Rs. 5 Lakh OR

* Hold Security/ Interest in CASH (Relative may hold Security/ Interest in Co. of Face Value max. 1 Lakh) OR
* Has given Guarantee or Security w.r.t. Indebtedness of 3rd Person to CASH for >Rs. 1 Lakh OR
If Relative acquires Security >Rs 1 Lakh = Auditor in 60 days to take Corrective Action & maintain Limit
(All relatives are to be taken together BUT Limit of Rs. 1 lakh to be checked Individually for every Co.)

AUDIT SAGA
141 (4) – If after appointment Auditor incurs any Disqualification u/s 141(3) = Vacate Office &
Vacation of Office such Vacation be treated as Casual Vacancy
Authority to Fix By General Meeting (GM) or in manner as may be determined therein

142 –
Remuneration May be BOD in case of 1st Auditor, if appointed by BODs
Remuneration
of Auditors Elements of All expenses incurred in relation to =.Audit & Facility to Auditor
Remuneration Not Include Remuneration paid for other services
SECTION 143 - (POWER, RIGHT & DUTIES OF COMPANY AUDITOR)

Right to Access At all Times to BOA & Vouchers at RO or Other Place (Br., Associate & Subsidiary too)
143(1) Rights of
Right to Obtain
Auditor
From Officers of Co. as necessary for performance of his Duties

Info
Right of Lien (Not Right of Lien for Non Payment of Dues of Work Done
specified in Act Auditor can exercise this on Clients Books & docs for Non- Payment of fee (But
2013) impracticable under Legal & professional ethics)
In Opinion of Loans & Advances properly secured & Terms not prejudicial to
Research Interest of Co. & Members
Committee of Shares, debentures & other securities = Sold at a Price <
Inquire into ICAI = Acquisition Cost in case of Non- Banking & Non Investment Co.
Propriety Reporting of Loans & Advances made are shown as Deposits
Matters - 143(1) Propriety matters
only if Auditors Personal Exp Charged to Revenue A/c
find Adverse Cash actually got on Shares Allotted for Cash & if not got =
answer to it Correct position shown in Books & Balance Sheet (B/S)
Reporting over That to the Best of Auditor info & knowledge = A/c & FS give True & Fair view of State of
A/c & FS 143(2) Affairs of Co. as at end of its FY & Profit & Loss & Cash Flow for FY
FS comply to AS Qualifications w.r.t. maintenance of A/c

143(3) Reporting to Shareholders
Proper BOA maintained Adequate, Operative effectiveness of Internal Financial Control

DUTIES OF AUDITOR
(Available to Pvt. Co which with reference to FS. No reporting needed for IFC effectiveness for: -
= Not Defaulted in Filing FS * Co with Aggregate Borrowings from Bank, PFI or Body corporate
u/s 137 OR Annual Return at any pt. of time in FY < 25 Cr & with Turnover < 50 Cr as per
u/s 92 with Registrar) latest Audited FS * OPC * Small Co.
B/S & P/L agree with BOA Br. Audit Report Received & manner of dealing with it
Ds disqualified u/s 164(2) Comments on Financial Transaction with Adverse Effect on Co.
Obtained Info for Audit Disclosure of Pending Litigations Impact on Financial Position
Other matters prescribed in Any delay in Transferring amt to IEPF

Rule 11 (Amended) Provisions for Material Foreseeable loss on LT Contracts made
Co. provided Disclosures in FS of Holding & Dealing in Specified Bank Notes (SBN) during 8-11-16 to 30-12-
16 & whether these are as per BOA maintained by Co.
If Auditor conducted Physical Cash Counts on 8th Nov 2016 to 30th December 2016 or Closer Date
Audit Procedure in
before or after that date = Consider performing Roll Forward or Roll Back Procedures to confirm that
relation to SBN
Balance Certified by Mgt was arrived correctly

Obtain from Mgt = * List of Receipts in period in relation to SBN
* List of How SBN with Co. used for payment & Amount deposited in Banks
* Obtain Reconciliation of Cash Balance & Certificate of Closing Cash Balance
Confirm Balances as certified by Mgt from BOA
Obtain Understanding of Controls & Procedures implemented by Co. in such period (9th Nov 2016
to 30th Dec 2016) to ensure no Banned notes were received or Used for payment
143(4) Reasons For every matter reported with Qualification (i.e. Negative) by Auditor in Audit Report =
of Reservations Report to State Reasons thereof

AUDIT SAGA
CAG to Appoint & Direct Auditor manner in which A/c to be audited & Auditor to submit copy
143(5) Duties of of Audit Report to CAF including: -
Govt. Co.
Auditor
Directions by CAG Action taken thereon Its impact on A/c & FS
Supplementary In 60 days of Receipt of Audit Report = CAG has Right to order Supplementary Audit of F.S. by
Audit u/s 143(6) such persons as authorized by him
Test Audit Comptroller & Auditor General of India (CAG) may if considers necessary by an order cause
- Sec. 143(7) Test Audit of a/c of Govt. companies
By Co. Auditor or other person qualified for appointment as Co. Auditor of Co. as in Sec 139
Audit of Branch If Br. Office is situated o/s India = A/c of Br. Office audited by Co. Auditor or Accountant or
A/c- 143(8) other person duly qualified to act as Auditor of Br. As per laws of that Country
Br. Auditor Report to be sent to Auditor of Co. who to deal with it as necessary
Duties of Auditor
143(9) Every Auditor to comply with Accounting Standards (AS)
143(10) CG may prescribe SAs in consult with NFRA (National Financial Reporting Authority)
143(11) CG may direct Auditor Report to include Statement on matters in order issued (CARO 2016)
Fraud of Rs. 1 Cr or more by Officers or Employees = Statutory obligation to Report to CG (Rule 13)
143(12) Reporting of Fraud
Rule13 Reporting include: If reply received =

Frauds less than Rs. 1 Cr =
* Fraud = Nature & Detail Forward his report,
Reported to Audit Committee or
* Approximate Amount reply & comments
BODs in 2 Days of Knowledge of
* Parties Involved on reply to CG in 15
Fraud seeking reply in 45 Days
* Remedial Action Taken days
Report = Sent to Secretary MCA in sealed envelope by Registered Post
with Acknowledgement due OR Speed post OR Email If reply not received
= Forward his
Details of Such Frauds as in Rule 13 = Disclose in Board’s report report to CG with
Note that reply not
Report on Letter Head of CA + Address + Mail + Phone No. + Signed + received
Seal + Membership No. = File in ADT - 4
143(13) Auditor not said to have contravened Reporting of Fraud u/s 143(12) if reporting Done in Good Faith
143(14) Sec 143 apply mutatis mutandis apply to = Cost Accountant in Practice & CS in practice
143(15) Auditor, CWA, CS in practice not comply with Sec 143(12) = Fine Rs. 1Lakh to Rs. 25Lakh
Auditor Appointed = Provide Service as approved by the BOD or Audit Committee

Sec 144
Auditor Internal Audit Design & Implement Financial Info System
Services that can't be
Not to rendered Directly or Other Prescribed Services Actuarial Services
Render Indirectly (By Relative or
Certain Associated Person) to Co, Management Services Investment advisory
Services Holding or Subsidiary
Outsourced Financial Investment Banking
Notification Dt 23.2.18 = CG exempted companies in defence production to extent AS on segment reporting apply.
REMEMBER
POINTS TO
141(3) + Rule 10 of Co (Audit and Auditors) Rules, 2014 = Person who directly or indirectly renders any service referred
in 144 to company or its holding or its subsidiary = Not eligible for appointment as auditor of company.
MCA Notification Dt Feb 5, 2018 = Provision of deferred tax asset as per Ind AS 12 or AS 22 = N/A to Govt Company
which is PFI, NBFC registered with RBI in RBI Act, & engaged in business of infra finance leasing with not < 75% of its
Total Revenue from such business with Govt companies or other entities owned or controlled by Govt
Sec 145 Auditor to Sign Audit Report & Certify other documents
Sign Audit Qualifications, observations or comments on Financial Transactions or matters having Adverse effect on
Report functioning of Co. = Mention in Audit Report & read before GM & be open to inspection by members

AUDIT SAGA
All Notice & other communication of General Meetings shall be forwarded to Auditor
Sec 146
Unless exempted auditor to attend himself or through his authorized representative any General Meeting
Attend GM
Auditor shall have right to be heard at such meeting on part of business which concerns him as Auditor
Over the Co & Officer in default Company = Fine from Rs. 25,000 to Rs. 5 Lac
– 147(1) Officer in Default = Imprisonment to 1 yr
Sec 147 – Punishment
{Violation of Sec. 139 -146} or Fine 10,000 - 1 Lac or Both

for Contravention
* CG by notification, specify any statutory body or authority or an officer for

Measures for
ensuring prompt payment of damages to company.
prompt payment
* Such body, authority or officer shall pay damages to such company or persons.
of Damages147(4)
* File report with CG on making such damages in manner specified in notification.
Fine Rs. 25,000 to Rs. 5 Lakh OR 4 Times the Remuneration of

Auditor (Whichever less)
Over the Auditor – 147(2)
{Violate Sec 139, 143, 144, 145} If Willful default/ intentionally/ knowingly/ willfully to deceive =
Imprisonment up to 1 yr & Fine Rs. 50,000 - Rs. 25 Lac
OR 8 Times the Remuneration of Auditor (Whichever less)
147(5) = If criminal liability of audit firm, in respect of liability other than fine = concerned partner or partners,
who acted in a fraudulent manner or abetted or colluded in any fraud shall only be liable.
If auditor convicted u/s 147(2) = Liable to Refund Remuneration received by him to company &
Pay for damages to company, statutory bodies or authorities or to members or creditors of Company for loss
arising out of incorrect or misleading statements of particulars made in his audit report.
CG by order = Specify Class of Co. in Production of G & S (Goods & Services) & direct particulars of use of
items of Cost i.e. Raw Materials, Labor, etc = To be included in Books of Accounts of them
148 CG before order issue = To Consult with Regulatory Body concerned or established under Special Act
CG of opinion necessary by order to Direct Audit of Cost Records of Class of Co covered u/s 148(1) with Net
Worth or Turnover as prescribed in Rules
Cost Comply with Cost Standards ICWA issued with CG Approval & also & Report of Cost Accountant to BODs
Audit Cost Accountant (recommended by BODs & remuneration by Members) = To do Cost Audit
ordered Co. Auditor u/s139 not to be appointed as Cost Auditor
Co. in 30 days of CWA Report = Forward to CG with Report full info & explanations or any Qualification
by CG CG may further Call for Info & Explanation & Co. to furnish the same
Default = By Co. & Officer covered u/s 147(1) & if by Cost Accountant covered u/s 147(2)
Sec 132 - National Financial Reporting Authority (NFRA)
CG may by notification, constitute NFRA to provide for matters relating to AS & SA. Functions of NFRA: -
FUNCTION
* Make recommendations to CG on formulation & laying down of accounting & auditing policies & standards for
adoption by companies or class of companies or their auditors
* Monitor and enforce compliance with ensuring compliance with AS & SA in manner prescribed
* Oversee quality of service of professions associated with ensuring compliance with such standards & suggest
measures required for improvement in quality of service & other related matters as may be prescribed.
* Perform such other functions relating to above functions as may be prescribed.
* NFRA to consist of Chairman = person of eminence & Expertise in accountancy, auditing, finance or law to be
CONSTITUTION
appointed by CG & such other members not > 15 consisting of part-time & full time members prescribed
* Chairperson and members shall make a declaration to the CG in the prescribed form regarding no conflict of
interest or lack of independence in respect of their appointment.
* Chairpersons & members in full-time employment with NFRA = shall not be associated with any audit firm
(including related consultancy firms) during their appointment & 2 after ceasing to hold such appointment.
* Powers to investigate on own motion or on reference made to it by CG, matters of professional or other
misconduct committed by any member or firm of CA. * Powers of civil court.
* Power of NFRA to impose penalty on CA/CA firm for professional or other misconduct: -
POWERS
- Individuals - Min 1 Lac rupees &- Max 5 times of fees received

- Firms - Min 5 Lac rupees & Max 10 times of fees received (earlier it was 10 Lac)
- Debarring a member of the institute for a period of 6 months to 10 years.
NOTE: - Any person aggrieved by the order of NFRA may prefer an appeal before the Appellate Tribunal in
such manner and on payment of such fee as may be prescribed

AUDIT SAGA
PROFESSIONAL CODE OF ETHICS APNA MENTOR
IMPORTANT SECTIONS OF CHARTERED ACCOUNTANT ACT, 1949

Member of Institute (ICAI) Deemed to be in Practice when Individually or in Partnership with CAs in
Practice for consideration of Remuneration received or to be received who: -
Engages himself in Practice of Accountancy

Offers to perform Services of Audit or Verification of Financial Transactions, Books, A/c or Records or Preparation,
Sec 2(2) : Member deemed in Practice
Verification, or Certification of Financial Accounting & related statements or holds himself to Public as Accountant
Renders Professional Services or Assistance in matters of Principle or detail relating to Accounting Procedure or
Recording, Presentation or Certification of Financial Facts or Data
Renders other services in Opinion of Council be rendered by CA in practice
Council passed Resolution permitting CA in practice to render = “Mgt Consultancy & other Services": -
Included & Permitted = Personnel Recruitment & Selection; Acting as Advisor or Consultant to issue including
Drafting prospectus & Listing Agreement & completing formalities with Stock Exchanges, ROC and SEBI,
Preparation of publicity budget, Advice regarding selection of agencies connected with issue
Not permitted = Broking, Underwriting & Portfolio mgt
In Practice even if not actually engaged but also Offer to Render i.e. Act of Setting up Establishment offering
Service of A/c to perform even though no Client being served (Example: New office Set up of CA)
ICAI Member who is Salaried employee of CA Firm or CA in Practice = Deemed in Practice for limited purpose
of Training Article Clerks
Member Deemed in Practice = if in Professional Capacity (not as Personally/ Salary + Full Time Employment)
Reg. 191
Acts as Liquidator, Trustee, Executor, Admin, Arbitrator, Receiver, Adviser or Representative w.r.t. Cost/ Finance/ Tax
Takes up appointment made by CG or SG or Court of law or Other Legal Authority Acts as Secretary
NO Member of ICAI entitled to Practice (in or out India) unless obtained Certificate of Practice (COP) from Council
Sec 6: COP
If member suspended from practice = Remains member of ICAI & Abide by provisions of CA Act & Regulations
= Can’t take any other capacity any practice separable from his capacity to practices as a member of institute
(Removed from Membership by misconduct or not = In such period not appear before Tax Authorities or other bodies)
Member not in Practice = Can’t accept any engagement for services prescribed for Practicing CA
COP
Reg. 10:
Name of Holder Removed from Register Member Cease to Practice

Cancel
COP
if: -
Surrendered
& Submitted Member not paid Annual COP fee till 30 September of year
to Secretary Council satisfied = COP on Incorrect, Misleading, False Info or Mistake after hearing CA
Sec 7: Use CA
All Members permitted to use word "CA" as prefix no matter in Practice or not
Designation
NO member using such designation allowed to use description in Addition or Substitution

Committee on Ethical Standards = allowed on member choice use 'Dr' with 'CA' & or use 'Dr' only before Name
Member with 1 or > COP (like COP of Lawyer too) = Use CA Designation subject to permission
Removed from Membership as to Misconduct Not attained 21 yrs age

Disabilities
Name of CA
Sec 8:
not entered Offensive of Moral Turpitude Of Unsound Mind

in Member Convicted by Court Un-discharged Insolvent
Register if: -
Discharged Insolvent & NO Certificate of Insolvency by Misfortune is received

AUDIT SAGA
Sec 20: Council Remove CA Order under CA Act to Remove from * By Deed * Request From Member
Name from Register Membership * Not Paid Fee * Sec 8 Disabilities
Sec 24: Penalty for False Is a Member but without COP is practicing
Not Member but uses CA Designation
Claim to be Member as CA in practice
1st Conviction = Rs. 1000 Fine & 2nd Conviction = Rs. 5000 Fine & /or 6 months Prison
No Co. incorporated in India or elsewhere = Practice as CAs(If Contravenes it = Every Director, Mgr,
Sec 25
Secretary or known = Punishable u/s 24 in same manner)
No person except ICAI Member = Sign docs on behalf of CA in Practice or Firm of CAs
Sec 26:Unqualified
not to Sign Doc: -
1st Conviction = Rs. 5000 - Rs. 1 Lakh & 2nd Conviction = Rs. 10000 - Rs. 2 Lakh &/ or 1 yr Prison
Place where Name Board fixed or Place in Letter Head or other documents as Place of Business
Office
Name Board Can be put at Residence of Member if = of Own Name not of CA Firm Name
Sec 27: Maintenance of Br. Offices
Separate CA in Practice or CA Firm having > 1 Office in India

in
Each office to be in Separate Charge Treated as Member in Charge = only if not less than 182
Charge of Member by any Partner/ Employee Days attended/ resided in such Place of Office
Members Practicing in Hilly Areas may open Temporary Office if: -

Exemptions to Separate in
For < 3 Months in Winters Name Board in such 3 Month Regular office not Closed
Before Open & Close of it =

Charge
All Communication at Permanent Office

Inform to ICAI
Such not to be mentioned as Place of Business on Office documents
2nd Office may be opened without Separate In charge if its Situated in: -
Same Premise of Main/ 1st Office or Same City or 50 Km from Municipal Limits of 1st Office City
SCHEDULES TO CA ACT 1949
FIRST SCHEDULE SECOND SCHEDULE
Part I = Part II= Professional Part III = Part I = Part II =

Professional misconduct in Professional Professional Professional
misconduct in relation to Member misconduct in misconduct in misconduct in
relation to CAs in in Service (not in relation to Member relation to CAs in relation to Member
Practice Practice) Generally Practice of ICAI Generally
(Clauses = 12) (Clauses = 2) (Clauses = 3) (Clauses = 10) (Clauses = 4)
Part IV = Other Misconduct in relation to Member of ICAI Generally Part III = Other Misconduct in relation to
(Clauses = 2) Member of ICAI Generally (Clauses = 1)

AUDIT SAGA
SCHEDULE I: - CHARTERED ACCOUNTANT ACT, 1949

PART – I: - Professional Misconduct in relation to CA in Practice
CA in Practice deemed Guilty of Professional Misconduct if: -
Clause 1 Allows any person to practice in his name as CA unless such person is = Also CA in practice +
In partnership with or employed by him.
Pays / allows / agrees to pay or allow, directly or indirectly any Share/ Commission/ Brokerage
in fees or profits of his professional business to any person other than to: -
Clause 2 • A member OR • Partner OR • Retired partner OR
• Legal representative (like widow) of deceased partner ( if partnership deed provides so) OR
• Member of any other professional Bodies (Reg.53A) OR
• With persons having prescribed Qualification to render Professional Services in or outside India.
Transfer/ Sale of Goodwill of Sole proprietorship permitted on Sharing of fees or profits: - Practicing member
death of proprietor if: - CAN share fee or profits arising out of his
* ICAI’s permission to practice in such firm name in 1 yr of death professional business with Qualified Persons in
* 1 partner dies = widow of decreased partner gets share of firm if Regulation 53A i.e.: -
partnership agreement provides it • CS, CWA & CMA
* Proprietor CA in practice dies = widow can sell g/w & right to use • Actuary, B.E., B. Tech, Bachelor in Architecture,
CA firm name if sold in 1 year Bachelor in Law & MBA.
Accepts/ agrees to accept any part of profits of professional work of person not a member of ICAI.
Clause 3 However such restriction N/A for: - • Member of any other professional bodies
• With such other persons having prescribed qualifications (Reg. 53A)
Enters in partnership in/ outside India with any other person except: - • CA in practice.
Clause 4 • Member of any other professional bodies having prescribed qualifications. (Reg. 53B)
• A person, who but for his residence abroad would be entitled to be registered as member.
• A person whose qualifications are recognized by CG or Council for permitting such partnerships.
Secures any professional business: - • By means which are not open to a CA. OR
Clause 5 • Through services of a person who is not employee or not his partner
Solicits clients or professional work (directly or indirectly) by Circular, Advertisement, Personal
communication or Interview or by Any other means. (CA ki PIA). Solicitation relaxed if: -
• CA apply/ request/ invite/ secure professional work from other CA in practice OR
Clause 6 • Member Respond to tenders or enquiries issued by users of professional services or organizations
from time to time and secures professional work as a Consequence.
(Member in practice not respond to any tender unless minimum fee prescribed in tender document)
COUNCIL GUIDELINES W.R.T. FORMS OF SOLICITATION: -

Advertisement and note in press = Not Permitted except: - - Change in address of practice and telephone numbers
- Info for sharing professional work on assignment basis/ asking for employees or partners - Changes in partnership
Empanelment of Allotment of Audit / professional work by Govt. departments/ Govt. companies / corporations & similar
Institutions = permitted (Roving enquiries for existence of such panel = Not permitted)
Also Soliciting professional work by making roving inquiries = Not permitted to address letters or circulars for it
CA/ Firm Name in Telephone/ Other directories by Special request/ additional payment = Not permitted
Publication of Books or Articles/ Issuing Hand Bills indicating association with any firm of CAs = Not Permitted.
(Pamphlets to person except clients in matters of change in Tax Matters = Not Permitted)
Designation “CA” & Name of Firm may be used in Greeting cards, Invitations for marriages & religious ceremonies &
invitation for open office be sent only to Clients, Relatives & Close friends of self NOT to such persons of his/ her partner
Giving Public Interviews = Permitted if not resulting in publicity & not highlights professional attainments.
Website = Can create own Website with any colors (Websites to run on “Pull” & not “Push” model)
* Members not allowed to use logo (other than ICAI logo) on website}
* Photographs of any sort (other than passport size photo of member) is not permitted
* Nature of Assignments handled, Name of clients & Fees = not permitted (except if required by Regulator).

AUDIT SAGA
• Advertises his professional attainments or services or

• Uses designation/ expressions except CA on professional docs, visiting cards, letter heads or sign
Clause 7 boards (Recognized degree of university or title indicating membership of ICAI or other recognized
institution may be used)
NOTE: - Photograph not allowed on visiting card, QR code allowed provided it not contain anything which is otherwise not
permissible in visiting cards. Also that Not intimating website address to ICAI does not amount to professional misconduct
GENERAL GUIDELINES on Advertisement: -
• Words like income-tax consultant, cost consultant or management consultant = not allowed.
• Persons eligible otherwise, subject to permission may practice as advocates but can’t use designation “CA” + “Advocate”
• A member may appear on T.V. and films and etc. and describe themselves as CA, but no reference, as to Name/ Address/
Services of firm should be made.
• Name, description and address of member (firm) may appear in any directory or list of members of a particular
body, (alphabetically). He may provide appropriate directorship held and reasonable personal details (outside
Interest) but not name of clients and services offered his firm.
• They should be no objection to the publication of photographs and brief particulars of member in magazines provided no
payment is made for such publication and there is no Advertisement or Professional attainment.
• Advertisement in press = Not Allowed
Exception: - Advertisement appearing in press in following circumstances provided that advertisement is not displayed
more prominently than is used for such advertisements or the member or of his firm with designation CA (s) appears in type
not bolder than substance of the advertisement used for: -
- Advertisement for recruiting staff in the members own office
- Advertisements on behalf of clients requiring staff or wishing to acquire or dispose of business or property
- Advertisement for the sale of a business or property by a member acting in a professional capacity as
Trustee, liquidator or receiver
• Success in exams may be given without any undesirable publicity for member / firm /clerk
• Use glow sign light/ large size board = Not Allowed as may have name board of self at residence but not of firm
• Inclusion of name of a member of the Institute in Prospectus/ Public announcements/ Public communication issued by
companies in which member in a director = Allowed, but it is necessary that members should take necessary steps to
ensure that such prospectus or public announcement or public communication do not advertise his professional attainments
• Use logo = Not Allowed as only common logo permitted by ICAI is allowed
Accept position as Auditor previously held by other CA o certified auditor without

1stcommunicating with him in writing. (Parallel Communication is required for e/very Auditor)
Clause 8 * Communication only by hand delivery or RPAD (Registered Post Acknowledgement Due)
* Communication required at every Level (Stat. Auditor has to communicate with previous Stat.
Auditor & likely Internal Auditor to communicate to Previous Auditor)
Accepts appointment as auditor of company without ascertaining whether requirements of Sec

Clause 9 139, 140, 142, 141 & 225 of Co Act in respect of such appointment have been duly complied with.
Charges or offers to Charge, accepts or offers to accept in respect of any professional Employment,
Clause 10 fee which is based on a percentage of profits or which are contingent on finding or results of such
employment, except as permitted under regulations.
a) Fees will not be treated contingent if fixed by a court or other public authority.
b) Charging fee at % of Expected Relief = Professional Misconduct
c) Regulation 192 = Restriction on Fees (Exemption to Clause 10): -
In respect of below mentioned cases its permitted that fees may be fixed as specified below: - (CRV)
•For Receiver or liquidator = % of Realization or disbursement of assets.
•For Co-operative society = % of paid up or working capital or Gross/ Net income or profits.
•For VALUER for Direct taxes & duty = % of value of property valued.
•For Mgmt. Consultancy services = % contingent upon the findings, or results of such work.
•For Fund Raising services = % of fund raised.
•For Debt recovery services = % of debt recovered.
•For Services of Cost optimization = % of benefit derived.
•Any Other service or audit = as may be decided by Council.

AUDIT SAGA
Engages in Business or occupation other than profession of CA unless permitted by council for it
Clause 11 {Member may become director (not being M.D. or Whole time director) in company provided he or
any of his partners is not interested in such company as an auditor.}
Regulation 190A: - Members in practice generally permitted with NO Specific permission from Council in: -
- Employment under CAs in practice/ such CAs Firms - Private tutorship
- Holding of LIC Agency to only gets renewal commission. - Authorship of books & articles.
- Hold public elective offices such as M.P, M.L.A & M.L.C - Attend classes & appear for any exam.
- Honorary office leadership of charitable-educational - Part-time tutorship in ICAI
- Act as Notary Public, Justice, and Magistrate & like. - Editor of professional journals.
- Value papers, paper-setter, head-examiner or moderator for exam. - Surveyor & Loss Assessor
- Own agricultural land & carry agricultural activity. - Act as Recovery consultant in banks
He allows a person not being a member of institute in practice OR a member not being his
Clause 12 partner = To sign on his behalf or on behalf of his firm any B/S, P/ L, Report or FS.
(Read with Sec 26 of CA Act 1949 = No person except ICAI Member = Sign docs on behalf of CA in
Practice or Firm of CAs)
PART – II: - Professional Misconduct in relation to Member of Institute (other than Member in Practice)
Members in Service deemed Guilty of Professional Misconduct if: -
Clause 1 Pays or allows or agrees to pay (directly or indirectly) to any person = Any share in emoluments of
employment undertaken by him.
Accepts or agrees to accept any part of fees as commission or gratification profits or gains from: -
Clause 2 • A lawyer OR • Broker engaged by such company, firm, or person OR
• CA OR •Agent or customer of such company, firm or person
PART – III: - Professional Misconduct in relation to Member of ICAI Generally

Members whether in Practice or not deemed Guilty of Professional Misconduct if: -
Clause 1 Not being a fellow of the Institute, but acts as a fellow of the Institute.
Does not supply the information called for, or does not comply with the requirements asked for by
Clause 2 Institute, Council or any of its committees, Director (Discipline), Board of Discipline,
Disciplinary Committee, Quality Review Board or the appellate authority.
While inviting professional work from another CA or while responding to tenders or enquiries or
Clause 3 while advertising through a write up or anything as provided for in Clauses 6 & 7 of Part I of this
Schedule, gives info knowing it to be false.
PART – IV: - Other Misconduct in relation to Member of ICAI Generally

Members whether in Practice or not deemed Guilty of Other Misconduct if: -
Clause 1 Is held guilty by any civil or criminal court for an offence which is punishable with imprisonment for
a term not exceeding 6 months.
Clause 2 In opinion of Council brings disrepute to the profession or Institute as a result of his action whether or
not related to his professional work.
Illustrative Cases of Other Misconduct: -
• Retain BOA & Docs of client without reasonable cause
• Misappropriation by office-bearer of Regional Council of funds for personal use
• Keep assessment records of income tax department belonging to Client at home
• Adopt coercive methods on bank for having loan sanctioned to him

AUDIT SAGA
SCHEDULE II: - CHARTERED ACCOUNTANT ACT, 1949

PART – I: - Professional Misconduct in relation to CA in Practice
CA in Practice deemed Guilty of Professional Misconduct if: -
Discloses info acquired in course of his professional engagement to: -

Clause 1 • Any person other than his client so engaging him without the consent of his client or
• Otherwise than as required by any law for the time being in force.
Certifies or submits in his name or in name of his firm a report of an examination of FS unless
Clause 2 examination of such statements & related records has been made by: -
• Him OR • By a partner OR
• An employee in his firm OR • By another CA in practice.
Permits his name or name of firm used in connection with estimate of earnings contingent on
Clause 3
future transactions in manner which may lead to belief that he vouches for accuracy of forecast.
As per Guidance Note on Accountants Report on Profit Forecasts and/Financial Forecasts, A CA in practice can associate
his name with the forecasts. SAE 3400 = Member Can participate in preparation of profits or final forecasts & can review
them subject to conditions: -
- Indicates Source of info is mentioned - Indicates basis of forecasts is mentioned
- Gives in report assumptions in arriving at forecasts. - Not vouches for Accuracy of forecasts
Express his opinion on financial statements of any business or enterprise in which he, his firm
Clause 4 or a partner in his firm has a substantial interest (As per Council General Guidelines even
relative shouldn’t have substantial interest)
Fails to disclose a material fact, known to him, which is not disclosed in a financial statement
Clause 5 but disclosure of which is necessary, in making such financial statement not misleading where he
is concerned with that financial statement in a professional capacity.
Clause 6 Fails to report a Material Miss-statement known to him, to appear in a financial statement with
which he is concerned in a professional capacity.
Clause 7 Does not exercise due diligence or is grossly negligent of the conduct of his professional duties.
Clause 8 Fails to Obtain sufficient info which is necessary for expression of opinion or its exceptions are
sufficiently material to negate the expression of an opinion.
Clause 9 Fails to Invite attention to material departure from Generally accepted procedure of Audit.
Fails to keep money of client EXCPET fees or remuneration or money meant to be expended in
Clause 10 Separate bank a/c or to use such money for purpose which they are intended in a Reasonable time.
.
PART – II: - Professional Misconduct in relation to Member of ICAI Generally
Clause 1 Contravenes: - • Any of the provisions of this act OR
• Regulations made there under or any guidelines issued by the council.
Clause 2 Being an employee of any company, firm or person = discloses confidential info acquired in
course of his employment except as & when required by law or permitted by Employer.
Includes in any info Statement return or form to be submitted to the Institute, council or any of its
Clause 3 Committees, Director, board of discipline, disciplinary committee, review board or Appellate
authority, any particulars knowing them to be false.
Clause 4 Defalcates or embezzles money received in his professional capacity.

AUDIT SAGA
PART – III: - Other Misconduct in relation to Member of ICAI Generally

He is guilty by any civil or criminal court for an offence which is punishable for a term exceeding 6 months
Reg. Heading REGULATIONS with respect to ARTICLESHIP

43 Engagement of Article Clerks Max. Number of Articles CA can engage is 10.
46 Registration of Article Clerks CA in practice can give article ship to Students of CA Stream only.
47 Premium of Article Clerks No Loan to be taken from Article or his/ her relatives.
No payment to be collected by CA for Dummy Article ship.
48 Stipend to Article Clerks Paid on monthly basis by A/c Payee cheques as per limits prescribed.
56 Termination of Articles Transfer can be taken by an article 1st year without any restrictions but not for 2nd
year & 3rd year of Article ship Training.
60 Working hrs. of Article Clerk Working hours should not start beyond 11 a.m. in morning & should not end
before 5 p.m. Min working hours in a week = 35 hours & Maximum = 45 hours.
65 Article Clerks not to engage in Articles are prohibited to undertake any business unless ICAI permission is
any other Occupation obtained.
* CA in Practice may be Equity Research Adviser (can’t publish report as its Other Business/ Occupation)
* CA being member of Trust can’t be Auditor of said trust.
* CA in Practice may engage himself as Registration Authority (RA) to obtain DSC for clients.
* CA can hold Credit Card of Bank when he is also Auditor of bank provided Outstanding Balance on
said Card does not > 10000 beyond prescribed credit period limit on credit card given to him.
* CA in Practice can act as Mediator in Court, since acting as “Mediator” = Deemed covered in meaning
of “Arbitrator’ which is permitted to Members in Practice as per Regulation 191.
RECENT DECISIONS OF ETHICAL STANDARDS BOARD
* CA in Practice not permitted to accept Audit Assignment of Bank he took loan on FD held by him there.
* Board in Meeting (Jan, 2017) = decided where law prohibits for instance in Income Tax Act & rules
framed there under, such prohibition on Statutory / Tax Auditor to be VALUER of Unquoted equity
shares of entity he is Auditor, will continue but where there is no specific restriction under any law. So,
permissible subject to compliance with provisions as in Code of Ethics relating to independence.
* Ethical Standards Board in 2011 decided = not permissible for Member who has been Director of
Company on resignation to be appointed as Auditor of said Company & Cooling period for same may
be 2 years. {Section 141(3) disqualification states that Officer of Company can’t be Auditor.
* CA in Practice can’t become Financial Advisors & Receive fees/ commission from Financial
Institutions such as Mutual Funds, Insurance Companies, NBFCs etc.
* CA can’t exercise lien over Client documents/ records for non - payment of his fees
* It is not permissible for CA Firm to print its Vision & Values behind Visiting cards as it would result in
solicitation & so it would be Violation of Provisions of Clause of Part-I of 1st Schedule to CA Act
* Not permissible for CAs in Practice to take Agencies of UTI, GIC or NSDL.
* Permissible for Member in Practice to be Settler of a Trust.
* Member in Practice can’t hold Customs Brokers License u/s 146 of Customs Act, 1962 read with
Customs Brokers Licensing Regulations, 2013 in terms of provisions of Code of Ethics.
* CA in service may appear as Tax Representative before Tax authorities on behalf of his Employer, but
not on behalf of other employees of Employer.
* CA who is Statutory Auditor of Bank cannot for same FY accept stock audit of same branch of bank or
any of branches of same bank or sister concern of bank, for same FY.
* CA Firm appointed as Internal Auditor of PF Trust by Govt. Co can’t be its Statutory Auditor.
* Concurrent Auditor of Bank ‘X’ can’t be Statutory Auditor of bank ‘Y’, which is sponsored by ‘X’.
* CA/ CA Firm can’t be Internal Auditor of Co. & Statutory auditor of its Employees PF Fund
* Ethical Standards Board while noting requirement for Director u/s 149(3) of Co Act to reside in India for
min182 days in previous calendar year, decided that such Director in scope of Director SIMPLICITOR
(permitted as per ICAI norms), if he is non-executive director required in Board Meetings only.
* Internal Auditor not to undertake GST Audit simultaneously.

AUDIT
AUDIT SAG
SAGA
QUALITY REVIEW BOARD

BOARD- SECTION 28A
Composition Functions
Chairperson 10 other members To make recommendation

recommendationss to Council with regard to quality
Chairperso
Chairpersonn & members of BOD appointed from of services provided by the members of institute
persons of eminence having experience in field of To review quality ooff services provided by members of
law, economics, business, finance or accountancy. Institute including audit services.
5 members to be nominated by Council. To guide members of Institute to improve Quality of services &
5 members to be nominated by CG. adherence to various statuary & other regulatory requirements.
FUNDAMENTAL PRINCIPLES OF CODE OF ETHICS

Integrity • Professional must be Straightforward & Honest in both professional & business relationships.
Objectivity • Professional to be unbiased & with no conflict of interest.
Competence & • Professionals to maintain professional skills & standards & act diligently as per Technical &
Due Care Professional Standards
Confidentiality • Professionals not to disclose any Info of Client without his consent or when required by law.
Behavior • Professional to comply with laws & Regulations & avoid action that may bring discredit to profession.
MANDATORY KYC NORMS for CA in PRACTICE where Client is: -
Individual/ Proprietor Corporate Entity Non Corporate Entity
General Info: -
* Name of Client * Business Description * Copy of Last Audited Financial Statements * PAN
PAN// Aadhar Copy
Engagement Info: -
* Type of Engagement
Regulatory Info (If Client is Corporate Entity): - * Entity PAN No. * Director Name, Address & DIN * CIN
DISCIPLINARY PROCEDURE
PROCEDURE-- SECTION 21
Matter to be placed before Board of Discipline Matter to be placed before Disciplinary Committee.
If M
Member
ember is guil
guilty
ty of professional or other misconduct If a member is guilty of any professional or other misconduct
mentioned in First Sch
Schedule,
edule, Disciplinary Directorate mentioned in Second Schedule, Disciplinary Directorate shall
shall place matter between BODs. place matter between Disciplinary Committee.
Powers of BOD if CA found guilty of misconduct: - Powers of DD if CA found guilty of misconduct: -
• Reprimand the member • Reprimand member.
• Remove the name of member from Register for 3 months. • R Remove
emove name of member permanently or for period thinks fit
• Impose fine up to Rs. 1 lalakh.
kh. • Impose fine up to Rs. 5 lakh
* CA in Practice should always maintain Cash Book & Ledger irrespective of Turnover.
COUNCIL GENERAL
* Statutory Auditor shouldn’t accept Audit if Undisputed Audit fee of Previous Auditor not paid or
GUIDELINES OF
GUIDELINES
IMPORTANT
he was removed in unjustified manner.

* Member of Institute should exercise due diligence
* CA in Practice shouldn’t express his opinion on Financial Statements of entity of relative has
substantial interest.
* Indebtedness limit for Tax Auditor is Rs. 10000.
* CA in Practice can accept max 60 Tax Audit assignments
* Guidelines with respect to Minimum Audit fee are recommendatory & not mandatory for a CA
AUDIT SAGA
COST AUDIT APNA MENTOR
“Application of Auditing Principles & Procedure in field of Cost Accounting”

Cost Records & Cost Audit (Sec 148 of Co Act, 2013) & Companies (Cost Records & Audit), Rules, 2014
(Every Company under these Rules shall in respect of each of its Financial year Maintain Cost records in Form CRA – 1)
Sec 148(1)
C.G. may by order in respect of such companies engaged in: -

* Production of prescribed goods OR * Providing prescribed services
= Direct that particulars relating to Material, Labor or Other items of cost
= Shall be included in Books of accounts
Companies including foreign companies engaged in: -

* Production of prescribed goods OR * Providing prescribed services
Rule 3
Regulated Sector = Telecom, Electricity, Petroleum, Sugar, Drugs, Pharmaceutical & Fertilizers
Non- Regulated Sector = Iron Steel, Rubber, Cement, etc.
With Turnover > 35 Cr during immediate Preceding Financial Year = include cost records in Books of A/c
Sec C.G. may be order direct for Audit of cost records of companies covered u/s 148(1) having
148(2) prescribed Net Worth or Turnover in manner specified in order
COST AUDIT (Requirement)
Cost Records to be audited if: -

Rule 4: - Applicability of
*Overall Annual Turnover from all Products & Services in immediate Preceding Financial
Year in case of: - Regulated Sector = > 50 Cr. & Non Regulated Sector = > 100 Cr. AND
Cost Audit
*Aggregate Turnover of Individual Product or Service in immediate Preceding Financial

Year in case of: - Regulated Sector = > 25 Cr. & Non Regulated Sector = > 35 Cr.
Exemption from Rule 4: - Requirement of Cost Audit shall not apply to a company: -
* Whose revenue from exports in Foreign exchange > 75% of its Total revenue OR
* Which is operating from SEZ OR
* Engaged in generation of electricity for captive consumption
Sec * Cost Audit shall be conducted by Cost Accountant Appointed by BODs

148(3) * No person who is appointed u/s 139 as an Auditor can be appointed as Cost Auditor
COST AUDITOR
* Cost Auditor to be appointed in 180 days of commencement of every financial year.

* Before appointment = written consent & certificate be obtained.
* Company to inform Cost Auditor of his appointment.
* Company to file a notice with CG in Form CRA-2 in 30 days of Board meeting or in 180
Rule 6 days of commencement of FY (whichever earlier)
* Cost Auditor appointed as such = continue till expiry of 180 days of closure of FY or till
submission of Cost Audit Report.
* Cost Statements to be approved by BODs before being signed by any Director on behalf of
Board for submission to Cost Auditor.
Sec * Cost Auditor shall submit his report to BODs

148(5) & * Company in 30 days of date of receipt of report = Furnish such report to CG along with full
COST AUDIT
REPORT
148(6) info & explanation.
* Cost Auditor shall submit Cost Audit Report n Form CRA-3.

Rule 6 * Cost Auditor shall forward Duly Signed Report to BODs in 180 days from closure of FY.
* Report with info & explanation to be furnished to CG in Form CRA-4 in XBRL Format.

AUDIT SAGA
Circumstances Cost Audit is ordered: - (Purposes Served or warranted by Introduction of Cost Audit?)
* Price Fixation = Methods of National Importance like Steel, Cement.
* Tax Assessment = Correct Cost of Production for Correct taxes
* Cost Variations within the industry = Industry where cost varies unit to unit
* Inefficient management = Inefficient units told about to Government
* Trade Disputes = For High Wages & Bonus.
ADVANTAGES OF VOST AUDIT
To Management To Shareholders To Government To Society
* Reliable data * Ensures proper * Fix Prices of essential commodities. * Price fixation by correct
* Check on wastage maintenance * Identifying inefficient units. data.
* Inefficiency & corrective of records. * Protect Sick industries. * No price increase without
action * Economic & * Setle Trade disputes. justified
* Budgetary control & efficient * Generation of healthy competition. increase in cost.
Standard Costing operations. * Decision for sanctioning grants. * Helpful in cost reduction.
* Closing Stock Valuation * Fair valuation * Assessment of taxes based on * Proper use of resources
* Detection of Error & Fraud of Inventories production.
Functions
* Verification of Cost accounting Records = To ensure Accuracy of Cost Accounts, Cost reports,
of Cost
Audit
Cost Statements & Cost data.

* Examination of Cost Accounting Records = To ensure that they adhere to Cost accounting
Principles, Procedures & Objectives.
On behalf of Management: - • Determining overhead Absorption Rates

• To establish accuracy of Cost Data • Ascertaining Abnormal Wastages
Types of Cost Audit
• Fixation of Contract Prices • Determination of P.U. Cost of Production.
On behalf of customers: - Insisted in case of cost plus contract buyers insist on Cost Audit
On Behalf of Government: - To consider Grant/ Subsidies or Assessment of production based taxes
Statutory Cost audit: - u/s Sec 148 of Co Act 2013
On Behalf of Trade Associations: - To control Prices, Efficiency Level
Considerations in determining True & Fair Cost of Production are: -

True & Fair Cost
of Production
* Abnormal wastage’s, losses & other unusual transactions being ignored in Determination of Cost.
* Application of costing system appropriate to product * Materiality
* Consistency in Application of Costing system & Cost accounting principles
* Maintenance of cost records & preparation of cost statements in prescribed form
* Determination of cost as per Generally Accepted Cost Accounting Principles
* Composite audit = Combining Cost Audit & Financial audit.

Composite
* Possible only if objectives of both audits are common

Audit
* Objective of financial audit is to express an opinion on True & Fair view of F.s. while objective of
Cost Audit is to ascertain true and fair view of Cost of Production.
* Cost audit is Tool in hands of mgt while financial audit is conducted on behalf of shareholders.

AUDIT SAGA
* Method of Accounting for RM, Stores, Spares, Wastage

* Method of costing in use
* System of recording wages, etc.
Review of * Allocation of overheads
Records * Treatment of Expenses on finance, R&D, royalty, etc.
* Method for Dep. accounting
* Method of Stocktaking & valuation
* System of budgetary control
Matters to be Included in Cost Audit Program
(Q. Planning of Cost Audit is also Relevant?)
* Licensed, installed and utilized capacity

Verification * Operating & financial ratio
* Consumption of Material & Actual expenses
of Cost
* Production data
statement * Abnormal non-recurring & special cost
* Sales realization
* Reconciliation with financial books
Cost auditor while framing his opinion is required to examine various info like: -
* Cost of raw materials consumed
(Q. Why Cost Auditor refers to Financial
* Cost of fuel
* Employee costs
Reference to Financial Record
* Provision for Depreciation (which is turn is available in financial records)
Annexure to the cost audit reports (Form CRA-3) require reporting on followings: -
* Value addition & Distribution of Earnings
Data?)
* Reconciliation of profit
* Financial Position and Ratio analysis.
* Related Party Transactions.
* Reconciliation of Indirect Taxes.
(Such information is available only from financial records)
Info in Part II of Schedule III to Co Act, 2013: - to be covered in Cost Statements

* Consumption of Raw materials * Purchases of Stock-in-trade
* Changes in inventories, WIP, Stock-in- trade etc. * Sales of products
Cost statement as per CRA-1 shall include following: -

* Quantitative info in respect of each good or service showing details of available capacity, actual
Statement
production, production as per excise records, capacity utilization, quantity available for sale, wastage
Cost
& actual sale.

* Details of cost of production, cost of sale of goods and margin
* Reconciliation of Indirect Taxes.
(These statements are to be prepared for each plant, factory or service centre)
Part D of Annexure to CRA-3 requires Cost Auditor to incorporate Profit Reconciliation as below: -
Reconciliation of Cost
& Financial Accounts
S.N. Particulars Current Yr Previous Yr

Profit as per Cost Records
Add: - income not considered
Less: - Expenses not considered
Difference in valuation of stock
Other Adjustments
Profit as per Financial Accounts
* It helps Auditor to identify instances of any misstatement by comparing Info.

AUDIT SAGA
OTHER TOPICS-OLD COURSE APNA MENTOR
AUDIT UNDER GST LAWS

2(13) of CGST Act, 2017 = Examine records, returns & docs maintained/ furnished by Registered
Definition person under this Act/ rules/ under other law for time being in force to verify correctness of: -
of Audit * Turnover declared & * Taxes paid & * Refund claimed &
* ITC availed & to assess compliance with provisions of this Act or rules made there under.
Expenses of Examination & Remuneration for Audit: -

• Borne by Commissioner • If possible tax liability is identified in audit, procedure u/s 73 or 74 to be followed.
Evaluation of Internal Control on GST would indicate area to be focused. This done by verifying: -
Best Practices to be adopted
• Statutory Audit report has specific disclosure needing maintenance of Record, Stock & fixed assets.
• Info System Audit report and the internal audit report.
for GST AUDIT
• Internal Control questionnaire designed for GST compliance: -

- Use of Generalized Audit Software to aid GST audit ensuring Risk Based Audit used.
- Reconciliation of books of account or reports from the ERP’s to return is imperative.
- Review of Gross trial balance for detecting any incomes being set off with expenses.
- Review of purchases/ expenses to examine apply of Reverse Charge applicable to goods/ services.
- FOREX outgo reconciliation necessary for identifying liability of import of services.
- Quantitative Reconciliation of stock transfer in State or supplies to job workers under exemption.
- Ratio analysis on areas of non-compliance..
• RP must get accounts audited by CA/ Cost Accountant if Aggregate Turnover in FY > 2 Cr..
ACCOUNTS
AUDIT OF
• Such RP is required to furnish electronically on common portal with Annual Return a copy of: -
- Audited Annual Accounts
- A Reconciliation Statement to reconcile value of supplies declared in return furnished for
FY with Audited Annual FS & such other particulars as prescribed
RP can be directed to get his records including BOA = examined & audited by CA or Cost Accountant
in any stage of scrutiny, inquiry, investigation or other proceedings; depending on complexity of case.
TYPES OF GST AUDIT
Special audit can be directed in 2 circumstances i.e. where: -

SPECIAL AUDIT U/S 66
* Value not correctly declared or * Credit availed not in normal limits.

Circumstances for Notice for Special Audit: - AC who nurses opinion on above 2 aspects, after
commencing & before completion of any scrutiny, enquiry, investigation or other proceedings under Act,
may direct RP to get his books of accounts audited by expert. Identifying the expert is not left to the
registered person whose audit is to be conducted but the expert is to be nominated by the Commissioner.
• Assistant Commissioner to obtain prior permission of Commissioner to issue such direction in FORM
GST ADT-03 to RP by getting his books audited by Expert.
• CA or Cost Accountant so appointed = submit audit report, mentioning specified particulars in 90 days
in FORM GST ADT-04 which can be further extended by 90 days, if sufficient cause
• RP to be provided an opportunity of being heard in respect of any material gathered in Special Audit
which is proposed to be used in any proceedings under this act.
AUDIT
Audit by Tax Authorities (likely a routine audit but not special audit) wherein Commissioner or any
u/s 65
officer authorised by him, can undertake audit of any registered person for such period, at such frequency
& in manner as may be prescribed.
Auditors should obtain Understanding of organization Internal Process of: -

(a) Accounting of Transactions (b) Reporting to the GSTN Portal
Audit (c) Reconciliation of filed data and (d) Internal control systems implemented
Planning To plan audit & develop effective audit approach to meet audit requirements. In planning portions of
audit which may be affected by Client's CIS environment = auditors should obtain understanding of
significance and complexity of CIS activities & availability of data for use in audit.

\\
AUDIT SAGA
Before starting his wok, GST Auditor shall conduct Preliminary Review to assess CIS controls &
Preliminary risks that could impact work by considering the following points: -
Review • Knowledge of the Business • Understanding thetechnologydeployed
• Understsnding Internal Control System • Risk assessmentand Materiality
* Inform concerned assessee about applicability of GST audit;

Preparation * Confirm eligibility to be GST auditor under related legislation;
for GST * Understand nature of business, products or services, requirements of records to be maintained &
Audit/ advise auditee to maintain accounts and records so required, beforehand;
Steps * Prepare a questionnaire to understand the operations / activities of auditee & specifically develop
auditor can questions on those issues on which GST law would have a bearing
take * Preparation of detailed auditprogram & list of records to be verified;
* Host of relevant reconciliations.
Consequence
47(2) provides that if failure to submit annual return in specified time = Late fee leviable @100/day
of fail to
during which such failure continues subject to max of 0.25% of turnover in State/UT & Equal amount
Submit
of late fee under respective State/UT GST law.
Annual
No specific penalty in GST Law for not getting accounts audited by CA or Cost Accountan = Sec 125
Return &
of CGST Act subjected to penalty upto 25,000 = General penalty that gets attracted where any person,
not getting
who contravenes any of provisions this Act or rules for which no penalty is separately provided..
a/c audited
No prescribed or specified approaches for conducting audit under GST. GST Auditor not required to express his
opinion on truth and fairness of financials when it is audited by others. In any case, he is required to certify
correctness and completeness of certain reconciled data. Verification to be substantially more than opinion on truth
and fairness. Certain time-tested methods of conducting audit evolved into guidelines, which among others are: -
* Obtaining prior knowledge of business & comparing them with similar businesses
AUDIT APPROACH
* Preparing master file of clients (permanent master file)

* Discussing on with audit team on the methodology to proceed with the audit
* Studying and evaluating systems (including business systems) and internal control of business entity
* Assessing audit risks and deploying of suitable personnel
* Assessing Risk appetite of business entity
* Preparing of an audit plan / audit program and conducting the audit accordingly
* Reviewing meetings with audit team
* Drawing conclusions on basis of audit evidence obtained in audit & discuss with client observations& findings
* Discussing with RP & obtaining various management certificates
* Reporting observations in the prescribed statutory format, if any, or evolving a suitable format of reporting
* Maintaining Audit working papers file (Filing of documents either in permanent file or working papers file)
* Concluding audit and intimating the management.
The auditor to take into account AS followed at preparation of financial statements. There could be differences in
manner of accounting treatment of certain transactions as per AS in financial statementsvis-à-vis treatment in GST.
Some of differences are: -
* Supplies on behalf of principal are not reflected in financial statements of agent & only commission is shown as
AS Vs. GST
Revenue of agent. Under GST Law, such turnover treated as part of agent’s turnover.
* AS 19 = in finance lease, in books of lessor, cost of asset is recorded as receivable whereas in books of lessee, it
be recorded as asset purchased. Under GST, cost of asset recorded as a purchase & fair value not be recorded in
books of lessee as purchase.
* If lessor, only financial charges treated as revenue as per AS, whereas under GST, entire amount treated Revenue.
* As per AS in lessee = lease rentals bifurcated into interest charges and liability whereas under GST, entire
treated as expense.

AUDIT SAGA
Compliances under GST depend on technology because transactions are numerous. In GST regime, Info
GST Audit in Computerised
Systems become integral to enterprise day-today operation, such as Return filing, Payment of taxes,
Rectification of returns filed, Reconciliation of returns, e-Way Bill, GSTR 9 etc.
* Primary responsibilityof GST Auditor is to assess entire Computerized Info System (CIS) environment & get
Environment
macro perspective ofdata availability and systems reliability.

* Traditionally manual process of checking and verification
* GST audit processes for larger assesses is carried out by using Computer Systems and Technology
* Example - Verification for matching of ITC availed with Outward
* Supply by supplier being large in numbers, can’t be done manually & computerized tools & methods used.
* Auditor is aware of such computerized environment i.e. CIS Environment & audit risks involved therein.
* GST Auditor try to know whether computer of any type or size used by entity for processing financial info is
important for audit & if it is operated by entity or by 3rd party.
Following are the various forms to be filed under GST Act

• GSTR 9 :GSTR 9 should be filed by the regular taxpayers filing GSTR 1, GSTR 2, GSTR 3
Various Returns
• GSTR 9A : GSTR 9Ashould be filed by the personsregistered under composition schemeunder

Under GST
GST.
• GSTR 9B:To be filed by e-commerce operators
• GSTR 9C:Should be by the taxpayers whose annual turnover exceeds ` 2 Croresduring the financial
year. All such taxpayers are also required to get their accountsaudited and file a
copyof audited annual accountsand reconciliation statementof tax alreadypaid and tax payable as per audited
accountsalongwith GSTR 9C.
* Annual return filed once in year by RP under GST including those registered under composition levy.
Annual Return
Filing, Format,
Eligibility &
* Consists details regarding supplies made & received in year under tax heads i.e. CGST, SGST &
GSTR 9 -
IGST.
Rules
* It consolidates the information furnished in the monthly/quarterly returns during the year.
* All Registered taxable persons in GST must file GSTR9 form. Below not required to file GSTR 9: -
• Casual Taxable Person • Input service distributors
• Non-residenttaxable persons • Persons paying TDS under section 51 of GST Act.
Form GST ADT-04

Format of Audit report under GST= Form GST ADT - 04
Date: -
To,
--------------------------------------------
GSTIN ………………………………
Name ………………………………
Address ………………………………
Information of Findings upon Special Audit: -
Your books of account and records for F.Y… been examined by (CA/ Cost Accountant) & this Audit Report is
prepared on basis of info available/ documents furnished by you & findings/discrepancies are: -
Short payment of Integrated tax Central tax State/UT tax Cess
Tax
Interest
Any other
amount
[Upload pdf file containing audit observation]
You are directed to discharge your statutory liabilities in this regard as per Act & rules failing which proceedings as
deemed fit may be initiated against you under provisions of Act.
Signature ......................................
Name ………………………………..
Designation ………………………....

AUDIT SAGA
PEER REVIEW
• "Peer" means a person of similar standing.
Meaning
• "Review" means conduct of re- examination or retrospective evaluation of the subject matter.
• "Peer review" = Review of work done by professional, by another professional of similar standing.
• A regulatory mechanism to monitor performances of professionals to maintain quality of service
expected of them for enhancing reliance placed by users of FS for economic decision-making.
To Ensure that in carrying out assurance service assignments, members of Institute: -

OBJECTIVES
• Comply to Technical, Professional & Ethical Standards as applicable including other regulatory requirements &
• Have in place proper systems including documentation for maintaining the quality of the assurance services.
• Objective of peer review is not to find out deficiencies but to improve quality of services rendered by members
• Provide guidance to members to improve their performance & adherence to statutory & regulatory requirement.
• It seeks to identify and address patterns of non-compliance with quality control standards.
Peer Review applies to all assurance services provided by Practice Unit. While carrying out review,
SCOPE/
FOCUS
reviewer examines assurance engagement records of Practicing Unit (PU) so as to cover following: -
• Comply to Technical, Professional & Ethical Standards. • Quality of reporting.
• Systems & procedures to carry assurance services. • Comply to directions or guidelines of Council
Areas excluded from Scope of Peer Review = Assurance Services: -

It is Used interchangeably with Audit Services, Attestation & Audit Functions but not include following: -
• Management Consultancy Engagements. • Engagement for Due diligence.
• Representation before various Authorities. • Testifying as an expert witness.
• Engagements to prepare tax returns or advising clients in tax matters & for the compilation of FS.
• Engagements solely to assist Client in preparing, compiling or collating info other than financial statements.
• Providing expert opinion on points of principle, such as Accounting Standards or the applicability of certain laws
PRELIMINARY REPORT UNDER PEER REVIEW
In peer review, after completing on-site Review, if

Reviewer finds procedures are deficient or non- Contents of Preliminary Report
compliant noticed by him or if there are other matters
where he wants to seek clarification, then: -
• Reviewer to communicate his findings in Preliminary * Findings of Peer Reviewer.

Report to PU before making Report to Board. * Assess the conclusions drawn from the review indicating
• No preliminary report is required in case no deficiencies deficiencies to be reported upon.
or non- compliance are noticed by reviewer. * Mentioning areas where procedures of PU found deficient
• Reviewer should prepare the report on his letterhead. * Contain paragraph that discusses scope of review performed
• Report be dated & contain reviewer's sign & membership = If Reviewer draws a conclusion that there existed a limitation
no. & reviewer's code number allotted by Board. on scope of review = communicate it to PU by such
• Preliminary Report is addressed to the practice unit. Preliminary Report.
• Reviewer should Gain Understanding of Engagement letter

ADOPTED BY PEER
• No. of assurance engagements to be selected = requires judgment based on evaluation of replies

STAGEWISE
• Reviewer should examine that Policies & procedures for acceptance of audit complied & documented
APPROACH
EXPLAIN
• Reviewer may follow Compliance & Substantive Procedures in peer review process.
• Reviewer while evaluating records may consider the following: -
- Determine issues, matters, problems in engagement considered, resolved & documented.
- Determine adequate audit evidence for engagement is obtained to support conclusions drawn
- Determine significant decisions relating to engagement, use of professional judgment, resolution
of significant matters have been properly documented.

AUDIT SAGA
Inspection Consists of examination of documentation & other records maintained by PU.

evidences by PEER
REVIEWER
Collection of
Methods of
* Consists of witnessing a procedure or process being performed by others.

Observation
* Ex: - While conducting on-site review reviewer reviews performance of internal control.
* Seeking appropriate info from partner/sole proprietor or knowledgeable persons in PU.

Inquiry * Inquiries may originate from responses to the questions given in Questionnaire.
* Inquiries may arise from inspection of documentation maintained by the practice unit.
MANDATORY REQUIREMENT FOR PEER REVIEW
Level 1 P.U. Level 2 P.U. Level 3 P.U
Once in 3 yrs. Once in 4 yrs. Once in 5 yrs.

Central Statutory Auditor of Public/ Pvt. Sector Statutory Auditor of Co: - Others
Banks/ Foreign Banks/ PFI/ Insurance Co. Net worth > 5Cr&Annual Turnover > 50 Cr
Statutory Auditor of Asset Management Co/ Statutory/ Internal Auditor / Concurrent/ Tax Audit of Others
Mutual Fund Insurance co/ Bank/ NBFC
Entities raising > 50 Cr funds from Loans/ - -
Donations/ Subsidies.
Once in 3 yrs. Once in 4 yrs. Once in 5 yrs.
PEER REVIEW PROCESS = Select PU & Appointment of Reviewer + Planning + Execution + Reporting
REPORTING STAGE
Peer Review Report to address his report of compliance Peer Review Report of Reviewer
or otherwise on following areas of control
(a) At end of on-site Review if Reviewer satisfied with reply

(For IPO, Staff Recruitment & development & office admin)
received from PU: -
• Independence.
* Submit a Peer Review Report to the Board along + IRR: -
• Maintenance of Professional skills and standards.
- Initial findings - Response by PU &
• Outside Consultation.
- Manner in which Responses have been dealt with.
• Staff recruitment, Supervision and Development.
(Copy of report forwarded to PU)
• Office Administration
Further Discussion/ Communication of Findings: - (b) If Reviewer find response by PU not satisfactory: -
* After completing the on-site Review, the Reviewer, before * Submit modified Report to Board + reasons for it
making his Report to the Board to communicate his findings * Submit IRR (Copy of report forwarded to PU)
in the Preliminary Report to PU. (c) In case of a modified report: -
* If in his opinion, the systems and procedures are deficient or * Board to order a “Follow On” Review after a period of 1
non-compliant with reference to any matter that has been year from date of issue of report as in (b) above.
noticed by him or if there are other matters where he wants to * If Board so decides, period of 1 year above may be reduced
seek clarification. but shall not be less than 6 months.
* PU in 15 days after date of receipt of findings makes
submissions or representations, in writing to Reviewer.
• Not guilty of misconduct under CA ACT, 1949 • Continuous 10 years in Practise

Eligibility for
• Obtained prescribed training organised by Peer Review Board. • Not having any conflict of interest.
Reviewers
• Signed declaration of Confidentiality as prescribed.

Peer
• 7 years of experience of Peer Review of Level 1 PUs.

• No disciplinary action pending against him or convicted by Court.
• Not to accept professional assignment from PU for 2 years from date of appointment.

AUDIT SAGA
INVESTIGATION
Basis of Differ INVESTIGATION AUDIT
Objective Aims to establish a fact or happening or at assessing a To verify whether FS display True & fair view of
particular situation. State of affairs &working results.
Scope Scope of investigation may be governed by Statute or Scope of audit is wide & in case of statutory audit
it may be non- statutory. it is determined by relevant law.
Periodicity Work is not limited by rigid time frame& may cover Carried Quarterly, Half-yearly or Yearly.
several yrs, as outcome of it is not certain.
Nature Detailed study & examination of facts and figures.
Tests checking or sample technique to draw
evidences to form judgment &opinion.
Limitations No inherent limits due to nature of engagement. Audit suffers from inherent limitation.
Evidence It seeks Conclusive evidence. Prima- facie or Persuasive evidence.
Observance of It is analytical in nature and requires a thorough mind, Is governed by compliance with generally
Account capable of observing, collecting and evaluating facts. accepted accounting principles, audit procedures
Principles and disclosure requirements.
Reporting The outcome is reported to the person(s) on whose The outcome is reported to the owners of the
behalf investigation is carried out. business entity like Members of Co.
• Determination of objectives & establish scope • Formulate Investigation program

Steps in
• Examination & Study records by reference to appropriate evidence
Investigation
• Analysis, processing & interpretation of findings • Preparation of report & draw Conclusions
* For Valuation of shares in private companies * Of Frauds

Non Stat.
* In connection with review of profit/ financial forecast * On behalf of Incoming Partner

* On behalf of individual or a firm proposing to buy a business
* On behalf of a bank proposing to advance loan to a company
Sec. 210 of Co Act 2013 = Investigation into affairs of company: -

• CG may Order an investigation into affairs of company: -
TYPES OF INVESTIGATION
- On receipt of a report of Registrar/Inspector u/s 208 OR - In Public Interest. OR

- On intimation of a Special resolution passed by company in this regard
• CG to Order Investigation in affairs of company where order passed by Court/ Tribunal in this regard
• CG may Appoint 1 or more persons as inspectors who report to CG in manner as directed by CG.
Statutory (by Inspector)
Sec. 212 = Investigation into affairs of company by SFIO (Serious Fraud Investigation Office): -
• CG may, by order assign investigation into affairs of a company to SFIO: -
- On receipt of a report of Registrar/Inspector u/s 208 OR
- On intimation of a Special resolution passed by company in this regard OR
- In public interest OR - On request from any Department of CG/SG.
• Director, SFIO may designate such number of inspectors as he considers necessary for investigation.
• SFIO conducts Investigation in prescribed manner& submits report to CG in period given in order.
Sec 216 = Investigation into Ownership of Co: -

• CG may appoint 1 or more Inspectors to investigate & report for Determining True persons: -
- Who are or have been financially interested in the success or failure of the company OR
- Who are or have been able to control or materially influence the policy of the company.
• CG may define the scope of investigation on matters / period/ particular shares or debentures

AUDIT SAGA
• Report not to contain anything not relevant highlighting nature of investigation or final outcome
• Every Word or expression used = properly considered as interpretation differences minimized.
• Relevant facts and conclusions should be properly linked.
• Bases and assumptions made = explicitly stated.
Reporting of
• Report clearly tell nature &objective of assignment accepted its Scope and limitation.
Findings
• Report should be made in paragraph form with headings for the paragraphs.
• Any detailed data & figures supporting finding may be given in Annexure.
• State restrictions or limitations imposed on instructions given by the client.
• Opinion of investigator = appear in final paragraph of report.
* Officers, Employees & agents = produce all book & papers & provide assistance.
Production
(Sec 217) Procedures &
* With previous approval of CG, inspector may require info of any other body corporate.
Powers of Inspector
of Docs
* Inspector may detain the books for 180 days.
POWERS & REPORT OF INSPECTOR ON INVESTIGATION
Examine * Inspectors may examine Officers, employees & agents of co. or related co(s) on oath.
an Oath * Previous approval is required to examine any other person.
* Discovery & production of books & other documents at such place & time as specified
/Powers of
* Summoning and enforcing attendance of person and examine them on oath
Civil Court
* Inspection of any books, registers & other documents at any place
With prior approval of CG, Inspector may Investigate following affairs: -

affairs of related
Investigation in
• Body corporate which is/ was subsidiary or holding or another subsidiary of same holding of
(Sec 219)
company under investigation. OR

co.
• Body corporate which is/ was managed by any person as MD or Manager who is MD or Mgr
of company under investigation. OR
• Body corporate whose BODs comprises nominees of Co. under investigation.
• MD, Manager or Employee of Co. under investigation.
• If Inspector has reasonable grounds that books & papers of Company / other body corporate/MD/
Seizure of
(Sec 220)
Manager are likely to destroyed: -

docs
- Inspector may enter into places where these books are kept with required assistance. &
- Seize the books and papers after allowing the company to take copies of such books.
• Such books and papers kept by inspector for such period not later than conclusion of investigation.
• Inspector: - - May/ shall Submit Interim Report to CG when required.

Inspector
(Sec 223)
Report
- Shall Submit Final Report to CG on conclusion of Investigation.

• Report shall be in writing or printed as CG may direct.
• Report may be obtained by making an application to CG.
• Report authenticated by Seal of Co. whose affairs is Investigated or by Certificate of Public officer.
DUE DILIGENCE
• Comprehensive appraisal of a business undertaken by a prospective buyer/ investor, specifically to establish
Meaning
its assets and liabilities and ascertain its commercial potentiality.

• It is a term in relation to corporate restructuring.
• Corporate restructuring normally includes internal reconstruction, amalgamations etc.
• Also performed in cases of venture capital financing, lending, disinvestment etc.
PURPOSE: -
• Assist purchaser/ investor in finding about business he is acquiring or investing (Success factors, strength & weakness)
• Expose potential problems in price negotiations or by dealing suitable clauses in contractual documentation

AUDIT SAGA
CLASSIFICATION/ AREAS in which DD takes place
Commercial / Operational DD To evaluate whether proposed Merger would create Operational Synergies.
Financial Due Diligence To analyze BOA & other info pertaining to Financial matters of entity.
Tax Due Diligence To determine the tax effect of merger or acquisition.
Information System DD To ascertain whether info systems is providing reliable info timely.
Legal Due Diligence To review legal aspects on functions of entity & compliance with laws.
Environmental Due Diligence To study entity’s environment, its flexibility to acquirer entity.
Personal Due Diligence To ascertain entity’s personnel policies = appropriate & suit requirements of restructuring.
• Commences after a price has been agreed for the business.

Financial
Diligence
• Initial price & other decisions are taken on basis of net worth & trend of profitability of target co
Due
• To look behind initial info by co & to assess benefits & costs of proposed acquisition/ merger by inquiring
in all relevant aspects of the past, present and future of the business to be acquired/merged with.
MATTERS IN SCOPE/ STEPS in a Full-fledged Financial DD
Studying Business History Financial Projection Cash Flow

Management and Employees Significant Accounting Policies Taxation
Statutory Compliance Review of Financial Statements Others (Below)
In Addition below points also to be duly considered: -

• Reason for sale of business and the effect on turnover and profits due to exist of present proprietor.
• The length of the lease under which business has been operating.
• The unexpired period of patents if any held by the vendors.
• The age of managerial staff and prospects of their continuing in service in the new environment.
• If bulk sales are to a few limited customers, the profitability should be discounted greatly, because any substantial
withdrawal of customers might cause business crashes.
• Valuation of goodwill if any should be on reasonable basis having regards to all factors mentioned above.
Increasing • Other Items Included in Sales (like freight, excise duty, sales-tax, etc)
Turnover but • High Administrative and Selling Expenses • Additions to Fixed Assets
declining Net • Competitive Price • Unfavourable Sales mix
Profit in 5 yrs • Negative Impact of Financial Leverage • Cost-Price Relationship
Approach/ Steps for Investigation u/s 210 & 213

Clarity of Terms of Reference Scope of Investigation Period for investigation
Framing of Programme Using the work of Experts Legal requirements & Investigation Report
Enquiries on • Info systems & Important expense Categories • Research and Development
History of target’s • Nature of business (for ex manufacture, wholesaler) • Inventories (locations, quantities)
Products, Mkt., • Employment (by location, supply, wage levels etc) • Plant, warehouses, offices location
Supplier, • Product or services and markets (for example, major customers and contracts, profit margins)
Expenses, • History of business with important suppliers (Ex: LT contracts, imports, terms of payment)
operations
Investigation • Repayment Schedule of the Borrower • Purpose of Loan

to aid • Is Company authorised to borrow money • Past profitability of Co
sanctioning • Economic position of Co • Ratio Analysis
Term Loan • Financial standing of Co & integrity & reputation of Directors • Verification of A/ L
by Bank

AUDIT SAGA
• Agreement to buy back shares sold at a stated price • Future lease liabilities.
• Environmental problems/ Claims/ 3rd party claims. • Long pending sales tax assessments.
Investigation)
Liabilities
(Areas of • Liability claims; warranty liabilities, product returns/ discounts; liquidated damages for late deliveries
Hidden
• Pending final assessments of customs duty where provisional assessment only has been completed.
• Unfunded gratuity/superannuation/leave salary liabilities; incorrect gratuity valuations.
• Huge labour claims under negotiation when the labour wage agreement has already expired.
• Tax liabilities under direct and indirect taxes.
• Uncollected/uncollectable receivables • Intangibles of no value.

Over Valued Assets
• Group Company balances under reconciliation etc. • Litigated assets and property.
Investigation)
• Obsolete, slow non-moving inventories or inventories valued above NRV.

(Areas of
• Huge inventories of packing materials etc. with name of company.

• Underused or obsolete Plant and Machinery and their spares
• Asset values which have been impaired due to sudden fall in market value etc.
• Investments carried at cost though realizable value is much lower.
• Investments carrying a very low rate of income / return.
Objectives for Individual Areas of Verification that DD to include

Brief Description of history of business Background of promoters.
Accounting policies and practices Management information systems
Details of management structure Trading results both past and recent past
Assets and liabilities as per latest balance sheet Cash flows patterns
Projection of future profitability Current status of Tax assessments including appeals pending against
tax liabilities assessed by tax authority
Factors to • Trend of sales (increasing consistently or fluctuating)

Assess/ Value • Marketability (possible to extend sales into new markets)
Future • Political & economic considerations (Govt. policy to promote extension of Mkt. to other countries)
Maintainable • Competition (Effect on business if other manufacturers enter same field or sell in cheaper price)
Turnover
Contents of DD Report/ Example of Headings of DD Report
Executive Summary
Introduction
Background of Target
Objective of due diligence
Terms of reference and scope of verification
Brief history of the company
Share holding pattern
Observations on the review
Assessment of management structure, financial liabilities & Valuation of assets
Comments on properties, terms of leases, lien and encumbrances.
Assessment of operating results, net worth, taxation and statutory liabilities
Interlocking investments and financial obligations with group / associates companies, amounts receivables
subject to litigation, any other likely liability which is not provided for in the books of account.
Assessment of possible liabilities on account of litigation and legal proceedings against company.
SWOT Analysis
Comments on future projections
Status of charges, liens, mortgages, assets and properties of company
Suggestion on ways & means including affidavit, indemnities, to be executed to cover unforeseen & undetected
contingent liabilities& on various aspects to be taken care of before & after proposed merger/acquisition

AUDIT SAGA
AUDIT STRATEGY, PLANNING & PROGRAMMING

(Also Refer - SA 300)
Process of Establishing Overall audit strategy on Team Resources OR Benefits of Overall Audit Strategy
Employment of Allocation of Quality of Timing of Deployment Mgt of Resources

Qualitative Resources Resources of Resources
• Identifying RMM through understanding of Entity and its environment as per SA 315
Statutory Audit
Techniques for
• Design Response to Assessed Risks as per SA 330 • Planning Audit (SA 300)
Auditing
• Obtain SAAE (SA 200 + SA 500) • Perform Substantive Procedures (SA 520)
• Perform compliance procedures to determine NTE of substantive procedures
• Test checking(SA 530) &Verification and Valuation of Assets & Liabilities.
Audit Plan to locate Abnormal Wastage of RM

General Requirements Specific Considerations
• Obtain reports of Preventive Maintenance of machinery • Examine possibilities of theft, fire losses etc
• Procure list of RM • Examine Standard input output ratio
• Assess whether personnel employed trained & efficient. • Examine lab reports & inspection reports if RM purchased
• Obtain Standard consumption figures
of poor/ sub-standard quality
• See Quality Control techniques are consistent or changed.
• Examine inventory plans and procedures. • Machine breakdown & power failure may also result in loss
• Examine whether basis adopted for calculating waste is same of materials in process
for all months. • Examine inspection reports of inspections carried out
• Unusual pressures on mgt.

Identify Inherent Risk at different
At Level of
Statements
• Nature of entity’s business.

Financial
in MNCs OR Factors to be
• Factors affecting industry in which entity operates.

• Integrity of Mgt
• Mgt experience & knowledge & changes in mgt during period
level
• Quality of A/c system

Balances & Class
of Transactions
• Susceptibility of FS to misstatement
At level of A/c
• Assets suspected to loss/ misappropriation

• Degree of judgment to determine A/c balance
• Complexity of underlying transactions & events requiring work of Expert
• Completion of unusual and complex transactions, particularly at or near period end.
• Ensure if incomes are correctly accounted • Check MOA & AOA

Program for
Expenditure
(Not Assets)
Revenue &
Cinemas
• Verify payments of maintenance of buildings • Verify ICS to parking fees

of Fun
Audit
• Verify ICS on sale of online & offline tickets • Verify ICS on income from canteens
• Statuary requirements complied of wages & salaries • Object clause permitting this business
General Matters/
• General Economic factors = Government policies & Seasonal activities
Factors Auditor
• Conditions effecting business = Business risk & Mkt. & Competition
see in taking up
• Entity (Internal + External) = Owners, Mgt, Nature, Financial performance & Reporting
Engagement

AUDIT SAGA
• Procedure in which Auditor traces transaction from its initiation through company’s Info systems to point
Walk Through
when it is reflected in Financial Reports. (Origin to End)
• Auditor to perform 1 Walk through at minimum for each major class of transactions.
Tests
• Provides evidence to confirm that Auditor understands: - - Process flow of transactions.

- Design of controls for internal control components including those preventing & detecting fraud.
- Whether all points in process identified at which misstatements related to FS assertion could occur.
• Provide evidence to evaluate effectiveness of controls’ design & confirm of controls placed is in operation.
Major Sources of Obtaining Info about Client’s business
• Consider State of economy & its effects on Client’s business • Discussions with Client
• Previous year’s audit working papers • Other Relevant Files
• Visits to Client’s premises & Plant facilities to mgt. • Policy &procedures manual of Client
• Minutes of meetings of GM, BODS & important committees • Client’s annual Reports to shareholders
• Internal financial Mgt report for current & previous periods including budgets
• ICAI, other professional bodies & Industry Publications, Trade Journals, Magazines, Newspapers
• Procedure exist to ensure separation of transactions at end of 1 yr from those in commencement of next yr
Procedure
• Principal areas of application of cut-off procedures involve sales, purchases & stock.
Cut-off
• Auditor should satisfy himself by examination and test check that these procedures adequately ensure that: -
Goods purchased for which property has passed to client have in fact been included in Inventories &
that liability has been provided for.&Goods sold excluded from inventories and credit been taken for sales.
Check maintenance • Asset Register • Code Register • Spare Part Register

identify& value
Audit Program
P&M, tools &

dies is proper
to Verify if
of Register • Movement Register • Asset Disposal Register

Records to
Review ICS • Maintenance & R&D • Obsolescence (Experts opinion)

• Authorization for selling Fixed Asset. • Record of assets & disposals
Others
• Periodic inspection of assets is done or not. • Review of insurance cover.
Factors to • Integrity of mgt • Experience & knowledge of mgt • Turnover of KMP

Evaluate • Nature of business prone to rapid tech. obsolescence • Dealing with lots of related party
Inherent Risk • Circumstances motivating mgt to misstate FS when its financial performance is not satisfactory.
AUDIT UNDER CIS ENVIRONMENT

• Lack of Transaction Trail • Uniform Processing of Transaction
Characteristics
• Lack of Segregation of Functions. • Potential for Errors and Irregularities
of CIS
• Automatic execution of transactions. • Dependence of other Controls.
Environment
• Potential for increased management supervision. • Potential for use of CAAT.
CONTROL PROCEDURES WHILE USING CAAT

Audit Software Application Test Data Application
• Participating in design and testing. • Controlling the sequence of submissions of test data.
• Checking the coding of the program • Performing test runs containing small amounts of test
• Ensure Compatibility of software with entity’s OS data before submitting main audit test data.
• Run audit software on small test files before main data files • Compare results of test data with pre determined
• Ensuring that the correct files were used. results.
• Obtaining evidence that Audit software functioned as planned. • Ensure Test data is processed over the
• Security to safeguard against manipulations of data files answered version of program
• Ensure that program used to process the test data were
applied throughout the applicable audit period.

AUDIT SAGA
TYPES OF PROCESSING/ ACCOUNTING SYSTEM
Batch Processing System Online Real Time Processing System

(Where Transactions are accumulated & processed in group) (Where Transactions are processed as they occurred)
Steps: - Features: -
• Occurrence of transaction = Recorded in Source doc • Validation Check.
• Recorded in transaction file = Source docs t/f by Data entry operator to extract Info • Non-existence of audit Trail.
• Update Master file = After entry is done & processed, master files are updated • Unrestricted access to programmers.
• Generation of output = Report periodically generated after above. Advantages: -
Advantages: - • Immediate processing
• Simple& many Transaction processed • Existence of Audit Trail • Continuous Updates.
Limitations = Time gap in between occurrence & processing. Limitations = No Audit Trail.
To establish framework of overall control over CIS Activities & provide reasonable assurance that
Audit in CIS Enviro–ICS Mgt Perspective
Controls
General
overall objectives of I.C. are achieved.Types: - • Org. Structure & Mgt Controls.
CIS
• Application System Development & Maintenance Controls. • Computer Operations Controls.

• System Software Controls • Data Entry and Program Controls
Establish specific control procedures over the accounting applications and provide reasonable
CIS
assurance that all transactions are authorized, recorded and processed on a timely basis.
application
Types: - • Controls over processing
Controls
• Controls over Input • Controls over Output.
Other • Offsite back up of data and computer program • Provision for offsite processing
Safeguards • Recovery procedures in the event of loss of data.
• Delegation of authority and Responsibility. • Separation of Duties.

Problems in • System of Authorization due to inbuilt controls. • No adequate Docs & Records.
Implementation • Availability of competent and Trustworthy person.
of Internal • Difficult in detection of unauthorized modifications to programs or data files.• Physical
Control in CIS Control over assets and records due to risk of loss and unauthorized access.
• Management Supervision over employees as work may have to be carried out remotely.
Evaluates Controls which operate * Org. structure & control * Documentation Control * Access C * Input C
over Data OR Review process for * Processing Control (C) * Recording C * Storage C * Output C
Controls in CIS Environment
AUDIT TECHNIQUES AUDIT IN CIS ENVIRONMENT
Audit Trail CAAT

Facility to trace individual transactions from Computer assisted audit techniques taking assistance of computer for
source to completion or vice versa. In CIS being applied to audit.
Environment, audit trail is often missing
Reason for no Audit Trail in CIS: - Need/ Why CAAT: -
• Non-availability of source documents. • Absence of Input Documents. • System generated Transactions
• Replace ledger summaries by Master Files. • Lack of a visible audit trail • Lack of visible output.
• Generation of reports on exception only.
Remedies for audit trail: - Uses of CAAT: -
• Use of Computer Programs. • Compliance Test of General CIS Control = through Test Data
• Use of Test Packs (Test Data) • Compliance Test of CIS Application Controls = through Test Data
• Test of details of transactions and balances = by use of Audit Software
• Analytical Review = by use of Audit Software
Audit Procedures * Tests of details of transactions and balances * Analytical procedures

performed using * Sampling programs to extract data for audit testing * Tests of general controls
CAATs * Re-performing calculations of entity’s accounting systems * Tests of application controls

AUDIT SAGA
Impact of Changes • Use of Accounting Code

from Manual • Process of recorded Transactions = as observed in manual system mayn’t be followed.
Processing to • Form of Accounting Records = Primary records may be abandoned.
Computerized • Use of Loose-leaf stationeries = as against bound hand written books in manual.
Processing • Absence of link between transactions: = Loss of Audit Trail.
Validation Checks = On-line data entry and validation

Characteristics of On- Unlimited Access = On-line access to system by users,
line Computer System Supporting Docs of Transactions = Possible lack of visible transaction trail
Unrestricted Access = Potential programmer access to the system.
Consideration * Availability of CAATs & suitable computer facilities & data in suitable format
of Factors in * Availability of sufficient IT knowledge & expertise * No manual tests due to lack of evidence
Use of CAATs * Impact on effectiveness & efficiency in extracting data * Time constraints in certain data
Computer programs used by auditor to process data of audit significance. Types: -

COMMONLY USED CAAT
Software
Audit
• Package Programs = Generalized programs designed to perform data processing.

• Purpose Written Programs = Programs designed to perform audit task in specific circumstances.
• Utility Programs = Perform common data processing functions. Not designed for audit.
• Set of Hypothetical data entered in computer of org & result compared with pre determined results.
Test
• Used in “Integrated Test Facility (ITF)” where dummy unit is established
Data
• Auditor is required to ensure that test transactions are subsequently eliminated.
Tagging & • Involves tagging Client’s input data in way that relevant info is displayed at key points.
Tracing • Uses the actual data and hence no need of reversal.
METHOD OF COLLECTING & EVALUATING AUDIT EVIDENCE CHANGES IN CIS ENVIRONMENT
Reasons for Changes in Collection of Evidences Reasons for Changes in Evaluation of Evidences
• Existence of diverse and complex range of I.C. technology • Increased complex computer system & control tech
• Rapid development in Hardware and Software technology • Update Multiple data by a single input transaction
• Cryptographic Controls to protect the privacy of data • Deterministic nature of errors
• No collection of audit evidence by manual means • Speed of errors occur, high cost & effort to correct
Audit Plan for Evaluating Reliability of
Considering * Control is in place and is functioning as desired.

Attributes of * Generality versus specificity of control on types of errors & irregularities that might occur.
Control * Whether Control acts to prevent, detect or correct errors etc.
Auditor * Preventive controls = Stop errors or irregularities from occurring.

Controls in CIS
focuses * Detective controls = Identify errors and irregularities after they occur.
on * Corrective controls = Remove effects of errors & irregularities after they are identified.
* Ensure that authorized, correct and complete data is made available for processing.
In * Provide for timely detection and correction of errors.
Evaluating * Ensure interruption in work of CIS Enviro due to power, mechanical or processing failures
Reliability * Ensure that accuracy and completeness of output
of Controls, * Provide adequate data security against fire & other calamities & fraud
Auditor to * Prevent unauthorized amendments to the program.
* Provide for safe custody of source code of application software and data files.

AUDIT SAGA
* Authenticity Control = To verify identity of Individuals or process involved in system (Password & DSC)
of Control used in CIS to
Evaluate Major Clauses
enhance its Reliability * Accuracy Control = To ensure correctness of Data and processes in a system (Program validation check)
* Completeness Control = Ensures that no data is missing & all processing by proper conclusion.
* Privacy Control = Ensures the protection of data from inadvertent or unauthorized disclosure.
* Audit Trail Controls = Ensures Traceability of all events occurred in a system.
* Redundancy Control = Ensures that processing of data is done only once.
* Existence Control = Ensure the ongoing availability of all system resources.
* Asset safeguarding controls = Ensure Resources in system protected from destruction or corruption.
* Effectiveness Control = It attempts to ensure that the system achieves its goals.
* Efficiency Control = It attempts to ensure that a system uses minimum resources to achieve goals.
Characteristics of * Simplicity * Understandability * Adaptability

Effective Computer * Vendor technical support * Stats sampling capability * Acceptability
Audit Program System * Report Writing * Processing Capabilities
RISK ASSESSMENT & INTERNAL CONTROL

* C = Custody & Records Distribution i.e. Persons having physical custody of assets not be permitted
Considerations for effectiveness/
Aspects in Framing of System of
to have access to books of accounts.

(CID Updating JAIL Controls)
* I = Independent Controls i.e. No person with Independent control over Important aspect of business.
* D = Distribution of powers i.e. Financial and administrative powers should be subdivided.
Internal check
* Updating = Update of Controls.

* J = Job Rotation i.e. Duties/work of members of staff should be changed from time to time
* A = Accounting Control i.e. There should be an accounting controls for each important class of assets
& be periodically reviewed.
* I = Introduction of system of Budgetary control.
* L = Leave i.e. Staff should be encouraged to go to leave from time to time without previous notice.
* Controls = Controls over Cash.
ICS for Entertainment * Printing of Tickets * Ticket Sales * Daily Cash Reconciliation * Daily Banking
Centres Collecting Cash * Entrance ticket * Advance booking * Discounts & free pass * Surprise checks
• Audit approach that analysis audit risks, sets materiality thresholds based on audit risk analysis & develops
Risk
audit program that allocate Larger portion of audit resources to high-risk areas.
Based
• Combined assessment of SA 315 & 330 = Risk Based Audit.
Audit
STEPS/ STAGES involved in Risk Based Audit
Understanding Client operations& Internal Determination of Residual Risk i.e. Identification & Assess RMM
Control System
Auditor to identify & prioritize risks that impact Response to & Manage Identified Residual Risk
audit of FS to understand client operations: -
- Environment in which entity operates Reporting to Client = Auditor to conclude on areas of risk by
- Framework of operations
- Operational performances obtaining
- Information process framework etc. SAAE & communicate to Client immediately his significant
observation
on Weakness & Deficiencies in design & operation of Internal Controls

AUDIT SAGA
Narrative Records Complete & exhaustive description of system as found in operation by auditor
• Graphic presentation of I.C. of various sections in form of a diagram full with lines & Symbols
• Flow chart is normally horizontal one in which docs & activities shown
• Provide most concise and comprehensive way to review I.C.
METHODS OF COLLECTING INFO TO REVIEW ICS
• Provide a neat visual picture of various activities involving flow of documents through various stages
Flow Chart
• Auditor be able to visually correlate functions & related controls & assess Adequacy & effectiveness by
- At what point a document is raised internally or received from external sources.
- Number of copies in which a document is raised or received.
- Intermediate stages set sequentially by which document & activity pass.
- Distribution of the documents to various sections, department or operations.
- Checking authorisation and matching at relevant stages.
- Filing of the documents.
- Final disposal by sending out or destruction.
Check List Series of instructions and/or questions which a member of auditing staff must follow.
Internal Control Questionnaire Set of Questions designed to provide a thorough view of state of ICS
SA 265 = Auditor includes in written communication i.e. Letter of weakness of deficiencies in ICS: -
• A description of the deficiencies and an explanation of their potential effects.
Letter of weakness
• Sufficient info to enable TCWG & Mgt to understand the context of communication.
• Auditor communicates material weaknesses in ICS as required by SA 260
• Lists down the area of weaknesses in ICS and recommends suggestions for improvement.
• Clearly indicate that this letter covers only weaknesses which have come to the attention of auditor
• Clearly indicate his examination of internal control not designed to determine Adequacy of ICS for mgt.
• Letter serves as means for mgt & governing body for improving system & its strict implementation.
• Letter may also serve to minimize legal ability on major loss resulting from weakness in ICS.
Surprise • Useful method to determine whether errors exist and where they exist
check • ICAI Recommendation = Surprise checks should form part of normal audit.
• Surprise check should be made at least once in the course of an audit.
Inherent
* Susceptibility of Assertion about Class of Transaction, A/c Balance or Disclosure

risk
* Misstatement material
* No internal control = Risk of fraud or error for B/S & P/L = Inherent risk at Assertion level.
* Risk that Misstatement occur in Assertion OF Class of Transaction, A/c Balance/ Disclosure
TYPES
Control
Risk
* Misstatement material & not be prevented, or detected & corrected by entity's ICS
* Auditor feels that still misstatement there despite of controls
* SA 200 = Risk that Auditor procedures to reduce Audit Risk to acceptably low level not detects
Detection
AUDIT RISK
misstatement that are material

Risk
* Auditor determines NTE of Audit Procedure to be performed

* Auditor feels chances despite of his Audit Procedures Misstatements may remain undiscovered
At Overall Level: - Auditor applies their professional judgment to determine extent of risk which he
LEVELS
considers to be an acceptable level.

At Account Balance Level: - Risk that error in monetary terms exists beyond a tolerable error limit in
account balances or class of transaction which auditor fails to defect.
MEANING
Risk that Auditor expresses inappropriate Audit opinion if FS are materially misstated. Audit Risk is
Function of RMM & Detection Risk. i.e. (Audit Risk = Inherent Risk x Control Risk x Detection Risk)
Risk of Material Misstatement = Risk that FS are materially misstated prior to Audit
RMM = (Inherent Risk) x (Control Risk)

AUDIT SAGA
SARBANES OXLEY ACT, 2002 (SOX)

* Establishes corporate accountability & civil & criminal penalty for white-collar crimes
INTRO
* Known as Public Company Accounting Reform & Investor Protection Act, 2002 (SOX or SARBOX)
* Due to number of major corporate & accounting scandals like Enron, Satyam, Tyco International &
World Com = there was a decline in public faith. So, as a result this Act was enacted.
• C = CEO, CFO certification of quarterly financial results is to be issued.

in Sarbanes &
responsibility
• C = Comply with SEC rules requiring attorneys to report violation of securities to

Oxley Act-
Corporate
(CCAR)
company's CEO or Chief Legal Counsel and to Audit Committee if no action is taken.
2002
• A = Audit committee to be more independent & one of Audit committee members to be

financial expert.
• R = Provides Rule of conduct for companies managerial & their officers on pension matters
• Give protection to whistle blowers

• Strict action against white collar crime
• Accelerated reporting of insider trading
• Additional disclosure requirement
• Longer jail for executives who willfully misstate FS
• To include effectiveness of ICS in FR
MAJOR PROVISIONS
SARBANES OXLEY ACT, 2002 (SOX)
• Ban on personal loans to executive officer/ director

• Strict Reporting by Auditor & Prohibition on Insider Trading
• Creation of Public Company Accounting Oversight Board (PCAOB)
• Prohibition on insider trades during pension fund blackout periods
• Enhanced criminal and civil penalties for violations of securities law
• Companies listed on stock exchanges to have fully independent audit committees
• Public companies to evaluate & disclose effectiveness of their internal controls
• Certification of financial reports by chief executive officers and chief financial officers
• Auditor independence including outright bans on certain types of work for audit client
• Employee protections allowing those corporate fraud whistleblowers who file complaints with OSHA in
90 days to win reinstatement, back pay and benefits, compensatory damages & attorney fees and costs
• Disclosure of % of share holdings by Directors, Executive Officers, Shareholders
• If there is any conflict in company & its auditor, Audit Committee empowered to resolve same
• Design of controls-relevant assertions related to all significant accounts and disclosures in FS.
Requirements
standards of
of auditing
• Info about how significant transactions initiated, authorized, supported, processed and reported.
PCAOB
• Enough info about flow of transactions to identify where MM due to error or fraud could occur.
• Controls designed to prevent or detect fraud & who performs controls & segregation of duties.
• Controls over the period-end financial reporting process& Over safeguarding of assets.
• Results of management's testing and evaluation.
Implementation of Disclosure
* Preparation of Controls & procedure Check List

& control procedures as per
Functions of Disclosure
* Backup Certifications
SOX Act 2002 OR
* Overseeing & coordinating collection of Info

Suggestions for
* Identification of Personnel
Committee
* Resolving questions about materiality of Development

* Reviewing & Advise on content of Disclosure
* Drafting of Disclosure & Communication with public
* Recommend Audit Committee, CFO, CEO on filing of Report
* Assist CEO & CFO in developing, writing & overseeing Disclosure Controls
* Stock of Current Procedure (Prepare Annual Reports, Handle Whistle Blower Complaint

AUDIT SAGA
AUDIT REPORT & CARO 2016

CARO 2016 apply to all companies including Foreign companies except following: -
(a) Banking Company
Applicability of CARO
(b) Insurance Company

(c) Company licensed to operate u/s 8
(d) One Person Company
(e) Small Company
(f) Private limited Company (not being a subsidiary or holding of public co) with: -
• Paid up capital + Reserves & Surplus < 1Cr. (as on Balance Sheet Date) +
• Total borrowings from Bank & F.I. < 1Cr. (at any point of time during the FY) +
• Total revenue as disclosed in Schedule III < 10 Cr. (for the FY)
• 2(64) = Paid Up Capital = Aggregate amt credited as paid-up is equivalent to amt received as paid up in respect of
Shares issued. It also includes any amount credited as paid up in respect of shares.
• Guidance Notes: - Paid up s/c means that part of Subscribed Share Capital for which consideration in Cash or otherwise
received. This includes Bonus Shares allotted by Corporate Enterprises.
• In respect of co other than finance co, Revenue from operations consist of revenue from: -
(a) Sale of products (b) sale of services (c) other operating revenues, as reduced by excise duty
• In respect of finance company, Revenue from operations consist of revenue from: -

(a) Interest (b) Other financial services.
• Other income shall consist of followings: -

- Dividend Income
- Net gain/loss on sale of investments
- Interest income (in case co other than finance co)
- Other non-operating income (net of expenses directly attributable to such incomes)
* Used where Auditor verifies accuracy of facts

CERTIFICATE * Written confirmation of accuracy of facts stated & not involve any estimate or opinion
for Special * Certify circulation figures of a newspaper or value of imports or exports of company
Purpose * Represents that verified certain figures & is in position to vouch safe their accuracy
* After issues certificate = responsible for actual accuracy of what is stated therein.
* Formal statement made after Enquiry, examination or review of specified matters including opinion.
* After issue report = responsible for ensuring that report is based on factual data
REPORT * Involves expression of opinion differing from one professional to another.
* No question of exactitude in report as info based on estimates & involves judgment too.
• Clarity • Explanation • Placement

Features of Qualified • Except for • Quantification • Nature of qualification
Audit Report • Violation of law • Notes – Report Relationship • Draft Report

AUDIT SAGA
MATTERS TO BE REPORTED UNDER CARO 2016 (Para 3)
Para 3 Reporting Reporting Requirements

Area
• Whether company is maintaining proper records with full particulars including

quantitative details & situation.
• Whether Fixed Assets physically verified by mgt at reasonable intervals.
(i) Fixed Assets • Whether Material discrepancies were noticed on such verification.
• Whether such discrepancies have been properly dealt with in BOA.
• Whether Title deeds of immovable properties held in name of co & if not
provide details thereof.
(ii) Stock • Whether physical verification conducted at reasonable intervals by Mgt.
• Whether material discrepancies noticed & if so whether dealt properly in books.
• Whether loans granted to companies, firms, LLP covered u/s 189. If so: -
(iii) Loans & - T & C are not prejudicial to the co interest
Advances - Schedule of repayment of principal & payment of interest stipulated
- State amount overdue for > 90days & whether reasonable steps taken
to recover Principal & interest by company.
Comply Sec • In respect of loans, investments, guarantees & security.
(iv) 185 &186 • If not, provide details thereof.
(v) Public • RBI Directions & Sec. 73 – 76 complied & if not then Nature of contravention
Deposits • Order passed by CLB/ RBI/ Court/ Tribunal = Whether complied with or not.
(vi) Cost Records • Whether as per Specified u/s 148(1)
• Whether accounts & records made & maintained.
Statutory • Undisputed PF, ESI, IT, ST, Custom, VAT, Excise, CESS, etc paid regularly
(vii) Dues • If Not outstanding > 6 months as on Balance Sheet Date.
• State Amount involved thereon &forum of it.
(viii) Repay Dues • Whether co. default in repayment of dues – F.I., Bank, Govt., Debenture holders
• If Yes – Nature & Amount of Default.
Money raised • Whether money rose by IPO/ FPO/ Term Loans = applied for stated purpose
(ix) by Public • If Not = details along with delay & subsequent ratification be reported.
Issue & Loans
(x) Fraud • Whether fraud by company or by its officers/ employees noticed or reported.
• If Yes – Nature and amount to be stated.
• Whether managerial remuneration paid with requisite approvals u/s197.
(xi) Mgr • If Not, state amount involved and steps taken for securing refund to be reported.
Remuneration • Details to be reported are: -
- To whom - Amount due for Recovery as at BS date
- Amt paid/ promised - Steps taken to secure recovery of amt
(xii) NIDHI Co. • Whether Net Owned Funds to Deposits Ratio = 1:20.
• Whether 10% unencumbered term deposits maintained.
(xiii) Transaction • Whether transactions with related parties are in compliance with Sec. 177 &188.
with Related • Whether details disclosed in F.S. as required by applicable AS.
Parties
(xiv) Preferential • Whether any preferential allotment of Shares/ FCD/ PCD made.
Allotment • If so, whether Sec.42complied with & amount raised used for stated purpose.
• If Not – provide details of amount involved & nature of noncompliance.
(xv) Non Cash • Whether co. has entered into non cash transactions with Directors.
Transactions • If so. Whether Sec. 192 has been complied with.
with Directors
(xvi) Registration • Whether registration required u/s 45IA of RBI Act, 1934 & if so if it is got.
with RBI

AUDIT SAGA
AUDIT COMMITTEE & CORPORATE

GOVERNANCE
Corporate System by which companies are directed & governed by mgt in best interests of Stakeholders &others
Governance ensuring Better Mgt, Greater Transparency & Timely FR. Responsibility to ensure it rests with BODs.
Issues Addressed/ * Disclosures on important issues regarding Related party Transaction, accounting treatment etc.
Involved in * Provisions on set up & role of Nomination and Remuneration Committee.
Corporate * Provisions on composition & function of Audit Committee (Reg. 18).
Governance – * BODs & its composition, Independent, non executive director etc.
Chapter IV of
* Obligations on Independent Ds & senior mgt.
SEBI LODR
(Listing * Code of Conduct & Vigil mechanism * CEO/CFO Certification.
Obligations * Provisions on set up & role of Stakeholder Relationship Committee * Mgt of Subsidiaries.
&Disclosure * Provisions on set up & role of Risk Mgt Committee. * Compliance Certificate
Requirements) * Disclosure of Mgt Discussion & Analysis. * Info to shareholders.
Regulations, 2015
COMPARISON = AUDIT COMMITTEE as per SEBI (LODR) REGULATIONS & Section 177
Comparison Basis Reg. 18 of SEBI (LODR) 2015 Section 177 of Companies Act, 2013
Every listed company &

*All public companies with a paid up capital > ₹10 Cr.
Applicability For entities seeking listing for the *All public companies having turnover > ₹100 Cr.
first time. *All public companies, having in aggregate, outstanding
loans or borrowings or debentures or deposits > 50 Cr.
Member Minimum 3 Ds = Members & AC of Minimum of 3 Ds + IDs forming a majority.
Composition 2/3rd of members of AC be IDs.
Knowledge of All member financially literate Majority of members of AC including its Chairperson s
Members to be persons with ability to read & understand FS.
Interaction by Representative of External auditor Auditors right to be heard in meetings of AC when it
Stat. Auditor be present for AC meeting considers auditor’s report but not have right to vote.
Secretary CS will work as Secretary of AC No Such reference.
U/s 177 Additional • Every AC shall act as per terms of reference to be specified in writing by Board.
Requirements • Board’s report u/s 134(3) to disclose Composition of AC & where Board had not accepted
BUT any recommendation of AC, same shall be disclosed in Report along with reasons therefore.
Silent in SEBI • Auditors of company & KMP have right to be heard in meetings of the AC when it
(LODR) considers Auditor’s report but shall not have right to vote.
Regulation 18 of • AC may invite such of executives, as it considers appropriate (&particularly head of
SEBI (LODR) finance function) to be present at meeting of committee, but on occasions it may also meet
Regulations 2015 without presence of any executives of company.
Additional • CS shall act as secretary to the committee.
Requirements • AC shall meet at least 4 times in yr & gap in 2 meetings not be more than 4 months.
BUT • Quorum of AC shall be 2 members or 1/3 of members of AC (whichever higher) &
Silent in Sec. 177 minimum of 2 Independent directors be present.

AUDIT SAGA
Every listed company & following public companies shall constitute AC: -
177(1) * All public co with paid up capital of > ₹10 Cr. * All public co with turnover of > ₹100 Cr.
Requirement * All public co with aggregate, outstanding loans/ borrowings/ debentures/ deposits > ₹50 Cr.
(All above limits = existing on date of last audited FS be taken into a/c for purposes of this rule)
177(2) * AC to consist of minimum of 3 directors with Independent Directors forming a majority

Composition * Majority of members including Chairperson = be with ability to read & understand FS
Every Audit Committee to act as per terms of reference specified in writing by Board including: -
• Recommendation for appointment, remuneration and terms of appointment of auditors.
• Review & monitor auditor’s independence, performance & effectiveness of audit process.
• Examination of FS & auditors’ report thereon.
• Approval or subsequent modification of transactions of company with related parties.
• Scrutiny of inter-corporate loans & investments.
• Valuation of undertakings or assets of company, wherever it is necessary.
• Evaluation of Internal financial controls & Risk Mgt Systems.
177(4) Functions
• Monitoring end use of funds raised by public offers & related matters.
Proviso to Sec. 177(4) AC may make omnibus approval for related party transactions proposed to be entered
in by company subject to such conditions as prescribed.
SECTION 177 AUDIT COMMITTEE (AC)
If transactions other than transactions in sec188 of Co Act 2013 & where Audit Committee not approve
transaction = It shall make its recommendations to Board. Transaction not > Rupees 1 Crore is entered by a
directoror officer of company without approval of Audit Committee and it is not ratified by Audit Committee
in 3 months from date of Transaction, such transaction = voidable at theoption of Audit Committee and if the
transaction is with Related party to any director or is authorized byany other director, director concerned
shall indemnify company againstany loss incurred by it.
These provisions N/ A to a transaction, other than a transaction referred to in sec 188, between aholding
company and its wholly owned subsidiary company.
Audit Committee may: -

177(5)
• Call for comments of Auditors on ICS, Scope of audit & observations of Auditors
Discretionary
• Review of FS before their submission to Board
Powers
• Discuss any related issues with Internal & Statutory auditors & mgt of company
* AC has authority to investigate in matter in relation to items specified in Sec. 177(4) or

177(6)
referred to it by BODs.
Authority to
* AC for this purpose empowered to obtain professional advice from external sources & full
Investigate
access to info in records
177(7) Auditor’s right to be Auditors & KMP right to be heard in meetings of AC when it considers
heard Auditor’s report but not to Vote.
177(8) Disclosures in Board’s report u/s 134(3) to disclose composition of AC & where Board not accepts
Board Report Recommendation of AC, same to be disclosed in report + reasons
(i) Every listed company & companies belonging to following class = shall establish Vigil mechanism
177(9) & 177(10) Vigil
for their directors & employees to report their genuine concerns or grievances: -
Mechanism
• Companies which accept deposits from the public

• Companies which have borrowed money from banks & PFI in excess of ₹50 Cr.
(ii) Vigil mechanism to provide for adequate safeguards against victimization of persons using such
mechanism & make provision for direct access to Chairperson of AC in appropriate/ exceptional cases.
(iii) Details of establishment of mechanism disclosed by company on its website & in Board’s report.

AUDIT SAGA
{NRC} [Regulation 19 and Part Board of every listed public company shall constitute it comprising least 3 directors, all of whom
shall be non-executive directors & least half independent. Chairperson independent director.
Remuneration Committee
ROLE of Nomination and
* Formulation of criteria for determining qualifications, positive attributes & independence of director
D of Schedule II]
* Recommend to BODs a policy, relating to remuneration of Directors, KMP & other employees
* Formulation of criteria for evaluation of independent directors and the Board of Directors
* Devising a policy on Board diversity
* Identifying persons who are qualified to become directors & who may be appointed in senior mgt as
per criteria laid down, and recommend to the Board their appointment and removal
* Whether to extend or continue term of appointment of Independent director, on basis of report of
performance evaluation of independent directors
Depending on the facts and circumstances, some situations may require an adverse or qualified statement or a
disclosure without necessarily making it a subject matter of qualification in the Auditors’ Certificate, in
Adverse or Qualified Statement
Circumstances/ Examples of
respect of compliance of requirements of Corporate Governance.

Examples are: -
(a) The number of non-executive directors is less than 50% of the strength of Board of directors.
(b) Qualified and independent audit committee is not set up.
(c) Chairman of the audit committee is not an independent director.
(d) AC does not meet four times a year.
(e) Necessary powers in terms of Clause 49 of Listing Agreement not vesting by Board in the AC.
(f) The time gap between two Board meetings is more than four months.
(g) A director is a member of more than ten committees across all companies in which he is Director
(h) Info of quarterly results is neither put on the company’s website nor sent in form so as to enable the Stock
Exchange on which entity’s securities are listed to enable Stock Exchange to put it on its own website.
(i) Power of share transfer is not delegated to Officer or Committee or to Registrar & share transfer agents.
• AC should meet at least 4 times in a yr & not more than 120 days to lapse in 2 meetings.
Meetings
AUDIT COMMITTEE [REGULATION 18 OF SEBI (LODR)
• Quorum either 2 or 1/3 of members of AC (whichever greater) but min 2 Independent members to
of AC
be present.
• 2/3 of members of AC shall be Independent directors • All members financially literate

of Qualified &
Requirement
Independent
• Least 1 member have a/c or related financial mgt expertise. • AC with min 3 Ds as members
• Chairperson to be Independent director & Chairperson to answer shareholder queries at AGM.
• AC at its discretion invite finance director or head of finance function, head of internal audit
REGULATIONS 2015]
• Representative of Statutory Auditor & other executives to be present at meetings of committee.

• CS to act as Secretary to committee.
Powers • Investigate activity in its terms of reference • Seek info from any employee
of AC • Obtain outside legal or professional advice • Secure attendance of relevant expertise outsiders
Reviewing with mgt, Annual FS before submission to Board, focusing primarily on: -
* Matters in Director’s Responsibility Statement & Board’s report u/s 134(3)(c).
* Changes in accounting policies & practices & reasons for same.
* Major accounting entries & estimates based on Exercise of Judgment by mgt.
Role of AC * Significant adjustments made in FS arising out of audit findings.
* Compliance with listing & other legal requirements of FS.
* Disclosure of any related party transactions.
* Qualifications in the draft audit report.

AUDIT SAGA
AC mandatorily review following info as per Part C (B) of Schedule II: -

• Mgt discussion & analysis of financial condition & results of operations.
• Statement of significant RP Transactions (as defined by AC) submitted by mgt.
Areas of
• Mgt letters/ letters of ICS weaknesses issued by Statutory auditors.
Mandatory
• Internal audit reports relating to ICS weaknesses.
Review of
• A ppointment, Removal, terms & remuneration of Chief Internal Auditor subject to AC Review.
Info by AC
• Statement of deviations: -
- Quarterly Statement of deviations including report of monitoring agency ( if applicable) &
- Annual Statement of funds used for purposes not stated in Offer Docs/ Prospectus/ Notice.
SEBI (LODR) Regulations, 2015, ID = Non-executive director other than Nominee director of listed entity: -
• In Opinion of Board = person of integrity and possesses relevant expertise and experience.
SEBI (LODR) Reg, 2015 = Independent Director
• Is/ was not Promoter of the listed entity or its holding, subsidiary or associate company.
• Who is not less than 21 years of age
• Is not related to promoters or directors in CASH.
• Apart from receiving director's remuneration, has or had no material pecuniary relationship with CASH or their
promoters, or directors in 2 immediately preceding FYs or in current FY.
• None of whose relatives has or had pecuniary relationship or transaction with CASH or their promoters, or
directors, amounting to 2% or more of its Gross turnover or Total income or ₹50 Lac or higher amount as
may be prescribed (whichever Lower) in 2 immediately preceding FYs or during current FY
• Who, neither himself nor any of his relatives: -
- Holds or has held the position of KMP or is or has been employee of CASH in any of 3 FYs immediately
preceding FY in which he is proposed to be appointed.
- Holds together with his relatives 2% or more of Total voting power of Listed Entity.
- Is CE or director by whatever name called of any NPO that receives 25% or more of its receipts from
listed entity, its promoters, directors or ASH or holds 2% or more of Total voting power of listed entity.
- Is material supplier, service provider or customer or a Lessor or lessee of the listed entity
- Is or has been Employee or Proprietor or Partner in any of 3 FYs immediately preceding FY in which he
is proposed to be appointed of: -
* A firm of auditors or CSs in practice or CWAs of CASH.
* Any legal or a consulting firm that has or had any transaction with CASH of 10% or more of Gross
Turnover of such firm.
• AC shall have minimum 3 directors as members. 2/3 of members of AC to be independent directors.

up SEBI (LODR) Reg.
& Independent AC set
Features of Qualified
• Members of AC financially literate & least1 member to have a/c or related financial mgt expertise.
(“Financially literate” = Ability to read & understand basic FS i.e. B/S, P/L & Stmt of cash flows)
• Chairperson of AC shall be Independent director.
2015
• Chairperson of AC shall be present at AGM to answer shareholder queries.

• AC at its discretion to invite finance director or head of finance function, head of internal audit &
representative of Statutory Auditor &other such executives to be present at Meetings of Committee;
provided that occasionally, AC may meet without presence of any executives of Listed entity.
• CS shall act as Secretary to AC
Mgt Discussion & Analysis report to form part of Annual Report on following matters in limits set: -
(i) Industry structure and developments (ii) Opportunities and Threats
DISCUSSION & ANALYSIS
DISCLOSURES - MGT
(iii) Segment–wise or product-wise performance (iv) Outlook

(v) Risks and concerns (vi) Internal control systems & their adequacy
[SCHEDULE V]
(vii) Discussion on financial performance with respect to operational performance

(viii) Material developments in HR / Industrial Relations front including no. of people employed.
(ix) Information to Shareholders [Regulation 36]
= If Appointment of new director/ re-appointment of Director, Shareholders provided with info: -
• A brief resume of the director. • Nature of expertise in specific functional areas.
• Disclosure of relationships between directors inter-se • Shareholding of non-executive directors.
• Names of listed entities in which person holds directorship & membership of Committees of Board

AUDIT SAGA
Auditor’s Role in AC
Role of Auditor & Certification Of Compliance of Corporate
• Ensure he communicates frequently with AC on key a/c or auditing issues giving rise to RMM of FS.
• Ensure that he addresses any questions or concerns voiced by AC.
• Assist & advise AC on improving corporate governance, oversight of FR process, implementation of
a/c policies & practices, compliance with AS, strengthening of ICS in regard to FR & reporting process.
• Assist mgt & AC to enable them to discharge their functions effectively
• Auditor role is not to drive corporate governance directly (Its Mgt Role)
• Auditor may play significant role in assisting Mgt to ensure Better Standards of corporate governance.
Governance
• In certifying compliance with Corporate governance responsibility relates to verification & certification of
Auditor’s Role
factual implementation of requirements of Corporate Governance as in SEBI (LODR) Regulations 2015

• Such verification & certification is neither Audit nor Expression of opinion.
• Certificate from Auditor as regards compliance with requirements of Corporate Governance is not
Assurance as to Future viability of company & also not efficiency or effectiveness with which mgt
conducted affairs of co.
Audit Procedure
• Auditor to conduct verification of compliance with requirements of Corporate governance as in LODR

Reg., in accordance with Guidance Note on Certification of Corporate Governance issued by ICAI.
• SAs would be applicable in performance of certification with requirements of corporate governance by
Auditor, to extent relevant.
• SA 230- Auditor to document matters important to give evidence to support Certificate of factual findings
• Auditor should consider obtaining mgt representations as per SA 580, “Written Representations”.
CEO/CFO or any other person heading the finance function shall certify to the Board that: -
Compliance Certificate [Part B
• They have reviewed FS & cash flow statement for yr & that to the best of their knowledge & belief.
- These statements do not contain any materially untrue statement or omit any material fact or contain
of Schedule II]
statements that might be misleading.

- These statements together present a true and fair view of company’s affairs and are in compliance with
existing accounting standards, applicable laws and regulations.
• There are no transactions entered that are Fraudulent, Illegal and Violate company’s code of conduct.
• They accept responsibility for establishing and maintaining ICFR
• They have indicated to the auditors and the audit committee: - - Significant changes in ICS in yr.
- Significant changes in a/c policies in yr. - Instances of significant fraud.
These regulations shall apply to Listed entity who has listed any of following designated securities on
LODR Regulations
recognised stock exchange(s): -

Applicability of
[Regulation 3]
* Specified securities listed on main board or SME Exchange or institutional trading platform
* Non-convertible debt securities, non-convertible redeemable preference shares, perpetual debt instrument,
perpetual non- cumulative preference shares * Indian depository receipt
* Security receipts (added w.e.f. September 06,2018) * Securitised debt instruments
* Any other securities as may be specified by the Board * Units issued by mutual funds
• BODs shall constitute Risk Mgt Committee. • Majority of members = members of BODs
• Senior Executives of listed entity can be members too. • Chairperson = member of BODs
Risk Mgt
• BODs Defines Role & responsibility of RM Committee & may delegate monitoring & reviewing of
Committee
Risk mgt plan to committee and such other functions as it may deem fit.
[Reg. 21]
• This Reg. applies to top 100 listed entities, determined on basis of market capitalization, as at end
of Immediate Previous FY.

AUDIT SAGA
AUDIT OF CONSOLIDATED FINANCIAL

STATEMENTS (CFS)
(Statutory requirement – Sec. 129(3) of Co Act, 2013 – CO. AUDIT)
• Identify components & including financial info of components to be included in CFS.
Holding company for Preparation
Parent Co. Mgt Responsibility of
• Where appropriate, identifying reportable segments for segmental reporting.

• Identifying related parties and related party transactions for reporting.
& presentation of CFS
• Obtaining accurate and complete financial info from components.

• Making appropriate consolidation adjustments.
• Harmonize accounting policies & framework & GAAP conversion, where applicable.
= Apart from above, Parent ordinarily issues instructions to mgt of Component specifying parent’s
requirements relating to financial info of components to be included in CFS.
= Instructions ordinarily cover accounting policies to be applied, statutory & other disclosure
requirements applicable to Parent, including identification of and reporting on reportable segments &
RP &RP transactions & reporting timetable.
Issue Audit report expressing opinion: -

Auditor of all its
* Whether CFS give True & Fair view of state of affairs of Group as on B/S Date
Component
If Parent’s
Businesses
Auditor =
* Whether Consolidated P/L statement gives True & Fair view of results of consolidated P/L of
Group for period under audit.
* On True & Fair view of Cash flows presented by Consolidated cash flow statements.
Auditor of Parent to report whether principles & procedures for preparation and presentation of CFS
as laid in relevant AS(s) is followed. (Deviation = Auditor to disclose in Audit report to aware users)
AUDIT REPORT FOR A MULTI BUSINESS UNIT MNC
If Parent’s
Auditor not * Auditor of CFS to consider requirement of SA 600.
* If Parent‘s auditor decides that he will make reference to Audit of other auditors in Report, he
Auditor of all
should disclose clearly portion of FS audited by Other auditor(s).
its * Reference in Report of auditor of CFS not to be construed as a qualification of opinion but
Components rather as Indication of divided responsibility in Auditors of parent and its subsidiaries.
If Component(s) * Parent’s mgt performs conversion of components’ audited F.S. from framework used by
Auditor Reports component to framework under which CFS are prepared.
on FS under * Conversion adjustments are audited by Principal auditor to ensure financial info suitable
Accounting & appropriate for purposes of consolidation.
Framework differ * Alternatively, component may prepare FS on basis of Parent’s accounting policies.
than that of * Local component auditor can then audit & issue Audit report on components FS prepared
Parent as per “Group accounting policies”.
If Component(s) * Audits of F.S., including CFS are performed under AS generally accepted in India.
Auditor Reports * To maintain consistency of Auditing framework and to enable parent auditor to rely &
under Auditing refer to other auditor’s Audit report in their audit report on CFS, components’ FS be
Framework Different audited under framework that corresponds to Ind.- AS
than that of Parent
* Auditor reporting on CFS to consider unaudited components in evaluating a possible

If FS of 1 or
modification to his report on CFS
more
* Evaluation necessary as Auditor not able to Obtain SAE on such Consolidated amt/balances
components
* Auditor to evaluate qualitative & quantitative factors on possible effect of amt remaining
not audited
unaudited when reporting on CFS using Guidance provided in SA 705.

AUDIT SAGA
Responsibility Auditor of the CFS is responsible for expressing opinion on whether CFS are prepared in all material
for CFS respects, as per FRF under which Parent prepares CFS. Therefore, Auditor's objectives in Audit of CFS are: -
Auditor
• Satisfy himself that CFS been prepared as per requirements of applicable FRF.
• Enable himself to express opinion on True and fair view presented by CFS.
• Enquire in matters as specified in section 143(1) of Co Act, 2013.
• Report on matters in Clauses (a) to (i) of 143(3) of Co Act, 2013 & 143(3) (j) + Rule 11
• Obtain a list of subsidiaries, associates & joint ventures included in CFS.

• Review info provided by mgt of Parent identifying Subsidiaries, Associates & Joint ventures.
• Verify that all subsidiaries, associates and joint venture have been included in CFS.
• Identify changes in the shareholding that might have taken place since the last audit.
• Check compliance of AS-21, 23, 27.
• Check compliance of Section 129 of Co Act 2013.
Auditor’s
• Using the work of another auditor & Auditor's expert
Procedures
• Verify adjustments as per AS made when required & properly authorized by Mgt. of parent as
in Auditing
preparation of CFS gives rise to Permanent & Current Period Consolidation Adjustments.
CFS
• In respect of completeness of this info, Auditor should perform the following procedures: -
- Review his working papers for prior yrs for known subsidiaries, associates & joint ventures.
- Review parent’s procedures for identification of subsidiaries and joint ventures.
- Review investments to determine the shareholding in other entities.
- Review Joint venture and other relevant agreements entered into by parent.
- Review statutory' records maintained by Parent (Register u/s 186 of Co Act, 2013)
Current Period Consolidated Adjustment Permanent Consolidated Adjustment

Adjustments made in accounting period for Adjustments only on 1st occasion of Preparation & Presentation of CFS.
which Consolidation is done.
• Eliminate Intra Group transactions. • Determine goodwill or capital reserve.
• Eliminate Unrealized profits. • Determine goodwill or capital reserve arising on application of equity
• Eliminate Intra-group indebtedness. method to a/c for investments in associates in CFS.
• Adjustment for harmonizing a/c policies. • Determine amount of equity attributable to minorities at date on which
• Adjustment for impairment loss. investment in subsidiary is made.
• Treatment of minority interest.
AUDIT OF BANKS
PRINCIPAL ENACTMENTS GOVERNING BANK AUDIT
• Banking Regulation Act, 1949 • RBI Act, 1934 &SBI Act, 1955.
• Banking Co (Acquisition & Transfer of Undertakings) Act, 1970. • SBI (Subsidiary Banks) Act, 1959.
• Prevention of Money Laundering Act, 2002. • Regional Rural Banks Act, 1976.
• Payment & Settlement systems Act, 2007. • Cooperative Societies Act, 1912.
• Credit Information Companies Regulation Act, 2005. • Companies Act, 2013.
• Info Technology Act, 2000. • SARFAESI Act, 2002.
Audit Procedures on • Ensure compliance with AS 11. • Take external confirmation.

Balances in A/C Of • Verify ledger balance every year at year end with reference to reconciliation statement.
Banks Situated in • Examine large transactions in Inter Bank A/c in yr end to ensure no window dressing.
Foreign Country • Check deposit receipts and confirmation certificates from bank in respect of O/S deposits.
• Verify that all documents of title are properly assigned to the bank.
Verify Bills • Sufficient margin should be kept while purchasing or discounting of a bill.
Purchased • Irregular outstanding accounts should be periodically reported to the head office.
• Proportionate income should be recognized between the periods

AUDIT SAGA
REQUIREMENTS OF RISK MGT SYSTEM
Involvement of Risk Mgt policies to be approved by TCWG on bank’s business Objectives & Strategies,
TCWG Capital strength, Mgt Expertise, Regulatory requirements & types of risks.
Identify, Measure Risks that may significantly affect the achievement of bank’s goals and objectives should be
& Monitor Risks identified, measured and monitored.
Banks must have controls including following: -
Control Activities - Verification and approval of transactions - Effective segregation of duties.
- Reporting and approval of exception. - Setting of limits.
Monitoring Risk mgt models, methodologies and assumptions used to measure and manage risk need to be
Activities evaluated by Independent risk mgt unit
Reliable Info Must exist so as to provide adequate financial, operational and compliance info on a timely &
System consistent basis to management and TCWG.
VERIFICATION OF INVESTMENTS = Audit Procedure
Internal control evaluation • To ensure they are in accordance with RBI Guidelines.
• Investment policy must confirm to RBI Guidelines.
Separation of Investment Fn. • Own investment account need to be separated from PMS client accounts.
Examination of Documents • To ensure Investments made in authority & supported by documentation.
• Should be carried out on balance Sheet date,
Physical verification • Carry out physical verification as near B/S date as possible in some cases
Examination of Valuation • Method of accounting including yearend valuation is appropriate.
• If inappropriate, consider effect of adoption of such policy on FS
Securities deal on Others behalf • Income from such activities to be recorded fairly.
Examination of Classification and Shifting & Examination of Reconciliation
Sanction = Examine Sanction Letter, Letter of hypothecation & note important T & C
Verify Advances
Stock statements = Verify quantity & value of goods & Test check warehouse Register
against Good
Inspection = Ascertain if premises of borrowers periodically visited by bank officials to verify qty
Stock Audit = See whether bank has got a system of Obtaining stock & receivables audit report
Hypothecation/ Pledge = Examine letter of hypothecation & Certificate of Registration of charge
Insurance = Examine Insurance policies for their validity, adequacy etc. & see policies in favour of bank.
Documents of Title = Inspect docs of Title to goods like Bill of lading, Dock warrant
3rd Party Certificate = Where hypothecated goods are in Possession of 3rd parties
• Examination which is contemporaneous with the occurrence of transactions.

AUDIT PROCEDURES ON CONCURRENT
Meaning
• It attempts to shorten Interval in a transaction & its examination by an independent person not involved in
its documentation.
• Emphasize substantive checking rather than test checking.
* Branches whose total credit aggregate to not less than 50% of total credit of bank
Coverage
* Branches whose aggregate deposits cover not less than 50% of aggregate deposits of Bank.
* Exceptionally large, very large and large branches
AUDIT
* Special branches handling foreign exchange business * Branches rated as poor/very poor
* Head Office dept. dealing with treasury/ funds mgt & handling investment portfolio
* Daily cash transactions with reference to abnormal receipts & payments * Revenue leakage.
* Verify of procedure & docs to open new current, savings, term deposit accounts, etc.
* Verify advances, OD, CC, term loans, bills purchase, LC etc. Procedure for sanction & docs to be verified.
Scope
* Verification of ledgers, inter branch reconciliation & verification of interest, discount, commission.
* Procedure for safe custody of security forms with branch. * Verification of high value transactions.
* Ensure adequacy of procedures for TDS. * Verification of Foreign exchange transactions.
* Verification of returns, statements, calculation of CAR & compliance with RBI Guidelines.
* Study of RBI and Internal Inspection reports, statutory auditor’s report and compliance thereto.

AUDIT SAGA
• LFAR to be furnished by Auditor of bank in addition to the audit report as per statutory requirement
• Matters which banks require their auditor to deal with in form of LFAR been specified by RBI.
• LFAR is to be submitted before 30th June every yr.
Audit • To ensure timely submission of LFAR, proper planning for completion of LFAR is required.
Procedures • While format of LFAR not require Executive summary to be given, members may consider
on Long providing same to bring out key observations from Whole document.
Form Audit • Advances against LFAR be done to examine following points: -
Report - Loan applications are complete and in prescribed form.
(LFAR)
- Procedural instructions ON Grant/ Renewal/ Enhancement of facilities complied with.
- Sanctions are within delegated authority and disbursements are as per terms of the sanction.
- Documentation complete & supervision is timely, effective & as per prescribed guidelines.
3rd Schedule requires disclosure of Contingent Liabilities as footnote in B/S with: -

requirement
Disclosure
• Claims against the bank not acknowledged as debts. • Liability for partly paid investments.
VERIFICATION OF CONTINGENT LIABILITIES
• Liability on account of outstanding forward exchange contracts.

• Guarantees given on behalf of constituents- In India & Outside India.
• Acceptances, endorsements and other obligations. • Other items for which Bank contingently liable.
• Ascertain existence of Adequate ICS to ensure Contingent Liabilities executed only by authorised person
Verification
• Ascertain if accounting system of bank provides for maintenance of adequate records on obligations.
Aspects
• Perform substantive audit tests to establish the completeness of the recorded obligations.
• Obtain representation from the management that all contingent liabilities have been disclosed.
• Ensure Compliance of AS 29, “Provisions, contingent liabilities and contingent assets”.
• Examine relevant evidence like correspondence with lawyers, claimants, workers/officers etc.
Claims against
• Review Minutes of meeting of BODs, contracts, agreements, pending legal cases &
the bank not
correspondence relating to Taxes etc., to identify claims against the bank.
acknowledged
• Ascertain from mgt Status of claims outstanding as at the end of previous yr.
as debt
• Review subsequent events to obtain evidence about completeness and valuation of claims.
Letters of credit: -
* Evaluate adequacy of ICS over LC Forms e.g. custody, records, reconciliation etc.
Acceptances, * Verify the balance of LC from the Register maintained by the bank.
endorsements * Examine the guarantees of the customers, copies of the LC issued & security obtained.
& other Other acceptances & endorsements: -
obligations * Examine arrangements made by bank with customers.
* Test check amounts of bills with the register.
* Verify whether bills are marked off in register on payment at maturity.
Performing Investments • Accrual basis provided interest rate is predetermined.

NPI • Realization Basis
Income Govt. Guarantee • Accrual basis, provided interest is serviced regularly.
Recognition Dividend • Accrual basis, if right to receive dividend is established.
Norms Discount on discounted instruments • Accrual basis over the remaining period of maturity.
Units of Mutual Funds • Cash Basis
Sale of Investments • Profit or loss to be shown in Profit & Loss Account.
Those investments where Interest/ principal is due & remains unpaid for > 90 days and includes: -
Non • Preference Shares where dividend is not paid
Performing • Unquoted equity shares value @1.
Investments • Securities issued by a person who has been given credit facility which is a NPA.
• Equity, debentures etc. received as a result of conversion of NPA.

AUDIT SAGA
RBI Circular = Central Auditors are required to issue following certificates

Special
• Certificate on Reconciliation of securities by bank both on its own investment account & Client’s a/c
Purpose
• Certificate on compliance by bank in key areas of prudential & other guidelines relating to
Certificate
transactions issued by RBI.
Classification of Investments as per Prudential Norms
1 Held to Maturity (HTM) • Securities acquired by bank with the intention to hold till maturity.
2 Held for Trading (HFT) • Securities acquired by bank for trading, i.e. to be sold in 90 days.
3 Available for Sale (AFS) • Securities which do not qualify for being classified as HTM or HFT.
Category of investment decided at time of acquisition and recorded on investment proposal.
* It ceases to generate income for bank.

Classified as
* Interest &/ or installment of principal remained Overdue or out of order for specified time
NPA if
* No credits continuously for 90 days as on B/S date or credits not enough to cover Interest
debited in period.
- Overdue: - Amount not paid on the due date fixed by Bank.
- Out of Order: - O/s balance continuously in excess of sanctioned limit/ drawing power.
* Account regularized near B/S date = Classify as NPA if account has inherent weaknesses.
Classification
in Special
* Account classify borrower wise = All facilities granted to same borrower treated as NPA
NPA CLASSIFICATION
Cases
* Advances under Consortium = Based on Recovery of Individual member ban

* Moratorium Period = A/c not Treated overdue if Date of debit of interest in moratorium period.
* Temporary Deficiencies = Ensure DP arrived on basis of stock statement (not older than 3 mth)
Exceptions to * Temporary Deficiencies = Non submission of stock statement, non renewal of limits.
NPA General * Natural Calamities = ST Agricultural loan converted to ST loans treated current dues.
VERIFICATION OF ADVANCES
Classification * Facilities backed by CG Guarantee = Overdue A/c classified as NPA only when CG
Norms repudiates its guarantee.
* Term Loans = Interest / Installment remain overdue > 90 days

Criteria of Specified
NPA Classification
* Cash Credit / Overdraft = Account remained overdue > 90 days.

* Bills Payable/ Bills Discounted = Bills remained overdue > 90days
Advances
* Agricultural Advances = Interest/ Installment remain overdue: -

- > 2 crop seasons (short duration crops) OR
- > 1 crop season (long duration crops)
* Credit Card Accounts = Min. amount due not paid in 90days from next statement due.
* Other Accounts = Amount overdue > 90 days.
* General Rule = Accrual basis if reasonable to expect ultimate collection

Recognition of
* NPAs = Cash Basis

Income
NPA
* Advanced against LIC/ KVP/ NSC/ FDs = Accrual basis provided adequate margin is available.
* Fees/ Commission on Rescheduled advance = Accrual basis over period covered by rescheduled
extended credit period.
* Govt. Guaranteed advances = If overdue, income to be realized on cash basis.
Reversal * First Time NPAs = Interest credited but not realized to be reversed.
of Income * NPAs Commission/ Other Income = Recognized on accrual basis & not received yet to reverse
* Finance Charge of Leased Asset = Recognize Income on accrual but not yet realize be reversed
• Execution of documents. • Limitation period.

Verify
• Evidences as to Market Value. • Evidences to ownership of assets.
Security
• Registration of charge with ROC. • Regular submit info by borrower.
against
• Whether security legally enforceable. • Extent Value of security covers loan.
Advance
• If Security in banks effective control.

AUDIT SAGA
AUDIT OF GENERAL INSURANCE CO. (GIC)

• That they have obtained all Info & explanations which, to best of their knowledge & belief, were necessary
Report to specify
for purposes of their audit & whether they have found them satisfactory.
• Whether proper BOA maintained by insurer as appears from examination of those books.
• Whether proper returns, audited or unaudited, from branches and other offices have been received &
whether they were adequate for the purpose of their audit.
• Whether B/S, Revenue Accounts & P/L dealt with by report & Receipt & Payments Account are in
AUDITORS’REPORT
agreement with BOA & returns.

• Whether Actuarial valuation of liabilities is duly certified by appointed actuary issued by authority.
• Whether Balance Sheet gives a true and fair view of the insurer’s affairs as at the end of the FY/ period.
Express Opinion on
• Whether Revenue Account gives a true and fair view of the surplus or the deficit for the FY/ period.
• Whether Profit and Loss Account gives a true and fair view of the profit or loss for the FY/ period.
• Whether Receipts and Payments Account gives a true and fair view of receipts & payments for FY/ period.
• FS are prepared as per requirements of Insurance Act, 1938, IRDA Act, 1999 & Co Act, 2013.
• Investments have been valued in accordance with the provisions of the Act and the Regulations.
• Accounting Policies selected by the insurer are appropriate and are in compliance with applicable AS
• Principles as prescribed in these Regulations or any order or direction issued by the Authority in this behalf
Certify • They Reviewed Mgt report & that there is no apparent mistake or material inconsistencies with FS
that • Insurer has complied with the terms and conditions of the registration stipulated by the Authority.
A certificate signed by the auditors (which are in addition to any other certificate or report which is required by
law to be given with respect to the balance sheet) certifying that: -
Certificate
• Verified cash balances & securities relating to the insurer’s loans, reversions & life interests
• Extent to which they verified Investments & transactions w.r.t. trusts undertaken by insurer as trustee.
• No part of the assets of the policyholders’ funds has been directly or indirectly applied in contravention of
provisions of the Insurance Act, 1938 relating to the application and investments of the policyholders’ funds.”
• Claims Intimation Register • Claims Paid Register • Claims Disbursement Bank Book
Registers &
• Claims Dockets • Salvage register • Report of quality assurance team

Prepared
Records
• Claim intimation, claim form, particulars of policy, survey report, police report
AUDIT PROCEDURES TO VERIFY CLAIMS
• Claim settlement note, claim satisfaction note, salvage report, etc.

(Claim Account is debited with all payments including repair charges, fire fighting expenses, police
report fees, survey fees, amount decreed by the Courts, travel expenses, photograph charges, etc.)
• Provision made for only such claims for which co legally liable, considering particularly: -
Claim Outstanding
- That risk was covered by policy - Claims arose during currency of policy
at Year End
- That claim not arose during period company wasn’t supposed to cover risk.
• Provision made is normally not in excess of the amount insured
• In Determining amount of provision, events after B/S date been considered
• In determining amount of provision, ‘Average clause’ applied if under-insurance by parties.
• No contingent liability carried in respect of any claim intimated for policies issued.
• Claims are provided for net of estimated salvage, wherever applicable.
• In co-insurance arrangements, claims paid booked only for company’s share & balance debited to
other insurance co.
Claims Paid
• If claims paid on basis of advices from other insurance companies & if share of premium received
• Claims communicated after yr-end for losses which occurred prior to yr-end must be accounted for
in year of audit.
• Claims payments duly sanctioned by Authority concerned
• Salvage recovered duly accounted by company & letter of subrogation obtained as per procedure.
• Payment made against claims partially settled is duly vouched & sanctioning authority is same

AUDIT SAGA
• Scrutinize and review control account debit balances and their nature should be enquired into.
Agents’ Balances
Outstanding
• Examine inoperative balances and treatment given for old balances with reference to co rules.
Premium &
• Enquire into the reasons for retaining the old balances.
• Verify old debit balances requiring provision or adjustment.
• Check age-wise, sector-wise analysis of outstanding premium.
• Verify whether outstanding premiums have since been collected.
• Check availability of adequate bank guarantee or premium deposit for outstanding premium.
ITEMS RELATING TO BALANCE SHEET
• Auditor’s objective in audit of investments is to satisfy himself as to their existence & valuation.
• Verify investment Scrip physically at the close of business on Balance sheet date.
Investments
• Where physical verification on B/S date not possible = auditor to do it on near date to it as possible
• Take into consideration any adjustments for subsequent transactions of purchase, sale, etc.
• Investments should not normally be held by any other person.
• Examine appropriateness of accounting policies followed by insurance company.
• Examine whether income from investments is properly accounted for.
• See if a proper system for recording & maintenance of TDS certificates received by Insurance Co.
• Physically verify cash balance collection & chest for meeting day to day expenditures.
• Obtain a certificate from mgt for the above mentioned balances as at the balance sheet date.
Cash & Bank
• Apply test check on the bank transactions.

AUDIT PROCEDURES ON
• Check Bank Reconciliation statement and long outstanding entries therein.

• Obtain confirmation of Bank Balances for all operative and inoperative accounts.
• Verify deposits & withdrawals transactions at random & check if A/c is operated by authorized person
• In case of funds-in-transit, he should verify same are properly reflected as part of bank balance.
Provision for Tax
• Assess past trend of Income Tax Dpt., decision of High & Supreme Court for computation made.
• See whether deductions under Chapter VIA of the Income Tax Act, 1961 is properly taken into a/c
• Seen whether exemption provision relating to TDS from certain income as exempted properly availed.
• Check grossing up of TDS relating to Income properly done for computation of Taxable income.
• Check liability under VAT & whether provision for adequate amt made in books or not.
• Verify adequate provision made for additional liability for earlier yrs for which demands received now
Disclosure • Underwriting Commitments outstanding. • Partly paid up investments.

requirements of • Guarantees given by or on behalf of the Company. • Others (to be specified)
Contingent • Statutory demands/Liabilities in dispute not provided for.
liabilities in notes • Claims other than those under policies not acknowledged as debts.
to B/S of GIC • Reinsurance obligations to the extent not provided for in the accounts.
* Auditor should look in ICS & compliance as laid for collection & recording of premiums.
* Ascertain Proper cover notes relating to the risks assumed have been serially numbered.
PREMIUM
* Ascertain there is an adequate internal check on the issue of cover notes, policy documents, stamps, etc.
* Ascertain whether advance of last year is accounted this year as income.
* Ensure & Check Premium recorded originally at Gross figure without providing for unexpired risks
* Ensure & Check whether agency commission paid on such premium has been recovered.
* Ensure & Check whether service tax charged from insured at Rates in force, on the total premium
• Vouch disbursement entries &disbursement vouchers with copies of commission bills
• Check whether vouchers are authorized & TDS deducted as applicable
Commission
• Test check correctness of amounts of commission allowed
to Agent
• Scrutinize agents’ ledger & balances examine accounts with Dr. balances & obtain info on same
• Check whether commission outgo for period under audit been duly accounted
IRDA (General insurance-Claim Reserving) Regulations, 2013 requires creation of a minimum amt of
Unexpired Risks
Unexpired Risks reserve at a specified percentage of Net Premium as Not all risk expire as on B/S date.
Reserve For
Risk will be there in succeeding year for premium received in this year, thus provide for: -
• For marine hull insurance = 100% of Net Premium
• For fire, marine cargo and miscellaneous business = 50% of Net Premium.
Sec. 64V of Insurance Act, 1938 also specifies these percentages.
( Provision of Income Tax Act 1961 & Income Tax Rules 1962 permit deduction of above reserves)

AUDIT SAGA
* Requirement of solvency margin = Every insurer and re-insurer shall at all times maintain an excess of value
of assets over the amount of liabilities of, not less than 50% of the amount of minimum capital.
Type of Insurance Business Minimum paid up share capital Sufficiency of Assets/Solvency
Regulatory Requirements of Insurance Act 1938
required u/s 6 Margin

(excludes Preliminary Exp)
Life/ General Insurance 100 Cr 50 Cr
Framework on Solvency Margin
Health Insurance (exclusive) 100 Cr 50 Cr

Re-Insurer (exclusive) 200 Cr 100 Cr
* Non-compliance of solvency margin = Insurer or re-insurer, who does not comply with requirement of
solvency margin deemed to be insolvent & may be wound-up by court on application made by IRDA.
* Submission of Financial Plan = If, at any time, insurer or re-insurer does not maintain required control level
of solvency margin, he shall, in accordance with directions issued by IRDA, submit a financial plan,
indicating a plan of action to correct the deficiency within a specified period not exceeding 6 months.
* Modifications to Financial Plan = If the authority considers the financial plan inadequate, it shall propose
modifications to the plan and shall give directions, including direction in regard to transacting any new
business, or, appointment of administrator or both.
* Non submission of financial plan = An Insurer or re-insurer who does not submit financial plan shall be
deemed to have made default in complying with the requirements of this section
* Real Estate (Investment property) = Historical cost (-) Acc. Dep. (-) Impairment loss (No Residual value)
* Debt Securities – as ‘held to maturity’ – Historical cost.
Valuation of
Investment
* Equity / Derivative Active Market(Listed Company) – F.V. at B/S date. Impairment as expenses. Changes in
F.V. in “Fair Value change A/c.”If debit balance, to be reduced from free reserves while declaring dividend
(Any credit balance will not be able for distribution as dividend)
* Unlisted and other – at Historical Cost. Provision shall be made for diminution in value. such provision may
be reversed but increased carrying amount not to exceed its historical cost.
* Large business risks are shared between more than one Insurer
* Leading insurer issues the documents, collects premiums and settles claims and renders statements of
Accountants to the co-insurers.
* Ex: - A Insurance Company receives a insurance business (100%) with high risk. Shares 50 % business with B
and 30 % with C. For B and C this is incoming coinsurance and for A it is outgoing coinsurance
Co-INSURANCE
AUDIT PROCEDURE
Incoming Coinsurance Outgoing Coinsurance(Leader)
* Auditor should check that premium a/c is credited * For outgoing co-insurance auditor should scrutinize
on basis of statements received from leading insurer. transactions relating to outgoing business; i.e. where
* If statement is not received, whether premium has company is leader.
been accounted on the basis of advices received. * Examine relevant documents.
* Obtain WR from the management that premium * At the time of settlement of claims, auditor will
received from the leader has been accounted for. ensure whether the leader has received the respective
* Verify provision for claims made & paid. share of claims from co-insurer.
* Ensure claim paid only for its share in co-insurance. * Jitna share of claim co-insurer ka bantahai,
correspondingly unkehisse main debit liyahaiyanai.
• 3 % of Total Gross Premium written in India in any F.Y.

Maintenance • Maximum limit of deposit is 10 Cr.(Reinsurance- 20 Cr)
of Deposit • Deposit can be made either in cash or investment in approved securities.(M.V of securities on
with RI u/s 7 date of deposit is to be seen.
(NOTE: - Requirements pertaining to deposits has been omitted under Insurance Amendment Act)

AUDIT SAGA
Reinsurance
• An agreement between a ‘ceding company’ and a ‘reinsurer’ whereby former agrees to ‘cede’ & latter agrees to
accept a certain specified share of Risk or liability upon terms as set out in agreement.
• A ‘ceding company’ is Original insurance company which has accepted Risk & agreed to ‘cede’ or pass on that
Risk to another insurance company or the reinsurance company.
• If loss, insured’s claim for full amt is against Original insurer only. Original insurer lodges claim with Reinsurer
TYPES OF REINSURANCE CONTRACTS
FACULTATIVE REINSURANCE TREATY REINSURANCE

** It is that type of reinsurance whereby contract relates • Entered in ceding company & reinsurer(s) where
to 1 particular risk & expressed in reinsurance policy. reinsurances in limits of treaty
• * Oldest method of reinsurance and it necessitates • Obligatory for Reinsurer to accept all risks within
consideration of each risk separately. the scope this treaty
• * Each transaction under facultative reinsurance has • Obligatory for ceding company to cede risks in
to be negotiated individually. accordance with terms of treaty
• * Each party to transaction has a free choice, i.e., for • Insurer generally prepares Statement of treaty
ceding company to offer & reinsurer to accept. reinsurances accounts on quarterly basis or on half
• * Drawbacks of this type of insurance are Volume of yearly basis
work involved & time taken to cover Risk. • Reinsurer, in such cases, treats the amount paid to
• * Still used even today, mainly when: - insurer as ‘advance against claim.
- Automatic covers have already been exhausted.
- Risk is excluded from the Treaties.
- Insurer does not want his reinsurance treaties NON-PROPORTIONAL TREATY
overburdened with heavy & abnormal risks. • Distribution of liability in ceding company &
- Insurer has no automatic cover at his disposal. reinsurer on basis of losses rather than sum insured
• Premium not calculated each time ceded but on
whole portfolio of ceding company.
• Premium rate is predetermined.
PROPORTIONAL TREATY
• Cost of reinsurance vary substantially each year &
Based on Pro-rata apportionment of sum insured, premium depending on premium income
& losses as per pre-determined percentage/ ratio • Normally no commission is paid.
EXCESS OF LOSS (XL) TREATY

* Reinsurer’s liability arises only when claim STOP LOSS TREATY
> predetermined figure relating to specific • ‘Excess of Loss Ration Cover’ as it protects co. from
branch of ceding company’s business or to losing more than specified amt
its entire business. • Amt fixed for ceding co annual premium income for
* (Provides protection to insurer against class of business as %.
numerous losses caused by cyclone, • Reinsurer liable for losses which exceed agreed % of
earthquake, etc. This cover is also known as loss ratio, until the limit of liability is reached which is
‘Catastrophic Cover’) expressed in form of loss ratio.
 Reinsurance agreement should be as per the norms and guidelines prescribed in the Insurance Act,
1938 IRDA Regulations as well as the company’s approved program
Inwards/Outward or
 The auditor should verify the reinsurance transactions are as per the arrangements with re-insurers
Verification of
Reinsurance
 The auditor should examine the accounting policy of the company in regard to reinsurance business
Ceded
received/ceded, premium received/paid and payment/receipt of commission

 Auditor should obtain evidence about the system of control over the reinsurance inward program
 Examine foreign currency transactions & ensure that they comply with AS 11
 Check whether cession is as per agreement entered.
 Check whether commission on cession is as per agreement.
 Check whether cession has been made as per stipulation applicable to various categories of risk.

AUDIT SAGA
AUDIT OF CO- OPERATIVE SOCIETIES

BOOKS, ACCOUNTS & OTHER RECORDS
* All sums of money received & expended by society & * Assets and liabilities. * Cost Accounting Records.
matters in respect of which Receipts & exp take place. Further different books can also be maintained by society like
* All sales & Purchases of goods by society. cash book, stock register, register of fixed assets.
• Overdue debts for a period from six months to five years and more than five years will have to be
Examination of overdue
classified & shall have to be reported by an auditor.

• A further analysis of these overdue debts from the viewpoint of chances of recovery will have to be
made & they will have to be classified as good or bad.
debts
• Auditor to ascertain if proper provisions for doubtful debts are made & whether same is satisfactory.
• Percentage of overdue debts to the working capital and loans advanced will have to be compared with
last year, so as to see whether the trend is increasing or decreasing.
• Examine whether due and proper actions for recovery are taken and the results thereof.
• Bad debts and irrecoverable losses before being written off against Bad Debts Funds, Reserve Fund
Certify
Bad
etc. should be certified as bad debts or irrecoverable losses by the auditor where the law so requires.
DUTIES OF AUDITOR OF CO-OPERATIVE SOCIETIES
• Where no such requirement exists, the managing committee of the society must authorize the write-off.
• Valuation of assets = AS & SA followed as no specific provisions or instructions under Act & Rules
of Assets &
Liabilities
Valuation
• Auditor will have to ascertain existence, ownership and valuation of assets.

• Fixed assets valued at cost less adequate provision for depreciation.
• Current assets should be valued at cost or market price, whichever is lower.
• Known liabilities are brought in account & contingent liabilities stated by way of a note.
• Ascertain objects for which co-operative organization is set up is achieved in course of its working
Adherence to
Co-operative
Principles
• Assessment not necessarily in terms of profits/ extending benefits to members who formed society.
• See expense economically incurred & there is no wastage of funds.
• Principles of propriety audit to be followed.
• Point out Infringement with Co-operative Societies Act and Rules & bye-laws.
Observations of • Financial implications of such infringements assessed & reported.
Act & Rules • Some of State Acts contain restrictions on payment of dividends to be noted.
• Auditor notice some serious irregularities in working of society = may report special matters to Registrar
• Registrar on receipt of such a special report may take necessary action against the society.
Special Report to Registrar
• In following cases, for instance Special report may become necessary: -

- Personal profiteering by members of managing committee in transactions of society, which are
ultimately detrimental to the interest of the society.
- Detection of fraud relating to expenses, purchases, property and stores of the society.
- Miss-mgt like decisions of management against co- operative principles.
- In case of urban co-operative banks, disproportionate advances to vested interest groups, such as
relative of mgt &deliberate negligence about recovery thereof. Cases of reckless advancing,
where mgt is negligent about taking adequate security & proper safeguards for judging credit
worthiness of the part

AUDIT SAGA
• Right of access at all times to Books, accounts & vouchers whether kept at head office or elsewhere
Powers of
Auditor • Ask from officers or other employees = info & explanation as think necessary.
Restrictions
• According to sec 5 of Central Act, in case of a society where Liability of a member of society is limited, no
On Share
holdings
member of a society other than a registered society can hold such portion of the share capital of the society
as would exceed a maximum of 20 % of Total no. of shares or of Value of shareholding to ₹1,000/-.
• Auditor of a co-operative society concerned with this provision to watch any breach on holding of shares.
• Loans & advances made on basis of security = properly secured & terms not prejudicial to interests of
society or members.
Sec 73(2)
• Transactions represented merely by book entries are not prejudicial to interest of Co-operative Society.
Auditor
• Whether personal expenses charged to revenue account.
duty to
• Where it is stated in books and papers that shares allotted for cash, whether cash has actually been
make
received in respect of such allotment
Inquiries
• If no cash has actually been so received, whether position as stated in Books & B/S is correct, regular
& not misleading
Content
• Accounts examined by him & • On Every B/S & P/L &

• On Every Other doc required to be part of or annexed to B/S & P/L laid before Multi-State co-operative
society in GM during his tenure of office.
* Audit report has to be submitted in prescribed form specified by Registrar or as given in Related Rules.
* According to present prescribed form in some of States, Auditor has to state: -
AUDITOR’S REPORT
- Whether he obtained all necessary info & explanations which were necessary for audit.
- Whether in his opinion & to best of his info & as per explanations given to him = a/c give all info
Matters
required by Act.
* P/L of society gives a true and fair view of the Profit and Loss made by society.
* B/S gives a true and fair view of the state of affairs of the society as on given date.
* Proper BOA as required by Act, Rules & bye-laws of society properly maintained.
* B/S & P/L examined by him are in agreement with BOA & returns of society.
(Auditor to give qualifying observations = if any of answers to above matters are Negative)
* All transactions which appear to be contrary to provisions of Act, Rules and bye- laws of society
* All sums, which ought to have been, but have not been brought into account by the society.
Schedules
* Any material, or property belonging to society which appears to auditor to be bad or doubtful of recovery.
* Any material irregularity or impropriety in expenditure or in the realization or monies due to society.
* Any other matters specified by the Registrar in this behalf.
(In the case of Nil Report in any of the above matters, the auditor will have to give a Nil Report.)
• Section 72 of the Multi-State Co-operative Societies Act, 2002 states that a person who is a CA can only be
appointed as auditor of Multi-State co-operative society.
Qualification of Auditor
• However following persons are not eligible for appointed as auditors of a Multi -State co- operative society: -
(a) A body corporate
(b) An officer or employee of the Multi-State co-operative society
(c) A person who is a member or who is in employment, of officer/ employee of Multi-State co-operative society
(d) A person who is indebted to the Multi-State co-operative society or who has given any guarantee or provided
any security in connection with the indebtedness of any third person to the Multi-State co-operative society
for amount exceeding ₹1000
(If an auditor becomes subject, after his appointment, to any, of the disqualifications specified above, he shall be
deemed to have vacated his office as such)

AUDIT SAGA
AUDIT OF NBFC
Section 45 I(f) of RBI (Amendment) Act, 1997 defines NBFC as: -
• Financial institution which is a company.
Meaning
• Non banking institution also being a Co. with principal business of receiving of deposits or lending.
• Other non-banking institution or class of such institutions, as RBI with previous approval
of CG may specify by notification in Official Gazette.
NON BANKING & FINANCE COMPANIES (NBFC)
(RBI Directions on Acceptance of Public Deposits = state NBFC means only non-banking institution which is
a Loan co, Investment co, Hire purchase finance co, Equipment leasing co & Mutual benefit financial co)
Types of • Asset Finance Company (AFC) • Investment Company (IC)

NBFCs • Loan Company (LC) • Infra Finance Company (IFC)
registered • Core Investment Company (CIC) • Infra Debt Fund- NBFC (IDF-NBFC)
with RBI • NBFC - Micro Finance Institution (NBFC-MFI).
• Cheating & forgery.

{Commissioner & CM’s Fraud In FOREX}
• Cash shortages & Negligence

Classification of frauds by NBFC.
• Misappropriation and criminal breach of trust.

• Fraudulent by forged Instruments, manipulation of BOA or by fictitious a/c & conversion of property.
• Irregularities in FOREX Transactions.
• Unauthorized credit facilities extended for reward or for illegal gratification.
• Other type of fraud not coming under specific heads above.
= Cases of ‘Negligence and cash shortages’ & ‘Irregularities in foreign exchange transactions’ referred in
above items “Negligence and cash shortages OR Cheating and forgery” to be reported as fraud if the
intention to cheat/ defraud is suspected/ proved.
= Cases where fraudulent intention not suspected/ proved at time of detection = treated fraud & reported: -
- Cases of cash shortages more than ₹10,000
- Cases of cash shortages more than ₹5000 if detected by management/ auditor/ inspecting officer
& not reported on the occurrence by the persons handling cash.
= NBFCs having overseas branches/offices should report all frauds perpetrated at such branches/offices
also to RBI as per prescribed format and procedures.
* Physical Verification * Compliance with Prudential Norms

of Investment Co
Audit of NBFC
* Verify that credit facilities extended & investments by concerned NBFC are as per prescribed ceiling.
* Verify whether the NBFC has not advanced any loans against the security of its own shares.
* Verify that Dividend income declared is duly received & interest due accounted for.
* Check if adequate provision for fall in Value
* Verify charges received or paid in respect of securities lent/borrowed.
* Obtain confirmation from Approved intermediary on securities deposited with/ borrowed from it as at yr end
Verification Procedures * Credit Appraisal System * Verification of Payments * Physical Verification

in Audit of Hire- * Verification of Endorsement * Regularity of HP Instalments * Insurance of Asset
Purchase Finance Co * Recognition of Finance Charges
* Credit Rating = Obtain a copy of the credit rating assigned to NBFC and check whether the public
Directions by NBFC
deposits accepted/held by it are in accordance with the level of credit rating assigned to it.
Public Deposits
Compliance of
* Interest and Brokerage Payments = Test checks interest calculations & interest not in excess of specified.
* Written Application = NBFC accepted or renewed PD only after a written application from depositor
* Deposit Register = Verify it & test check the particulars entered for depositors with supporting receipts
* Repayment of Deposits = NBFC is regularly paying its deposits on due dates.
* Filling of Annual Returns = Filed its annual return in specified time i.e. before 30th June.
* Board Resolution passed if non-acceptance of public deposits

AUDIT SAGA
In addition to Report made by Auditor u/s 143 of Co Act, 2013, auditor shall also make Separate report to BODs of Company on matters specified in Para 3 & 4 • Whether company is engaged in business of NBFC
• Examine whether company obtained Certificate of Registration (COR) from Bank
In case of All NBFCs (Para 3) (Activity without a Valid COR granted by Bank = offence under RBI Act, 1934)
• If company holding COR issued by Bank, whether company is entitled to continue to hold such
COR in terms of its Principal Business Criteria (Financial asset/ Income pattern) as on March 31
• Whether NBFC is meeting required Net owned fund requirement as laid in Non- Systemically
Important & Non Deposit taking Company (Reserve Bank) Directions, 2016 AND Systemically
Important Non-Deposit taking Company and Deposit taking Company (RBI) Directions, 2016.
(Every NBFC to submit Certificate from its Statutory Auditor that it is engaged in business of
NBFC requiring it to hold a COR u/s 45-IA of RBI Act and is eligible to hold it = for this a
Certificate from Statutory Auditor on position of company at 31st March FY end may be submitted to
Regional Office of Department of Non-Banking Supervision under whose jurisdiction NBFC is
registered in 1 month from Date of finalization of B/S & in any case not later than December 30th)
MATTERS TO BE INCLUDED IN AUDITORS REPORT IN CASE OF NBFC
NBFCs Accepting/ Holding PD (Para 3)
• Whether public deposits accepted by NBFC & other borrowings are in limits admissible to co
as per provisions of NBFCs Acceptance of Public Deposits (Reserve Bank) Directions, 2016.
• Whether PD held by co in excess of such deposits permissible to it under NBFCs Accept of (PD)
Public Deposits (RBI) Directions, 2016 are regularised in manner given in it.
of NBFCs Auditor’s Report (Reserve Bank) Directions, 2016
• Whether NBFC is accepting "public deposit” without minimum Investment Grade Credit Rating
from Approved credit rating agency as per NBFC Acceptance of PD (RBI) Directions, 2016.
• Whether Capital Adequacy Ratio as disclosed in return submitted to Bank has been correctly
determined & whether such ratio is in compliance with Minimum CRAR prescribed therein.
• Whether company has defaulted in paying to its depositors Interest & /or principal amount of
deposits after such Interest and/ or principal became due.
• Whether company has complied with Prudential Norms on Income Recognition, AS, Asset
classification, provisioning for bad and doubtful debts, and concentration of Credit/ Investments.
• Whether co complied with Liquid Assets requirement as prescribed by Bank.
• Whether co furnished to Bank in Stipulated period the return on deposits.
• Whether co furnished to Bank in Stipulated period Quarterly return on Prudential Norms.
• Whether BODs has passed Resolution for Non- acceptance of any public deposits.
Accepting PD (Para 3)
• Whether company accepted any public deposits in relevant period/ yr.

If NBFCs Not
• Whether company complied with Prudential norms relating to Income recognition, AS, Asset
classification & provisioning for bad and doubtful debts as applicable to it.
• Whether NBFC has been correctly classified as NBFC Micro Finance Institutions (MFI)
• For Systemically Important Non-deposit taking NBFCs: -
- Whether CAR as disclosed in return submitted to Bank has been correctly arrived at.
- Whether company has furnished to Bank, Annual Statement of Capital funds, Risk
assets/ Exposures & Risk asset ratio in stipulated period.
Reasons to • Where in Auditor’s report, Statement regarding any of the items referred to in Para 3
Unfavourable above is unfavourable or qualified, Auditor’s report shall also state reasons for such
or Qualified unfavourable or qualified statement.
statements • Where Auditor is unable to express any opinion on any of the items referred to in Para
(Para 4) 3 above, his report shall indicate such fact together with reasons therefore.
If a company in business of Apart from matters enumerated above where company has obtained a
Non-Banking Financial specific advice from Bank that it is not required to hold CoR from
Institution not required to hold Bank = auditor shall include statement that Company is complying
CoR wrt certain conditions with conditions stipulated as advised by Bank.
NBFCs to comply with Ind- AS as: -

Applicability
* Accounting periods beginning 1 April 2018 = Listed and unlisted NBFCs having a net
of Indian
worth of 500 crore or more and holding, subsidiary, joint venture or associate
Accounting
companies of such NBFCs
Standards
* Accounting periods beginning 1 April 2019 = All other listed NBFCs, unlisted NBFCs
(Ind- AS) on
having a net worth of 250 crore or more but less than 500 crore and holding,
NBFCs –
subsidiary, joint venture or associate companies of such NBFCs.

AUDIT SAGA
Difference in
* NBFCs allowed to present items of B/S in order of their liquidity which is not allowed to companies
Division II
required to follow Division II. Additionally, NBFCs required to classify itemsof the balance
(Ind- AS-
sheet in financial & non-financial whereas other companies to classify items in current/ non-current.
ther than
* NBFC to separately disclose by note any item of ‘other income’ or ‘other expenditure’ > 1 % of
NBFCs) &
Total income. Division II, on other hand, requires disclosure for anyitem of income or expenditure
Division III
which exceeds 1% of revenue from operationsor 10 lakhs, whichever is higher.
(Ind- AS-
* NBFCs to separately disclose under ‘receivables’, the debts due from any LLP in which its director
NBFCs) of
is a partner or member.
Sch III
MCA vide notification dated October 11, 2018 introduced Division III under Schedule
Format for preparation of
III of the Companies Act, 2013, wherein a format for preparation of financial
financial statements by
statements by NBFCs complying with Ind- AS has been prescribed = Every NBFC
NBFCs under Ind- AS
required to comply with Ind - AS shall prepare its financial statements as per it
Obligations of auditor to Submit Exception Reports to RBI in case of NBFCs (Para 5)
= Where in case of NBFC, statement regarding any of the items referred to in Para 3 is Unfavourable or qualified,
or in the opinion of the auditor the company has not complied with: -
(a) Provisions of Chapter III B of RBI Act OR (b) NBFC Acceptance of Public Deposits (RBI) Directions, 2016 OR
(c) NBFC Non Systemically Important Non Deposit taking Company (Reserve Bank) Directions, 2016 AND
NBFC Systemically Important Non-Deposit taking Co. & Deposit taking Company (RBI) Directions, 2016.
= It shall be obligation of Auditor to make a report containing details of such unfavourable or qualified statements
and/ or about the non-compliance, as the case may be in respect of co to concerned Regional Office of Dept. of
Non- Banking Supervision of the Bank under whose jurisdiction the registered office of the co is located.
* Sanctioning = Limit on borrowings, nature of security interest, terms of repayment, etc.

Audit of NBFCs in case of
* Security = Obtained & agreements entered into with concerned parties for advances given.
LOAN COMPANIES
* Balance confirmations = Obtain balance confirmations from the concerned parties.

* Maintenance of Records in case of bill discounting = Verify proper records/documents maintained for
every bill discounted/ rediscounted by NBFC.
* Ceiling Limits = Check whether NBFC has not lent/ invested in excess of specified limits to single
borrower or group of borrowers as per NBFC Prudential Norms Directions.
* Loans against own Shares = Check whether NBFC not advanced loans against security of its own shares.
* Compliance with prudential norms = Check classification of loans & advances made by a NBFC into
Standard Assets, Sub-Standard Assets, doubtful assets and loss assets & adequacy of provision as per
NBFC Prudential Norms Directions.
Auditor has to verify compliance of prudential norms relating to: -

COMPLIANCE OF PRUDENTIAL
* Norms for concentration of credit etc. * Income recognition.

Prudential * Income from investments. * Asset classification.
NORM’S DIRECTIONS
Norms * Provision for bad and doubtful debts. * Capital adequacy norm.
* Prohibition of granting loans against its own shares.
* Prohibition on loans and investments for failure to repay public deposits.
Demand Loans Policy Ensure Board NBFC frame policy for granting demand/call loans & implement it
Classification Verify the classification of advances and loans as standard/ substandard/doubtful/loss and that
of Advances proper provision has been made in accordance with the directions.
NPA Income Ensure unrealized income from non-performing assets has not been taken to P/ L Statement
Recovery in NPA Check all NPAs of the previous years to verify whether during the current year any
Accounts payments received or still they continue to be NPA during the current year also.
``
Audit of Equipment * Credit Appraisal System * Physical Verify * Comply to AS-19

Leasing finance co * Verification of Lease Agreement * Maintenance of Asset

AUDIT SAGA
SPECIAL AUDIT ASSIGNMENTS

PART- I: - AUDIT OF MEMBERS OF STOCK EXCHANGES
• Failure to furnish document, info, books, other docs, return or report called for by Board.
empowers SEBI to levy
default under Act if: -
• Failure to maintain books of accounts & records.

penalties on person
monetary fines &
SEBI Act, 1992
• Failure by intermediary to enter into an agreement with client, redress grievances of investors.
• Failure by person sponsoring or carrying on collective investment scheme, including mutual funds,
without obtaining Certificate of Registration.
• Failure by Stock broker to issue contract notes in form & manner specified by Stock Exchange
• Fail to deliver security or failure to make payment of amt due to Investor, charging excess brokerage
• Failure by person to disclose aggregate of his shareholding in Body Corporate before he acquires any
shares of that body corporate & failure to make public announcement to acquire shares at minimum
price in case of takeovers.
Volatility margin is imposed to curb excessive volatility in the market and to act as a
Meaning
VOLATILITY MARGIN
deterrent to building up of Excessive outstanding positions.

Price variations on account of calls, bonuses, rights, mergers, amalgamations and
Computation schemes of arrangements are adjusted for determining volatile securities and
adjustments in prices is made for purpose of computation of volatility, when securities
are traded ex- benefits.
• Securities that attract volatility margin & applicable margin rates are announced on
last day of trading cycle & are applicable from 1st day of succeeding trading cycle.
Application
• Volatility margin is levied on net outstanding positions of member in each security
based on respective margin rates.
% of net cumulative outstanding position in each security that member to keep with exchange at all times.
Exposure
Margin
Gross
* This margin is calculated on continuous basis.

MARGIN
* This margin is to be kept with stock exchange in advance.

* This margin is calculated on all securities unlike volatility margin which is on any specific security.
• MTM margin is notional loss, which a member or his client would incur, if net cumulative outstanding
Mark to Market
positions in all securities were closed out at closing price of relevant trading day, which is different from
Transaction Price.
Margins
• For each security, this is worked out by multiplying difference in closing price & price at which trade
was executed by cumulative buy & sell open position
• For buy position close price being lower than actual trade price & for sell position close price being
higher than actual trade price.
• Aggregate amount computed across all securities is MTM margin payable by a member.
Deposits made by members with Stock exchange authorities. Members are required to collect
Meaning
margin from their clients & deposit same with clearing house.
• Restrict excessive speculation • Safeguard the interests of the investors

Need
• Protect members by providing them with funds to cover anticipated fluctuations to prices of securities,
if client delays same or is unable to meet his commitments.
* NSDL & CDSL keep record of ownership of securities electronically in book entry form.
* Transfer of ownership of securities is done by simple account transfers. Advantages: -
Depositories & - Liquidity of scripts (immediate transfer & register) - Bonus & right directly credited to A/c
Dematerialization - Much lower risk of bad deliveries. - Saving of stamp duty.
- No physical certificate (no risk of it being misplaced) - Saving of courier charges.
- Reduction in brokerage. - Easy settlement with clearing house.
\

AUDIT SAGA
* (T + 3) rolling settlement was in operation in India up to 31st March, 2003, which was switched on to “T+2”
rolling settlement system from 1st April, 2003.
Settlement
* Trades o/s at end of day are to be settled with ‘X’ business days from the transaction date.
Rolling
* T+2, transaction on Monday pay in & pay out takes place on Wednesday.
* Trades on each single day settled separately from trades done earlier or on subsequent trade days.
* Netting of trades is done only for the day & not for multiple days (as earlier in settlement period).
* It adopts VAR (Value at Risk) based margining approach.
* If member fails to deliver shares sold, exchange conducts auction session to meet short fall due to non delivery
* Regular Lot Book = Contains only regular lot orders and order do not have any attributes attached to them.
* Special Term Book = All the orders, which some special attributes, are recorded in this book.
Books maintained in
* Stop - Loss Book =

- Stop loss orders are stored in this book till the trigger price is reached or surpassed.
Capital Mkt.
- When the trigger price is reached or surpassed, the order is released in the regular lot book.
- The stop loss conditions are met under the following circumstances.
• Buy order – a buy order in the stop loss book gets triggered when the last traded price in the
normal market reaches or exceeds the trigger price of the order.
• Sell order – a sell order in a stop loss book gets triggered when the last traded prices in
regular market reaches or falls below the trigger price of the order.
* Odd Lot Book = The odd lot book contains all orders with lot size lesser than marketable lot.
v. Spot Book – The spot book contains all orders having different settlement periods only.
• Price bands that set Upper & lower limit in which a stock can fluctuate on particular day.
Circuit
• Price band for day is a function of previous trading day’s closing.
Filters or
• SEBI directed exchanges to apply circuit filters on Scrip traded in Rolling Settlement if their price
Circuit
fluctuating > 10% of closing price of Scrip on the previous day in any direction.
Breakers
• Price bands restrict extreme price movements & resist price manipulation.
(specified
• Protect investors from extreme fluctuations in a panic market created by rumours and short term fears.
by SEBI)
TYPES
Individual security wise Market wide
To curb excessive volatility. With effect from 02-07-2001.
May be 2%, 5%, 10% or 20% based on categories of shares 3 stages of index movement 10%, 15% and 20%.
Calculated by closing price of previous trading day. Brings about trading halt in mkt. nationwide (all mkt.)
Ex: - If on 13-06-15 closing rate of AFTEC INFOSYS is ` Calculated into absolute points of index variations on
100 price band in case of 20% circuit breaker is 80 (Lower quarterly basis, based on closing index of last day of
freeze) & 120 (upper freeze). trading in a quarter.
• All orders of regular lot size or multiples thereof are traded in normal market.
(NEAT) National Exchange Automated Trading
Normal • For shares traded in compulsory dematerialised mode market lot of these shares is one.
TYPES OF MARKET
Market • Normal market consists of various book types where orders segregated as regular lot orders,
special term orders, negotiated trade orders & stop loss orders, depending on their order attributes.
Odd • An order is called odd lot order if order size is less than regular lot size.
Lot • Such orders traded in odd-lot market & not have any special terms or attributes attached to them.
Market • In this mkt. Both price & quantity of both orders (buy & sell) to exact match for trade.
Spot • Spot orders similar to normal market orders except that spot orders has differ settlement periods
Market • These orders do not have any special terms or attributes attached to them.
Auction Market Initiated by Exchange on behalf of trading members for completing Settlement process.
• NEAT system is a fully computerized screen-based trading system enabling members from across the
Meaning
country to trade simultaneously with enormous ease and efficiency by keying the order into the system.
• Single consolidated order book for each stock displays, on a real time basis, buy and sell orders
originating from all over country. • Orders are executed only if the price-quantity conditions match.

AUDIT SAGA
BOA & OTHER DOCUMENTS SUBJECT TO AUDIT

Members of Exchange are Generally required to maintain Exchange as per its rules, regulations and bye-laws
may require Members to maintain
• Register of Transactions (SAUDA Book) / Daily Transaction List • Margin statements copy downloaded from Exchange.
• Journals • Copies of Pool Account Statements.
• Clients Ledger • Bank Pass Book • Copies of Settlement along with all relevant sheets.
• Margin Deposit Book • General Ledger • Copy of RC of Sub-broker issued by SEBI.
• Register of accounts of sub-brokers • Cash Book • Details of Spot Delivery transactions entered into
• Counterfoils or duplicates of contract notes issued to clients • Client database & Broker Client Agreement.
• Written consent of clients on contracts entered into as principals • Copy of Power of Attorney/Board Resolution
• Docs Register /Inward-Outward Register + particulars of shares authorizing Directors/employees to sign Contract Note
& securities received & delivered
• Basic record, which each member is required to maintain regularly on day-to-day basis.
Daily Transactions
Book) / Register of
• Contains details of name of code of client on whose behalf deals done, rate & quantity of bought/ sold.
List (SAUDA
Transaction
• Details maintained date wise. This register contains all transactions, which may be of kind mentioned: -
- Member’s own business on the Exchange - Spot transactions, etc.
- Member’s business on Exchange on behalf of clients
- Member’s business with clients on principal- to- principal basis
- Member’s business with members of other Stock Exchanges
- Member’s business on behalf of his clients with members of other Stock Exchanges.
• Contract note is a document through which a contractual obligation is established between member & client.
• Every member of Stock-exchange to issue contract notes to his clients for trades executed on their behalf.
Meaning
• To be issued to Client in 24 hours of execution of the trades.

• Members are also required to preserve counter-foils or duplicates of copies of contract notes issued to clients.
• Member to maintain written consent of clients for contracts entered into as Principal.
• In case of corporate membership, Board resolution needed to authorise person including Directors to sign it.
• Appropriate stamps to be affixed on Contract note. • Duplicate copies maintained.

• Member to issue contract notes to his clients for the trades executed on their behalf
CONTRACT NOTES
SEBI • Member to stamp his order sheets/records & order time be reflected in Contract Note
• Contract note should bear SEBI Registration number of member.
CHECKLIST
• Pre-printed and issued within 24 hours of execution of the trades.
for Auditors • Preserve counter-foils or duplicates of copies of contract notes issued.
• To show brokerage separately.(Total brokerage to be in limits & not > specified value of trade)
• Signed either by the member himself or his constituted attorney.
• Contract notes have been serially numbered. • No serial number has been left blank.
• Format of the Cont0ract Note is as prescribed by the Regulations of the Exchange.
Audit Procedures
• Duplicate copies / counterfoils of contract notes are maintained.

• Brokerage charged in contract notes is within permissible limits & indicated separately including service tax.
• Contract notes have been signed by an authorised person.
• Contract notes have been issued in respect of all transactions.
• Transaction Identification, Trade Identification & Execution time printed on the contract note issued.
• SEBI Registration number, Settlement number, Settlement dates have been mentioned.
• PAN number of the member and client has been mentioned on Contract Note where if required.
• All clauses specified by the Exchange have been printed on the reverse of contract notes.
• At End of the each settlement, brokerage income is credited to brokerage account appearing in general ledger.
Brokerage
• Auditor verify whether brokerage is credited for each settlement or not, failing which reasons can be inquired.
A/c
• Brokerage amt be periodically reconciled with amt on which Service tax paid as disclosed in its return
• Main source of income for members of stock exchanges, so attention to revenue recognition aspect of it.
• Brokerage income is recognized as income on basis of principles in AS 9

AUDIT SAGA
• Member is required to maintain it where details of all margins deposited with Clearing House to be recorded
• Book verified to ascertain if member complied with all directives on margin issued by SEBI/Stock Exchange
Margin Deposit
• Margin payments by member cross-checked with daily margin statements downloaded from Stock Exchange
Book
• Auditor applies appropriate audit procedures to satisfy self that margins properly calculated, collected & paid
• Auditor examine that margin deposit lying with the Clearing House are supported by the confirmation.
• Auditor verifies if adjustment entries of Settlement & daily margin adjusted at settlement are correctly passed
• Auditor ensures that exemptions from payment of margins of Institutional Trades have been claimed correctly
Meaning
* Member of SE to maintain separate bank account for the client’s money and their own money.
* No payment for a transaction in which member has traded on his own account be made from clients account.
BANK BOOK
* Auditor should verify the bank reconciliation statement for all the bank accounts in the usual manner.
No money can be paid * Money held or received on account of clients.
INTO clients account * Money for replacement for sum which may by mistake/ accident drawn from a/c.
other than * A cheque or draft received from a client.
No money can be paid FROM * Money for payment to Clearing Corporation / House on behalf of clients.
client’s a/c other than * Money for replacement for sum by mistake or accident deposited in client a/c
PART- II: - ENERGYAUDIT

Meaning
* Activity that assesses energy use pattern of factory / energy consuming equipment & identify saving chances
* Energy mgt involves the following basis approaches: - - Reducing avoidable losses
- Improving the effectiveness of energy use - Increasing energy use efficiency
ENERGY AUDIT
• Correlate trends of production or activity to energy costs. • Quantify energy costs and quantities.
Energy Auditor Function
• Devise energy database formats to ensure they depict correct picture = by product, dept., consumer, etc.
• Advise and check the compliance of the organisation for policy and regulation aspects.
• Highlight areas that need attention for detailed investigations.
• Conduct preliminary and detailed energy audits including: - - Data collection & analysis.
- Measurements, mass & energy balances. - Review energy procure practices.
- Identification of energy efficiency projects and techno-economic evaluation.
- Establishing action plan including energy saving targets, staffing requirements, implementation time
requirements, procurement issues, details and cost estimates.
- Recommendations on goal setting for energy saving, record keeping, reporting and energy accounting,
organisation requirements, communications and public relations.
PART- III: - AUDIT OF DEPOSITORIES

• Records of securities dematerialized and re-materialized • Details of participants.
records & docs
Depositories to
• Names of transferor, transferee & dates of transfer of securities • Register & index of beneficial owners.
following
maintain
• Details of holding of securities of beneficial owners as at end of each year.

• Records of instructions received from & sent to participants, issuers, issuers’ agents & beneficial owners.
• Records of approval, notice, entry and cancellation or pledge or hypothecation
• Details of securities declared to be eligible for dematerialization in the depository.
• Other records as specified by Board for carrying on activities as depository.
Advantages • High liquidity of Scrip as immediate transfer & registration • Reduction in brokerage
of • Receive bonus and right as direct credit to the account • Much lower risk of bad deliveries
Depository • Saving Stamp duty worth 1% of transaction price • Saving Courier & Notary charges
Services • Saving Expenses on obtaining duplicate certificates

AUDIT SAGA
SEBI power to appoint 1 or > persons as Inspecting officer to undertake inspection of BOA,
Regulation 59 Records, docs & infra, systems and procedures or to investigate affairs of depository for: -
• Ensure BOA maintained in manners specified in these regulation
(Board's Right • Look in complaints received from depositories participants beneficial owners or other person.
to Inspect) • Ascertain whether provisions of the Act, bye-laws, regulations are being complied wit
• Ascertain whether systems, procedures & safeguards followed in interest & to secure mkt.
• Ensure affairs conducted in interest of investors or securities mkt.
PART- IV: - ENVIRONMENTAL AUDIT

• Critical analysis of (i) policies (ii) principles (iii) systems (iv) procedures (v) practices &
Meaning
(vi) performances of aspect which relates environment.

• Deal with disclosure by entity of environmentally related data, regarding environmental risks, impacts,
policies, strategies, targets, costs, liabilities or environmental performance to those who have Interest in
such info as an aid to enabling/ enriching their relationship with reporting entity via either Annual report
Standard scope of Environmental Audit defined and adopted by standard companies, be as follows: -
“Mgt tool comprising systematic, documented, periodic & objective evaluation of how well environmental
Scope
organisation, mgt & equipment are performing with aim of helping to safeguard environment by: -
* Facilitating mgt control of environmental Process.
ENVIRONMENTAL AUDIT
* Assessing compliance with company policies, which would include meeting regulatory requirements
• Mgt tool = Part of ICSS & used to assess, evaluate & manage environmental performance of Co.
• Aim & Scope = Green audit may be conducted for many purposes like to comply with laws or CSR
• Differ from EIA = Purpose of Environmental audit is systematic scrutiny of environmental performance
Features
• Systematic = It is a systematic process that must be carefully planned, structured & organized.
• Documented = Like any other audit, base of it its findings are supported by docs & verifiable info.
• Periodic = Conducted at pre-defined intervals as It is a long- term process.
• Objective Evaluate = It is conducted using pre-decided policies, procedures & proper documented
system but still element of subjectivity in audit as required in ISO 14001.
• Enviro Performance = To find out how well Enviro organization, mgt & equipments performing.
* Name and address of the owner/occupier of the industry, operation or process

* Date of last environmental audit report submitted
Probable Format
* Consumption of water and other raw materials as input during current and previous year
* Pollution generated in air & water & output & types of pollutants and the deviation from standard.
* Generate hazardous waste in current yr & previous yr from processes or from pollution control facility.
* Quantity of solid waste generated during current year and previous year from processes from pollution
control facility and from recycling or reutilisation of waste, etc.
* Disposal practice for different type of waste. * Practice sorted for conservation of natural resources.
* Additional investment proposal for environmental protection including abatement of pollution.
I. Executive summary
Contents of Environmental
II. Table of contents: -

* Background * Audit objective
Audit Report
* Audit scope = Whether it is initial audit, audit of only one site, facility or process or audit of whole Co.
* Audit criteria = National law, International agreements, Applicable standards & Industry guidelines
* Audit Team * Audit Schedule * Audit Methodology
* Audit findings * Audit conclusions and recommendations
* Annexes: - - Environment policy and action plan of organization
- Checklists - List of applicable laws and regulations
* Signature of auditor with Date & Place

AUDIT SAGA
ENVIRONMENTAL AUDIT PROCESS
STAGE 1 STAGE 2 STAGE 3 STAGE 4

Pre-audit or Planning Stage On-site or Field Audit Post Audit Follow up OR
Review Stage
• Collect Background Info • Opening conference| • Final findings evaluation Verify actions
• Define Objectives & Scope • Identify areas of concern • Submit preliminary report taken on
• Select audit criteria • Site/facility inspection • Get approval of mgt audit findings
• Select audit team members • Records/ docs review • Hold exit conference or
• Develop audit plan or use protocol • Staff interviews • Submit final report recommend
• Inform - facility • Initial review of findings
• Review background info • Closing/ exit conference
Layout & Sketched in style which will allow adequate provisions for installing pollution control devices &
Design provision for up gradation of pollution control measures & meeting regulations framed by Govt.
MAIN AREAS COVERED BY AUDITOR IN ENVIRONMENT AUDIT OF INDUSTRIAL UNIT
Mgt of It includes air, water, land, energy, raw materials & human resources besides others. Use of all
Resources resources is Inter linked & best uses in synchronised manner results best output &minimum waste.
Pollution Effective system of pollution control to exist & Investigate, whether more measures are required,
Control keeping ill view the type of industry & it’s nature of working with respect to its grade of polluting
System environment.
Emergency plans are to be reviewed periodically; sufficient staff along with

Emergent Safety
other required safety amenities should be kept ready. Staff, remained so
Arrangement
engaged, must possess required awareness and alertness to meet contingency.
Medical & Healthcare Facilities Health of the workers should be a big consideration for mgt.
Industrial Hygiene Proper system in vogue to eliminate industrial unhygienic state
Requirement for safeguarding against occupational health hazards should be available for
Occupational all workers. As occupational health hazards varies from industry to industry due to
Health difference in nature of working atmosphere & pollutants present in it, concerned industry
must pay proper weight age to those diseases which are prone to that particular industry.
Info Info system should be strengthened to generate and its reporting system should be proper,
Assimilation keeping in view, the authorities, responsibilities and subsequent delegations. A report of
& Reporting compliance of all statutory environmental laws along with other preventive & precautionary
System measures should be put to Board at regular intervals.
Environmental Impact Assessment (EIA) is usually pre- requisites to start Industry. This
is done considering known spheres of activities on the existing environmental conditions.
EIA But predictions necessarily deviate from actual happenings when industry starts working.
Methodology To accommodate deviation in system is also to be incorporated in EIA report, if it is noticed
that degradation to environment caused on establishment & running of industry is much
higher than what was predicted, mitigating measures suggested must also be furthered.
Persons directly working with the system, may be unaware of the latest developments and
Compliance to
requirements for the compliance of stipulations and standards prescribed by the various
Regulatory
regulatory authorities, they should be trained and instructed on regular basis, to avoid
Mechanism
making the Board/owner vulnerable to prosecution and penalty.
Concern for Society Audit to look how industry makes balance in own development & society’s concern

AUDIT SAGA
PART- V: - AUDIT OF MUTUAL FUNDS
* Every Asset Mgt company for each scheme to keep & maintain Proper BOA, records & docs, for each scheme.
Proper BOA
* To explain its transactions & disclose at any point of time financial position of each scheme.
* Give true & fair view of State of affairs of fund
* Intimate to Board place where BOA, records and documents are maintained.
* Every Asset Mgt Co. to maintain and preserve for a period of 8 years its BOA, records and docs.
* Asset Mgt Co. to follow accounting policies & standards as in 9th Schedule so as to provide appropriate detail
of scheme wise disposition of assets of the fund at relevant accounting date & performance in that period.
REPORT OF MUTUAL FUND
Give opinion - B/S gives True and fair view of Scheme wise state of affairs as at B/S date &
CONTENTS OF AUDIT
whether - Revenue A/c give True & fair view of scheme wise surplus/ deficit
State - Obtained all info & explanations necessary for audit.

whether - B/S & Revenue A/c in agreement with BOA of fund.
- Statement of A/c prepared as per accounting policies & standards as specified in 9thSchedule.
11th Sch. on Annual • All mutual funds required to get their a/c audited to that effect in their trust deeds.
Report & abridged • Auditor‘s Report shall form a part of the Annual Report.
summary as per • To Accompany the Abridged Balance Sheet & Revenue Account.
SEBI MF Reg. 1996 • Report to Board of Trustees and not to the unit holders.
SEBI may appoint one or more persons as inspecting officer for following purposes: -
Inspection
* Books of accounts maintained by Mutual Funds * Provision of Act complied with.
and Audit
* System procedures are adequate * Provision of Act or rules violated
* Investigate into complaints * Affairs are in interest of investors
• Mark all investments to market (carry investments in B/S at MV)

Requirement of 9th Schedule
• Dividend / Bonus recognized on share quote date on Ex-div / Ex-Bonus basis on S/E. & not on declaration date
• For interest bearing investments, interest income must be accrued on a day-to-day basis.
(Mutual funds)
• To determine holding cost of investment, ‘Average Cost’ method is to be followed.

• Transaction of purchase / sale of investment to be recognized as of trade date & not as of settlement date.
• For open ended scheme, difference between SP & FV of unit should be credited / debited to reserve.
• FV being credited to capital A/c, also treatment of equalization A/c is to be taken care of.
• Fore close-ended scheme, par value of unit to be adjusted to Capital A/c & difference adjusted to reserves.
• Cost of Investment should include brokerage, stamp & any other direct charge.
• Underwriting commission is recognized only if there is no development on scheme.
• Where there is development, full commission received to be reduced from cost of investments.
PART- VI: - AUDIT OF ACCOUNTS OF NON-CORPORATE ENTITIES

RBI, keeping in view need for bringing discipline in matter of maintenance of accounts by non-corporate
Need entities = issued circular to all Banks recommending audit of A/c of all non-corporate borrowers enjoying
of working capital limits of ₹10 Lac & above from banks.
Audit (Necessary for non-corporate entity enjoying such credit facility to submit Audited statements & audit report
to concerned bank as early as possible but in any case not later than 6 months from Close of accounting yr)
Inclusions in Limit = While Computing above Limit, Term borrowing will include borrowing of: -
* Packing credit * Cash credit facilities * Loans-secured & unsecured * Overdraft * Deferred payment
* Performance & Financial guarantees: -
- Bill Discounting Facilities - Other Cr. facilities (except loans, guarantee, LC, etc.)

AUDIT SAGA
• If No ICS = not advisable to do audit by test checks • Consider materiality aspects while auditing.
Audit Procedure
• Obtain info, explanations & access to BOA & records. • Report to Lending Bank as Special Purpose Report.
• Express opinion if FS give True & fair view of State of affairs.
• Non-corporate entity is free to choose any practising CA to conduct this audit.
• If Entity refuses to produce record/ info or explanation = Report same & qualify his report.
• Obtain letter of engagement and list of BOA & other records before taking audit assignment.
• Check compliance with terms of documents, deeds & agreements if relate to accounts & audits.
• Primary responsibility for maintenance of BOA & records & preparation of FS = of non-corporate entity.
Operating • Actual production • Actual production as % of rated capacity • Sales

Data • COGS/ COP • Interest on borrowing & others • Gross margin
= Age-wise classification of RM & FG given in following manner: -
Inventory
• Inventory > 1 yr • 6 months - 1 year • 3 - 6 months. • < 3 months

= Basis of valuation of RM & FG to be given i.e.: -
• Manner to determine of cost • Method of valuing stock i.e. FIFO, weighted average cost, etc
= Given Info about WIP for number of days of production which remains in progress.
= Discrepancy in qty & value of stock as furnished to bank & as appearing in BAO + reasons in report
CLASSIFICATION
Age-wise classification done with Info of following items is also to be given: -

SPECIAL AUDIT REPORT
Receivables (Bills Due

From Domestic Parties
• Tax assessments & payments made in quarter. • Actual disbursement of capital exp in quarter.
& Bills of Exports)
• Overdue statutory liability at end of quarter. • Loans given in quarter.

B/R & Other
• Cash losses in last 2 yrs stated on basis of annual a/c. If such a/c not audited this fact stated.
• Outstanding contracts on capital a/c at end of quarter giving details of names of parties & amt
• Balances at end of each month of quarter for major categories of stock, receivables & B/R
• Investment in quarter & income from such investments including profit on sale of investments.
• Contingent liability which may or may not materialize in FY succeeding relevant quarter.
• Loans raised in quarter from banks & from others. (Separate figures given)
* If auditor finds Funds obtained from lending banks diverted for purposes other than for which they
were given by bank = auditor to give details of diversion for such other purposes
Funds
* Lending bank to ascertain correct financial position & health of entity as auditor give info of: -
From
• Current ratio • Acid test ratio • RM-turnover ratio • FG-turnover ratio
Bank
• Receivables-Turnover ratio • Interest cover ratio • Net margin ratio • Debt equity rat
• Capital turnover ratio • Operating cash flow. • ROI
-
• A lending bank may, in special cases, require the non-corporate entity to obtain special report from auditor.
Meaning
• Such report can be called by lending bank if it finds it is necessary to have more info about working of Co
• In such a case the report will have to be given by the auditor on a quarterly basis.
• Special audit report which is to be given on a quarterly basis in the specified form is in addition to normal
audit report which is to be given by the auditor on a yearly basis.
AUDIT OF PSUs
COMPREHENSIVE AUDIT OF PSU
Audit of PSUs in India covers financial and compliance audit Plus 3 E's- Economy, Efficiency and Effectiveness.
Areas covered (CM IS CM as he manage Sales & plans Purchase economically)

•C = Capacity utilisation/Cost Control Measures. •M = Mgt of Material/Labour.
•I = Investment Decision.
•S = System of project formulation/ R & M
•C = Compare Actual Cost of Capital with planned. •M = Mgt of Equipment.
• Sales = Sales and Credit Control. • Plan = Planned rate of return.
• Purchase = Adequate Purchase Policies. • Economically = Economical Procedures.

AUDIT SAGA
Elements of PSU Audits
Subject matter,
Three parties criteria & Types of
subject matter engagement
Info
Direct
Auditor Responsible Intended Attestation
party users Engagements Reporting
Engagement
• Auditor = Role of auditor fulfilled by Supreme Audit Institution, India & its personnel delegated
Responsible Party &
3 parties = Auditor,
to conduct audits.
Intended users
• Responsible party
- The relevant responsibilities are determined by constitutional or legislative arrangement.
- Auditable entities & TCWG of auditable entities be responsible parties.
ELEMENTS OF PSU AUDIT
- Responsible for subject matter info, to manage subject matter/ address recommendations.
• Intended users = Individuals, org or classes thereof for whom the auditor prepares audit report.
Subject • Subject Matter = Info, condition/ activity measured/ evaluated against certain criteria
PSU AUDIT
Matter,
• Criteria = Benchmarks used to evaluate the subject matter.
Criteria &
Subject • Subject Matter Info = Outcome of evaluating or measuring subject matter against criteria.
Matter Info
• Attestation Engagements = Responsible party measures subject matter against criteria & presents
Engagement
subject matter info, on which auditor then gathers sufficient and appropriate audit evidence to
Types of
provide reasonable basis for expressing conclusion.

• Direct Reporting Engagements = Auditor measures or evaluates the subject matter against criteria.
(Financial audit = always attestation engagements as based on financial info by responsible party)
(Performance audits and compliance audits are generally direct reporting engagements)
Mean
Public Sector auditing augments confidence of intended users by providing relevant info & independent &
objective assessments concerning deviations from accepted Standards or Principles of Good Governance.
Financial Audit Compliance Audit
Financial audit is primarily Compliance audit is Independent assessment of whether a given subject matter is
concerned to: - in compliance with applicable authorities identified in criteria.
• Express Audit opinion on FS Compliance audit is concerned with: -
• Enhance Degree of confidence of • Regularity = adherence to laws, regulations & agreements applicable to entity.
intended users in FS. • Propriety = observations of General principles governing sound financial mgt
& ethical conduct of public officials.
C&AG to express opinion whether Perspective of compliance audit: -Compliance Auditing is conducted either: -
FS prepared , in all material • In relation with audit of financial statements OR
respects as per applicable FRF. • Separately as individual compliance audits OR
• In combination with performance auditing.

AUDIT SAGA
Principles of PSU Audit = General Principles + Principles related to Audit Process
Principles Related to Audit Process

General Principles
Planning the Audit Conducting the Audit Reporting & Follow Up
• Ethics & Independence Establish terms of Audit
• Professional Judgement
• Quality Control Obtain Understanding of Perform the planned Prepare a Report based on
the Entity procedure to obtain audit the Conclusions Reached
• Audit Team Mgt & Skill
evidence.
• Audit Risk Conduct Risk
• Materiality Assessment of Problem
• Audit Risk Analysis
• Materiality Identify Risks of Fraud Evaluate the audit evidence Follow-Up on Reported
• Documentation and draw conclusions. Matters as relevant
• Communication Develop Audit Plan
• Verify transactions on the test of public interest, commonly accepted customs & standards of conduct.
Meaning
• These tests refers to 3 E's = Economy, Efficiency and Effectiveness.

• It shifts the emphasis to substance of transaction.
• Sec 143(6) and 143(7) of Co's Act 2013 empowers CAG to conduct supplementary or test audit.
• It requires transactions (mainly expenses) to conform to certain General principles
PROPRIETY AUDIT
Principles in
* Expense is not prima facie more than the occasion demands and same degree of vigilance is exercised
“Propriety
audit’ of
as exercised in respect of his own money.

PSUs
* Authority exercises power to sanction expenses to pass order which not accrue to its own advantage.
* Funds not utilized for benefit of a particular person/ group.
* Apart from agreed remuneration, no other avenue to benefit mgt personnel, employees & others
Propriety • Section 148 relating to Cost Records and Audit

Elements/
• Sec 143(6) & 143(7) of Co's Act 2013 empowers CAG to conduct supplementary or test audit
Areas of
Propriety • Section 143(1) requiring enquiry into Certain Specified Matters
Audit in Co [Propriety Elements in CARO, 2016 = PARA 3(iii) (vii) (viii) (ix) (x) (xi) & (xv)]
Act, 2013
• Fiscal Accountability = Includes audit of provision of funds, sanctions, compliances & propriety.
Objectives • Managerial Accountability = Includes audit of efficiency, economy and effectiveness.
& Scope of = Also to help the Government & enterprise mgt improve their efficiency and effectiveness.
PSU Audit = Bringing out financial & operational deficiencies, inadequacies or ineffectiveness of systems, shortfalls
in performance, etc. and by analyzing the causes of shortfall from acceptable standards of performance.
Loans & Advances properly secured & Terms not prejudicial to

As per ICAI
Interest of Company & Members
Research
Committee = Shares, debt & securities = Sold at a Price < Acquisition Cost (of
Inquire into Non- Banking & Non Investment Company)
Reporting of
Propriety Loans & Advances made are shown as Deposits
Propriety matters
Matters - 143(1)
only if Auditors Personal Exp Charged to Revenue Account
find Adverse Cash actually got on Shares Allotted for Cash & if not got = Correct
answer to it position shown in Books & Balance Sheet

AUDIT SAGA
Systematic examination for independent assessment of performance of Govt. org program or activity
Meaning so as to improve public accountability (Includes economy & efficiency of program audits)
• Consider significance & needs of potential users of audit report

Auditor while Planning
Factors considered by
• Obtain understanding of program to be audited. • Consider legal & regulatory needs.

Performance Audit
• Identify criteria needed to evaluate matters subject to audit. • Consider mgt controls.
• Provide Sufficient Staff & other resources to do audit. • Prepare Written Audit Plan.
• Identify significant findings & recommendations of previous audits affecting current audit objectives.
• Determine if mgt corrected conditions causing those findings & implemented those recommendations.
• Identify potential sources of data that could be used as audit evidence & consider validity & reliability
of these data, including data collected by audited entity, data generated by auditors or data provided
by 3rd parties.
• Consider whether work of other auditors & experts may be used to satisfy some of auditors' objectives.
PERFORMANCE AUDIT
Committee (PAC)
= Duty of the PAC to examine Statement of A/c of autonomous and semi- autonomous bodies, audit
Public Accounts
of which is conducted by C & AG either under the directions of the President or by a Statute of
Parliament.
= Duty of PAC to satisfy itself: -
• Moneys were disbursed legally on service or purpose they were applied.
• Expenditure was authorized.
• Re-appropriation made as per provisions made (i.e. distribution of funds).
Functions of • Examine reports & accounts of public undertakings • Examine efficiency of PSUs
Committee on • Examine reports of Comptroller & Auditor General on public undertakings
Public • Exercise such other functions as may be allotted by Speaker from time to time.
Undertakings • See they are managed as per sound business principles & prudent commercial practices.
Committee examines estimates with a view to: -

• Report economies, improvements in org, efficiency, consistent to policy of estimates affected
Estimates
• Examine whether the money is well laid out within the limit.
Committee
• Suggest alternative policies.
• Suggest the form in which the estimates shall be presented to Parliament.
STEPS & SECTIONS IN AUDIT OF GOVT CO
SECTIONS STEPS
• Sec 139(5): Appointment of Auditor other than 1st Auditor. * CAG appoints auditor & direct such auditor manner in which
• Sec 139(7): Appointment of First Auditor. accounts of Government co are required to be audited.
• Sec 143(5): Duties of Auditor of Government Companies * Auditor so appointed = submit a copy of audit report to CAG
• Sec 143(6): Powers of CAG to order Supplementary Audit. which, among other things, including following: -
• Sec 143(7): Powers of CAG to order Test Audit. - Directions issued by CAG.
- Action taken & its impact on Accounts & FS

AUDIT SAGA
INTERNAL, MGT & OPERATIONAL AUDIT

PART- I: - INTERNAL AUDIT
• Independent mgt function involving continuous & critical appraisal of functioning of entity with a view to suggest
Internal Audit
improvements thereto and add value to and strengthen overall governance mechanism of entity, including entity’s
strategic Risk Mgt & ICS.
• Internal auditing need not be confined to financial transactions & its scope may be extended to task of reviewing
whether resource utilization of enterprise is efficient & economical.
• Internal Auditor to review & report but not expected to take upon himself functions of operational managers.
Internal Auditor = SECTION 138 read with Rule 13

Following class of companies required to appoint an internal auditor or a firm of internal auditors.
Every Listed Co & Private & Unlisted Public co meeting "any" of criteria below: -
Criteria Unlisted Public Private

Turnover Rs. 200 Cr or more in preceding FY
Outstanding Loans/ Borrowings from Banks/ PFI Exceeding ₹100 Cr or more anytime in Preceding FY.
Paid up Share Capital Rs. 50 Cr or more in preceding FY No such criteria
Outstanding deposits Rs. 25 Cr or more anytime in preceding FY No such criteria
Internal Auditor to be: - • CA (whether or not he is engaged in practice) OR • Cost accountant OR

• Other Professional decided by BODs. (Principle of EJUDEM GENERIS = professional can’t include Doctor / Lawyer)
SCOPE of Internal Auditor’s work includes review of: -

of Internal Auditing
Mgt Functions &
• Accomplishment of goals & Objectives. • ICS & procedures.

• System regarding custodianship & safeguarding of assets = monetary & non- monetary of enterprise.
Scope
• Compliance by various segments with Policies, plans & procedures of Co. & regulations and laws.
• System of collecting data = ensure info given to mgt & to external agencies is relevant & reliable.
• Org structure of the enterprise and its congruence with its objectives.
• Efficient & economical use of available resources tangible as well as intangible.
On basis of such review, Internal auditor highlights weaknesses & suggests for Improvement in Report
* Special expertise necessary for evaluating mgt control systems, especially financial &accounting controls.
* Accounting and finance functions provide basic data for management control of an enterprise.
Internal Auditor
Qualifications of
* Internal auditor must have accounting and financial expertise to be able to discharge his duties.
* Evaluate operational performance and non-monetary, operational controls.
* Basic knowledge of the technology and commercial practices of the enterprise.
* Basic knowledge of Commerce, Laws, Tax, Cost, economics, quantitative methods &EDP systems.
* CA/ CWA/ Other Professional as decided by BODs (not Doctor/ lawyer)
* Understanding of mgt principles & techniques is another essential qualification of Internal auditor
* Provide an assurance to the management that confidentiality of such information would be maintained.
“Factors of
• Scope of work and related audit programme are adequate for the external auditor’s purpose.
Review of
• Work is properly planned & work of assistants is properly supervised, reviewed, and documented.
Internal
• SAAE is obtained to afford a reasonable basis for conclusions reached.
audit
• Conclusions reached appropriate in circumstances & reports consistent with results of work performed.
function by
• Any exceptions or unusual matters are disclosed by the internal auditor’s procedures.
Statutory
• External auditor should document his conclusions in respect of the specific work which he reviewed
Auditor”

AUDIT SAGA
Review of Internal • Review custodianship & safeguarding of assets • Review goals & objects
Control System (ICS) & • Review comply to policies, plans, procedures & regulations • Review use of resources
Procedures • Review relevance and reliability of information • Review org structure
• Objectivity = Maintain credibility of internal audit function; comments & opinions expressed
in the report should be as objective and unbiased as possible.
General • Clarity = Language used should be simple and straight-forward.
Rules/ • Accuracy = Information contained in the report, whether quantified or otherwise be accurate.
Features • Conciseness = Important information should not be omitted.
of Good • Constructive = Destructive criticism should carefully be avoided in the report.
Quality • Readability = Reader’s interest be captured & retained by using Appropriate Para heading
Internal • Timeliness = Submitted promptly as if time lag in event & its reporting is considerable,
Audit opportunity for taking action lost or a wrong decision taken in absence of Info.
Report • Views = Client views about audit conclusions or recommendations included
in Audit report in appropriate circumstances.
• Summary = Of Conclusions & recommendations at end (particularly useful in long reports)
• Identify benchmarks against which actual results of activities, time spent, cost incurred be measured
specifying Coverage
Internal audit plan
• NTE of reports or other communication & audit evidence to be obtained

• Setting the time budget for each of the activities & Involvement of experts
• Effect of new accounting or auditing pronouncements on the audit
of area
• Degree of reliance he expects to be able to place on accounting system and internal control
• Terms of engagement & statutory responsibilities • A/c policies adopted by client & changes in them
• Applicable legal or statutory requirements • Identification of significant audit areas
• Determining NTE of procedures to be performed • Setting of materiality levels for audit purposes
• Establishing and coordinating staffing requirements • Method to physically verify cash & investment
PART- II: - MANAGEMENT AUDIT

BRIEF BEHAVIOURAL ASPECTS ENCOUNTERED IN MGT
• Financial auditors deal mainly with figures.

Behavioural
• Mgt auditors deal mainly with people.
Aspects
• Many causes for behavioural problems arising in review function of mgt audit.
Encountered
• Nature & causes of behavioural problems that mgt auditor is likely to face in discharge of
in Mgt Audit
review function that is expected of him
AUDIT & WAYS TO SOLVE THEM
Staff / * Mgt auditors are staff people while members of other departments are line people.
Possible Solutions to overcome these problems
Line * They to discount difficulties line staff may face, if called on to act on ideas of mgt auditor
conflict * They are specialists in their field & may think their approach & solutions is only answer
* Mgt auditor is expected to evaluate effectiveness of controls there is instinctive reaction

from client that report of auditor may affect them.
Control * Fear that action taken based on mgt audit report will affect line people. Causes are: -
- Fear of criticism as a result of adverse audit findings
- Fear of change in working habits as changes due to audit recommendations
- Insensitive audit practices - Hostile audit style
* Demonstrate that audit is part of overall programme of review for protective benefit
behavioural
Solution to
* Demonstrate objective of review is to provide max service in all managerial dimensions.

problems
* Demonstrate Review will be with minimum interference with regular operation.

* Responsible officers involved in process of review of findings & recommendations before audit
report is formally released.
* Create an atmosphere of trust and friendliness.

AUDIT SAGA
Evaluation of functions of top mgt which: -

• Lays down objectives and policies.
Objective
• Provide means & procedures to implement, control &engage in direction & control on
continuous basis.
Effectiveness: - Evaluation of relevance & effectiveness of aims, duties & decisions of

mgt at various levels.
SCOPE
Effectiveness
Efficiency: - Review of efficiency in mgt decisions & functions and to judge whether: -
& Efficiency
• Management is doing the correct things
• Management is doing those things correctly.
• Financial Managements. • Installed capacity.

Covered
Aspects
• Purposes of organization. • Mgt Structure. • Internal controls.

• Reports required by mgt. • Nature of production of Business. • Production planning.
• Personnel policy. • Factory layout & design • Material management.
• Sales management. • Decision making process. • Books and Records.
MANAGEMENT AUDIT
• For Detecting & overcoming current managerial deficiencies in ongoing operations

Desirability
• Managerial problems & related operational difficulties can be spotted before fact
• Mgt tool to assist the organization in accomplishing desired objectives.
• Helpful in case of ailing industries, to isolate problems and account for their ailments.
• Important if such industries are either to be taken over by government or to be heavily financed by
financial institutions with a view to bring back vigour in them.
Develop Mgt * Devising Statement of policy * Location of audit function in org * Allocate personnel
Audit Program * Staff training programme * Time and other aspects * Frequency
• Getting the facts through interviews • Measuring performance by Mgt Audit Questionnaire
Conduct • Once top mgt has decided on scope, staffing & frequency of mgt audit, next phase is
Mgt undertaking of actual audit.
• This involves investigating & analyzing present facts through interviews as well as
Audit
STPES
completing mgt questionnaire so as to determine problems confronting org.
• Prepare Mgt audit report that covers details of mgt auditor’s findings & recommendations
Conclude Mgt
• To assist in preparation of final report mgt auditors normally meet with mgt & other concerned
personnel for discussing freely aspect or finding of audit.
Audit
• Assists independent 3rd party in bringing together important elements of audit as well as
determining appropriate recommendations.
• Comprehensive investigation involves report that is very broad in scope, while a smaller-scale
investigation of 1 or 2 functional areas will result in a less comprehensive report.
* Important tool for conducting mgt audit

Meaning
MGT AUDIT QUESTIONNAIRES
* Auditors Inquires important facts by measuring current performance by these

• Comprehensive and constructive examination of org mgt & assigned tasks
• Appraisal of mgt actions in accomplishing organization’s objectives
Objectives • Highlight weaknesses & deficiencies of organization
• Review of mgt functions of planning, organizing, directing & controlling
• 3 possible answers to mgt audit questions: “Yes”, “No” and “N.A.”.

• Mgt audit questionnaire does not give answers, but simply asks questions.
Working • If all questions are answered with ‘yes’, operations are proceeding as desired.
• If > 1 ‘no’ answers, difficulties experienced & must be explained in writing.
• If question does not apply, N.A. (not applicable) column is checked.
Serves as mgt tool to analyze current situation & enables mgt auditors to identify those
Importance
elements that are causing org. difficulties and deficiencies.

AUDIT SAGA
Meaning • Written report is the medium by which the comments, criticisms and recommendations of mgt audit
department are conveyed to the Board, to functional directors and to mgt in general.
• Mgt audit reports will inevitably cover a wide variety of subjects, reflecting the many and ever
increasing ramifications of mgt audit departments.
* Reports prepared by mgt audit staff after their visits to a unit

Categories
* Periodical reports prepared by senior members of mgt audit department which summarize main audit
findings & recommendations for the period under consideration and which afford a concise review of
department’s activities for that period.
MANAGEMENT AUDIT REPORTS
* Reports on the results of special investigations and inquiries. * Annual audit report.
* In many situations, reporting of results will be on oral basis& required a result of emergency needs.
reports
* It has a major limitation that there is no permanent record.

Oral
* As a result there are more likely to be later misunderstandings.

* This type of reporting be used carefully for specially matters covered by emergency oral reporting &
to be followed up immediately by written report giving reference to oral Reporting.
Interim * When deemed advisable to inform mgt of significant developments during audit or at least
written preceding release of regular report.
* Pertain to especially problems where need for early consideration or report may be of
reports
TYPES
progress nature.
Regular * Particular audit assignment includes preparation of a formal written report.

written * Form and content of such written reports will vary widely, both as between individual
audit assignments & individual companies.
reports * They may be short or long.
* Referred to as ‘flash’ reports.

Summary
written
reports
* Practice in some companies is developed of issuing an annual report summarizing various

individual reports issued describing range of their content.
* Primarily for audit committees of BODs, but in other cases for higher level mgt.
* Useful to top level mgrs who not actively review individual reports. .
Summary Written Report/ Organization of Mgt Audit reports (MAR)

* Title * Objectives * Scope * Findings, conclusions & opinions
* Recommendations * Client views * Summary
PART- III: - OPERATIONAL AUDIT
Difference in Internal Auditing & Operational Auditing

Over a period of time, the scope of internal auditing has been widened so as to all operations besides accounting and
financial operations. So in present time, there is no difference between the two above.
OPERATIONAL AUDITING INTERAL AUDITING
Concerned with review & appraisal of operations of organization Concerned with Determining whether other
carried on by competent independent person. internal controls are well designed and in place.
Not part of Internal Control System (ICS) Part of internal control system.
Constructive function (provide suggestions for improvement) Protective function (safeguard assets of enterprise)
Analyzes all aspects of operations whether they are in tune with mgt Focuses more on Quantitative aspects.
policies, objectives & Goals.

AUDIT SAGA
• Audit is review & appraisal of operations of org. conducted by competent independent person.
Meaning • It analyses regular operations like production, purchases, sales etc. to check whether they are in tune
with company’s policies, objectives & goals or not.
• It focuses more on Qualitative aspects of operations rather than regular accounting aspects.
• Operational auditing arose from need of managers responsible for areas beyond their direct
observation to be fully, objectively & currently informed about conditions in units under control.
Need/ Why
• Traditional sources of info remain ineffective where mgt is at a distance from actual operations due to
layers of delegation of responsibility, separating it from actualities in the organization.
• It is specialized mgt info tool to fill the void that conventional info sources fail to fill.
• Conventional sources of Mgt info are departmental managers, routine performance report, internal audit
reports & periodic special investigation and survey.
* Appraisal of controls = Determine whether controls are adequate.

Objectives & Scope
* Evaluation of performance = In performance evaluation, operational auditor heavily dependent on

availability of acceptable standards
OPERATIONAL AUDIT
* Appraisal of objectives & plans = In Performance Appraisal, operational auditor accumulates info &
evidence to measure effectiveness, efficiency & economy with which operations carried on.
* Appraisal of org. structure = Consider whether structure is in conformity with mgt objectives & drawn
up on basis of matching of responsibility & authority.
Factors • Job Stress & work life imbalance • Wrong policies of Mgt
considered for • Unbearable behaviour of Senior Staff • Safety factors
Analysis of • Limited opportunities for promotion • Low monetary benefits
high employee • If organization has properly qualified & experienced personnel for various levels of works?
attrition rate • Is number of people employed at various work centres excessive or inadequate?
• Deals with > 1 functions in organization like payroll for division or for company as whole.
Functional • Permit specialization by auditors as more efficiently spend all their time auditing in that area.
Audits
• A disadvantage of functional auditing is the failure to evaluate interrelated functions.
• Deals with an entire organizational unit, such as a department, branch, or subsidiary.

TYPES
Organizational • Emphasizes how efficiently and effectively functions interact.

Audits • Plan of organization and the methods to coordinate activities are especially important
in this type of audit.
• In operational auditing, special assignments arise at the request of management.

Special • There are a wide variety of such audits.
Assignments • Examples include determining cause of ineffective IT system, investigating possibility of
fraud in division & making recommendations for reducing cost of manufactured product.
Basis FINANCIAL AUDITING OPERATIONAL AUDITING

Purpose Concerned with opinion that whether historical info recorded Emphasizes on effectiveness &efficiency
is correct or not of operations for future performance.
Area Restricted to matters directly affecting appropriateness of Covers all activities related to efficiency &
presented FS effectiveness of Co. operations.
Reporting Report is sent to all stock holders, bankers & other persons Report is primarily for mgt.
having interest in organization.
End Task It reports findings to person as its end objectives. It is not limited to reporting
but includes suggestions for improvements.

AUDIT SAGA
Management Audit & Operational Audit are complementary & supplementary to 1 another
Since Having large area of overlapping jurisdiction it may be convenient to consider them together to avoid duplication. So
expression “Mgt & operational audit” acceptable as Mgt audit including in its scope all elements of operational auditing
Management Audit Operational Audit

Audit of Management Audt for management
Wider Narrow
Quality of Managing Quality of operational effectiveness
Undertaken for appraising mgt. accomplishment of organizational objectives, Undertaken at the instance of management for
mgt. functions to plan, organize, direct & control adequacy of providing it with information & appraisal of
mgt decisions & actions with respect to objectives. operations & activities.
Auditor evaluates decisions taken at the level of Auditor evaluates effectiveness, efficiency &
top management, its formulation of objectives, economy of operations under mgt. control
plans and policies and its decision making. along with recommendations for improvement.
AUDIT OF DIVIDEND
Check if dividend declared out of profits after depreciation u/s 123(2) of Act & whether: -
Steps to ensure Dividend
Paid only out of profit
* Depreciation provided as per Schedule II to Act * Board resolution recommending dividend passed.
* Dividend was declared only in AGM. * Register of members was closed u/s 91 of Act.
* Dividend declared in GM not > amt recommended by Board.
* Amount paid/ credited as paid on Share in advance of calls = not treated as paid on share.
* Dividend paid in prescribed manner in 30 days of time u/s 123(5).
* Dividend deposited in Separate Bank A/c in 5 days from Date of declaration of dividend.
* Intimation sent to Stock Exchange in case of listed company.
* If corrective action taken on complaints of non-payment/ delayed payment of dividend?
• Examine MOA & AOA to ascertain dividend rights of different classes of shares
• Confirm dividend is made out of distributable profits u/s Sec. 123.
Steps to Verify/ Audit
• If dividend made out of reserves, examine compliance of conditions as set out in rules.
• Inspect shareholders’ Minute Book to verify dividend declared.
Dividend
• Examine if dividend payable is deposited in Separate bank a/c in 5 days of declaration of dividend.
• Check particulars of members as entered in Dividend List by reference to Register of Members.
• Check amount of dividend paid with dividend warrants surrendered.
• Verify if dividend unclaimed or unpaid in 30 days of declaration = transferred to “Unpaid Dividend A/c”
in 7 days from date of expiry of 30 days.
• Verify if Unpaid or unclaimed dividend amt after 7 years from date of transfer = transferred to IEPF.
* Where instrument of Transfer of shares delivered to company for registration &Transfer of shares
& Bonus Shares Held In
Registration of Transfer
Dividend, Rights Shares
Section 126 (Right Of
not Registered by company, company shall: -

Abeyance Pending
- T/f dividend on such shares to Unpaid Dividend A/c unless co. authorized by Registered
of Shares)
holder in writing to pay such dividend to Transferee specified in such instrument of transfer
- Keep in abeyance on such shares = offer of rights shares & issue of fully paid-up bonus shares
* Final Dividend once declared in AGM cannot be revoked by BOD.
* Before declaration of dividend in AGM = dividend recommended by BOD may be revoked for
just & proper reasons

AUDIT SAGA
Dividend declared/ paid for FY only: -

123 (1) Source of • Out of profits for that yr arrived after providing for depreciation OR
Dividend • Out of profits for any previous FY after depreciation & remains undistributed OR • Out of both OR
• Out of money provided by CG/ SG for payment of dividend (Guarantee given by Govt.)
1st Proviso =Transfer to reserves = A co. may before Declaration of dividend in FY: -
• T/f % profits for that FY as considers appropriate to Reserves of company.
• Such transfer not mandatory & % transferred to reserves decided at Discretion of co.
2nd Proviso = N/A to Govt. Co in which entire paid up s/c held by CG/ SG(s) or both
Declare dividend out of
acc profits = Rule 3 of
Payment of Dividend)
If inadequacy/ absence of profits in any year, a co may declare dividend out of free reserves if: -
Co. (Declaration &
* Rate of dividend declared not > Average of rates of dividend declared by it in 3 yrs
Rules, 2014
immediately preceding that yr. (This N/A if co not declared dividend in each of 3 PFYs)
(SEC 123) DECLARATION OF DIVIDEND
* Total amount to draw from accumulated profits not > One-Tenth (10%) of paid-up s/c & free
Reserves as appearing in latest Audited FS
* Amount drawn 1st be used to set off loss in FY in which dividend is declared before dividend
on equity shares is declared.
* Balance reserves after withdrawal not to fall below 15% of paid up s/c as in latest Audited FS.
• BODs may declare Interim Dividend during any FY till holding AGM out of Surplus in P/L or
out of profits of FY for which such Interim dividend is sought to be declared OR out of profits
123(3)
of FY till end of quarter immediately preceding date of declaration of Interim dividend
Interim
• If company incurred loss in Current FY up to end of quarter immediately preceding date of
Dividend
declaration of Interim dividend, such interim dividend not declared at Rate > Average dividends
declared by company in immediately preceding 3 FYs.
123(4) Dividend (including interim dividend) = to be deposited in Scheduled bank in Separate a/c in 5
Depositing days from Date of declaration (N/A to Govt. Co where entire paid up s/c held by CG/ SG(s) or
Dividend both)
123(5) • Dividends paid in Cash/ CHEQUE/ Warrant/ E- Mode to Registered shareholder/ his banker
Payment • 123(5) not prohibits capitalization of profits/ reserves for issuing fully paid-up bonus shares
of • This sub-section N/A to NIDHI Company. But any dividend payable in cash may be paid by
dividend Crediting same to account of member, if dividend not claimed in 30 days from date of declaration
Prohibition on Declaration of Dividend = Company failing to comply with: -

123(6) * Sec 73 (Prohibition on acceptance of deposits from public) &
Contravention * Sec 74 (Repayment of deposits accepted before commencement of Act)
= As long as failure continues, not to declare Dividend on Equity Shares.
SECTION 127 (PUNISHMENT FOR FAILURE TO DISTRIBUTE DIVIDENDS)

Where Dividend declared = not
paid or warrant not posted in 30 Exceptions i.e. no offence if This section N/A
days from Date of declaration
* Every Director of company if * Dividend not paid by operation of law. To NIDHI company where dividend
knowingly a party to default = * Shareholder directions to co. on payment payable to member is < ₹100 &
punishable with imprisonment of dividend & those directions can’t be sufficient compliance of provisions of
up to 2 yrs & Fine > ₹1,000 for complied & same is communicated to him. section, if declaration of dividend
every day that default continues * Dispute on Right to receive dividend. announced in local language in 1 Local
* Company to pay Simple * Dividend lawfully adjusted by company newspaper of wide circulation &
interest @ 18% p.a. for time against any sum due to it from Shareholder displayed on Notice board of NIDHIS
default continues. * For other reason failure to pay dividend or for at least 3 months.
to post warrant wasn’t due to default of co.

AUDIT SAGA
125(1) Authority Establishment of Fund by CG
• Amount given by CG as grants after appropriation by Parliament by law.

• Donations by CG, SG, Companies or other institution for Fund.
• Unpaid Dividend A/c companies transfer to Fund u/s 124(5).
125(2) Credit to fund
• General revenue a/c of CG transferred to account u/s 205 remaining unpaid/ unclaimed on
commencement of Act.
• IEPF lying u/s 205C of Co. Act 1956.
• Income from investments as Interest or other income on investments of Fund.
• Amount received on disgorgement or disposal of securities.
• Application money got for allotment of securities & due for refund + Interest accrued
• Matured deposits with companies other than banks + Interest accrued
• Matured debentures with companies + Interest accrued
SECTION 125 (INVESTOR EDUCATION AND PROTECTION FUND (IEPF)
• Amt of sale proceeds of fractional shares of bonus shares, merger & amalgamation for 7 or more yrs.
• Redemption amount of preference shares remaining unpaid/ unclaimed for 7 or more years.
• Refund of unclaimed dividends, matured deposits & debentures, application money refund & interest
Utilization of Fund
thereon.
• Promotion of investors’ education, awareness and protection.
125(3)
• Distribution of amt to eligible & identifiable applicants for shares/ debt holders/ depositors who
suffered losses due to wrong actions by person as per orders by Court.
• Reimbursement of legal expenses on suits by members, debt-holders or depositors as sanctioned by
Tribunal.
• Other purpose incidental thereto as per rules as prescribed.
125(4) Application of Person claiming amount u/s 124(2) = may apply to Authority u/s 125(5) for
Claim payment of money claimed.
125(5) Authority for CG constitutes by notification = Authority for admin of IEPF consisting of
admin of fund Chairperson & other members not > 7 & CEO as CG may appoint.
125(6) Handling Manner of admin of Fund, appointment of chairperson, members & CEO and holding of
Fund meetings of authority = as per rules prescribed under IEPF Authority Rules, 2016.
125(7) CG Provides CG may provide to authority such offices, officers, employees & other
Resources to Administer resources as per IEPFAuthority (Appointment of Chairperson & Members,
fund holding of meetings & provision for offices & officers) Rules, 2016.
125(8) C&AG Authority to administer Fund & maintain separate a/c & relevant records in
consultation relation to Fund in form as prescribed after consultation with C& AG.
125(9) Right of Authority Competent for authority constituted u/s 125(5) to spend money out of Fund to
to spend money carry objects.
Accounts of Fund = audited by CAG of India at intervals as specified &

125(10) Audit of Fund
Audited a/c + Audit Report = forwarded annually by authority to CG
125(11) Authority to prepare in form & at time for each FY as prescribed its annual report giving full
Annual account of activities during FY & forward copy to CG & SG & to be laid before each House of
Report Parliament

AUDIT SAGA
124 (1) = T/f to * Declared dividend not paid/ claimed in 30 days from Declaration
Unpaid * T/f dividend remaining unpaid/ unclaimed to Special A/c (to be opened by company in that
Dividend A/c behalf in scheduled bank as “Unpaid Dividend A/c” ) in 7 days from expiry of said 30 days.
Particulars
Company in 90 days of making any transfer of amt u/s 124(1): -
Statement
124 (2) =
• Prepare Statement of Names, last known addresses & unpaid dividend payable to each person &
of
SECTION 124 (UNPAID DIVIDEND ACCOUNT)
• Place it on web-site of company (if any) &

• Also on any other web-site approved by CG for this purpose in manner & particulars prescribed.
124(3) • If default in transferring Total amount/ part thereof to Unpaid Dividend A/c = Pay from Date of
Default default = Interest on it @ 12% p.a. &
in T/f • Interest on it to benefit Members of company in proportion to amt remains unpaid to them.
Person claiming entitlement to money transferred u/s 124(1) = may apply to
124(4) Apply for Claim
company for payment
* Any money transferred to Unpaid Dividend A/c remaining unpaid or unclaimed for 7 yrs from
124(5) Date of such transfer
T/f to * Transferred to Investor Education & Protection Fund (IEPF) with interest to Fund u/s 125(1)
IEPF * Company to send Statement of details of transfer to authority which administers said Fund
* That authority to issue Receipt to company as evidence of T/f.
124(6) * All shares on which dividend not paid/ claimed for 7 consecutive years or more = transferred
Transfer of in name of IEPF with Statement of details.
shares to * Any claimant of shares transferred above = entitled to claim shares from IEPF by procedure
IEPF on submission of docs prescribed.
Prohibition on Declaration of Dividend = Company failing to comply with: -

124(7) * Sec 73 (Prohibition on acceptance of deposits from public) &
Contravention * Sec 74 (Repayment of deposits accepted before commencement of Act)
= As long as failure continues, not to declare Dividend on Equity Shares.
Prohibition Co. having license u/s 8 (Formation of Company with Charitable objects) of Act are prohibited from
on Sec 8 Co. paying any dividend to members (their profits to be applied only for promoting objects of company)
LIABILITIES OF AUDITOR
Over the Co & Officer in Company = Fine from Rs. 25,000 to Rs. 5 Lac
Sec. 147 – Punishment for Contravention
default – 147(1) Officer in Default = Imprisonment to 1 yr

{Violation of Sec. 139 - 146} or Fine 10,000 - 1 Lac or Both
Fine Rs. 25,000 to Rs. 5 Lakh OR 4 Times the Remuneration of Auditor
Over the Auditor – 147(2) (Whichever less)
{Violate Sec 139, 143, 144,
145} Willful default = Imprisonment up to 1 yr & Fine Rs. 50,000 - Rs. 25 Lac
OR 8 Times the Remuneration of Auditor (Whichever less)
If auditor convicted u/s 147(2) = Liable to Refund Remuneration received by him to company &
Pay for damages to company, statutory bodies or authorities or to members or creditors of Company for loss arising
out of incorrect or misleading statements of particulars made in his audit report.
Measures for prompt payment of Damages147(4): -
* CG by notification, specify any statutory body or authority or an officer for ensuring prompt payment of
damages to company. * Such body, authority or officer shall pay damages to such company or persons.
* File report with CG on making such damages in manner specified in notification.
147(5) = If criminal liability of audit firm, in respect of liability other than fine = concerned partner or partners,
who acted in a fraudulent manner or abetted or colluded in any fraud shall only be liable.

AUDIT SAGA
Sec 34 = Criminal Where prospectus circulated/ issued/ distributed (CID) including statement which is
Liability for untrue or misleading or inclusion or omission of any matter is likely to mislead = Every
CRIMINAL LIABILITIES IN CO ACT
Misstatements in person who authorize issue of such prospectus = Liable u/s 447 (Fraud)
Prospectus
Sec 448 = Criminal If in Return, Report, Certificate, F.S., Prospectus, Statement or Other doc under this law,
Liability for any person makes statement: -
(a) Which is false in material particulars, knowing to be false. OR
making False
(b) Which omits material fact, knowing it to be material.
Statement = Liable u/s 447 (Fraud)
Person guilty of Fraud = punishable: -

• Imprisonment = 6 months – 10 yrs &
• Fine not Less than amount involved in Fraud but may extend to 3 Times amt
Sec 447 =
involved in fraud. (If fraud on Public interest = Imprisonment not < 3 yrs)
Punishment for
Fraud u/s 447
Where fraud involves amt < 10 lakh or 1% of Turnover of company (whichever
lower) & not involve public interest = Person guilty of such fraud punishable with
imprisonment upto 5 years OR Fine upto 50 lakh OR Both.
t
Sec 35: Civil liability for Misstatements in Prospectus

Person subscribed for securities acting on statement included or inclusion or omission of matter, in Prospectus
which is misleading & sustained loss or damage as consequence, Company & person who: -
CIVIL LIABILITIES UNDER CO ACT, 13
• Is Director of company at Time of issue of Prospectus. • Is Promoter of Company

• Has Authorized him named & is named in Prospectus as director or agreed to become such director,
either immediately or after an interval of time. • Authorized Issue of Prospectus & is Expert.
= Liable to pay compensation to every person who sustained such loss or damage.
NO PERSON LIABLE ABOVE, if he prove: -
* Consented to be director = BUT withdrew consent before issue of prospectus & was issued
without his authority or consent OR
* Prospectus issued without his knowledge or consent & on becoming aware of its issue, he gave
reasonable public notice that it was issued without his knowledge or consent.
Notwithstanding anything ABOVE, where it is proved that prospectus issued to defraud applicants, other person
or for any fraudulent purpose = Every person referred ABOVE: -
* Personally responsible without any limitation of liability, for all or any of the losses or damages incurr
by any person who subscribed to the securities on the basis of such prospectus.
* Expert in 2(38) of Co Act, 2013 includes Engineer,Valuer, CA, CS, Cost accountant & other person
who has power or authority to issue certificate in pursuance of any law for time being in force.
(The liability would arise if the written consent of the auditor to the issue of the prospectus, including the report
purporting to have been made by him as an “expert” has been obtained)
• Person convi-cted of offence connected with Income Tax proceeding or on whom penalty
LIABILITIES UNDER INCOME
imposed under said Act is disqualified from representing ASSESSEE.

• CA found guilty of professional misconduct by Council of ICAI, can’t act as representative for
Sec 288 = Disability as to
Represent ASSESSEE
time that order of Council disqualifies him from practicing.

TAX ACT, 1961
If any person: -
* Who is Legal practitioner or accountant is found guilty of misconduct in professional capacity
by any authority entitled to institute disciplinary proceedings against him = order passed by that
authority shall have effect in relation to his right to attend before an income-tax authority as it
has in relation to his right to practice as a legal practitioner or account, as the case may be
* Who is not a legal practitioner or an accountant, is found guilty of misconduct in connection
with any income-tax proceedings by the prescribed authority = prescribed authority (Chief
Commissioner or Commissioner having requisite jurisdiction) may direct that he shall be
disqualified to represent assesse.

AUDIT SAGA
LIABILITIES UNDER INCOME TAX ACT, Any person who acts or induces another person to make & deliver to Income Tax
Authorities false account, Statement, or Declaration relating to any Taxable income
Sec 278 = False knowingly false or does not believe to be true is punishable with =
Representation * FINE + Imprisonment = 6 months - 3 years = Tax, penalty or interest evaded > 25000
& Willfully accept/ attempted it
* FINE + Rigorous Imprisonment = 3 months - 2 years = In other case
Sec 271 J
1961
Accountant/ Merchant Banker/ Registered VALUER = Furnish Incorrect Info in report/

(Newly
certificate = AO or Commissioner (Appeals) to direct to pay 10000 Rs. For each such
Inserted by FA
report/ certificate as penalty.
2017)
• CA as Authorized representative prepared Return = has to furnish to AO, particulars

of Accounts, Statements & other docs supplied to him for Preparation of Return.
Rule
• Where CA Examine records = he to submit Report on Scope & results of exam.
12A
• If this report contains false info & which CA either knows or believes to be false = he liable to
Rigorous imprisonment which may extend to 7 yrs & Fine
AUDIT UNDER FISCAL LAWS (TAX AUDIT)

• Profession gross receipts > Rs.50 Lac in any previous year {Clause (b) of 44 AB) OR
Applicability of Tax
• Business Turnover/ Total Sales/ Gross receipts > Rs.1 Cr in any previous yr {Clause (a) of 44 AB) OR
Audit u/s 44 AB
• Person carrying business referred u/s 44AE/44BB (Exploration of mineral oil)/ 44BBB (Foreign co engaged
in Civil Construction) & declaring lower income than prescribed under those sections in PY
{Clause (c) of 44 AB). OR
• Person carrying business u/s 44 AD & declaring lower income than 44 AD & his income > max exempted
limits.{Clause (d) of 44 AB}
TURNOVER
Particulars Deducted from Turnover or not
Discount allowed in Sale Invoice Yes

Cash discount given in cash memo/sales invoice Yes
Cash discount not given in cash memo/sales invoice Treated as financing charge & Not to be deducted.
Turnover discount in nature of Trade discount Yes
Special rebate in nature of Trade discount Yes
Special rebate not in nature of Trade discount Not to be deducted.
Price of goods returned Deducted if returns are from sales made in earlier yrs.
(For Speculative Transactions = Difference of Sale & Purchase = Turnover)
• Applicability of the relevant export /excise exemptions • Procedural non-compliance

Areas of Concern in
• Non Availability or short / excess Availability of export incentives

Audit of IDT
• Goods imported duty free or payment at concessional rates without properly complying with conditions
• Valuation Issues – valuation not in line with customs rules
• Valuation of goods not removed using valuation methods not in line with Central Excise Valuation Rules.
• Ignoring Liability under Service Tax on services provided or availed
• Passing on of duty suffered on imported goods and of locally manufactured goods in excess of actual.
• Utilisation / Availability of credit of duty/ tax paid on inputs, capital goods of input services.

AUDIT SAGA
Amendment in CLAUSE 31 OF FORM 3CD
Clause 31 (a) = Particulars of each loan or deposit > limit specified in Sec 269SS taken or accepted in previous year: -
* Name, address & PAN (if available with assesses) of lender or depositor * Amount of loan or deposit taken or accepted
* Whether loan or deposit was squared up in previous yr * Max amt outstanding in a/c at any time in previous yr
* Whether loan or deposit taken or accepted by CHEQUE/ DD/ ECS through bank account
* If loan or deposit was taken or accepted by CHEQUE/ DD, whether same was a/c payee cheque
(These particulars not be given if Govt. co, bank or corporation established by CG, SG or Provincial Act)
Clause 31 (e) = Particulars of repayment of loan or deposit or specified advance > limit specified in Sec 269T received by
CHEQUE/ DD which is not account payee during previous year: -
* Name, address & PAN (if available with assesses) of lender or depositor
* Amt of loan or deposit or specified advance received by CHEQUE/ DD which isn’t a/c payee cheque in previous yr
* Whether loan or deposit was squared up during previous year
NOTE: - * Sec 269 SS of Income Tax Act = Loan/ deposit > Rs 20,000 to be only by CHEQUE/ DD/ ECS
* Sec 269 T of Income Tax Act = Loan/ deposit > Rs 20,000 to be only by CHEQUE/ DD/ ECS
* Sec 44AB apply when turnover exceeds Rs 1 Cr but benefit 44AD is available (i.e. option of 8% presumptive
income or 6 % if digital payment is made) if turnover is up to Rs 2 cr.
* Sec 44AD tax audit N/A to commission income.
INSERTIONS in FORM 3CD
Clause 13 (d) = Whether Adjustment is required to be made to the profits or loss for complying with provisions of income
computation and disclosure standards notified under section 145(2).
Clause 13 (e) = If answer to (d) above is in the affirmative, give details of such adjustments: -
S.N. Particulars Increase in profit Decrease in profit Net effect
ICDS I Accounting Policies X X X
ICDS II Valuation of Inventories X X X
TOTAL XX XX XX
Clause Particulars required to be furnished u/s 44AB of Income-tax Act, 1961
1 Name Clause: - Person whose accounts are being audited u/s 44AB to be given.
2 Address Clause: - Address same as communicated by Person to Income-tax Dept. for assessment purposes
as on date of signing of audit report.
3 PAN allotted to Person indicated. (in E-filing = PAN is mandatory)
Details of IDT Registration (Person liable to pay IDT like Excise, Service Tax, GST, VAT, Custom
4 (If yes, please furnish Registration no. or any other identification number allotted for same)
5 Status of Person mentioned (Individual, HUF, Co, Firm, AOP etc)
6 Previous Year (Period of previous year to be stated)
7 AY relevant to previous yr for which accounts being audited = mentioned.
8 Under which Clause of Sec 44AB audit conducted = mentioned by auditor.
(a) If firm or AOP, indicate names of partners/members & PSR.
9 (b) If change in partners/ members/ PSR since last date of preceding year = particulars of change.
(a) Nature of business or profession
10 (If > 1 business or profession carried in previous year = Nature of every business or profession)
(b) If change in nature of business or profession = particulars of such change.

AUDIT SAGA
(a) Whether BOA prescribed u/s 44AA (If yes = List of books so prescribed)
(Example: - Mentioning Stock book and register not maintained).
(b) List of BOA maintained & address at which BOA are kept.
11 (In case BOA maintained in a computer system, mention BOA generated by such computer system. If
BOA are not kept at 1 location, please furnish Addresses of locations along with details of BOA
maintained at each location)
(c) List of BOA & nature of relevant documents examined.
Whether P/L includes any profits & gains assessable on presumptive basis.
12 {If yes indicate amt & section (44AD, 44AE, 44AF, 44B, 44BB, 44BBA, 44BBB, etc)}
(a) Method of accounting employed in previous yr
(b) Whether change in method of accounting employed in comparison to method in previous yr
13 (c) If answer to (b) above is in affirmative = give details of such change & effect thereof on P/L.
(d) Details of deviation in method of accounting employed in previous yr from AS prescribed u/S 145
& effect on P/L.
(a) Method of valuation of closing stock employed in previous yr.
14 (Link with AS-2 i.e. FIFO to LIFO but if change is LIFO to FIFO = reporting required but we will
mention that this is a bona fide change and meets requirement of AS-2.)
(b) If deviation from method of valuation prescribed u/s 145A & effect on P/L
Amounts not credited to P/L being: -
(a) Items falling in Scope of section 28.
(b) Performa credits, drawbacks, refund of duty of customs or excise or service tax or sales tax or VAT
(c) Escalation claims accepted during the previous yr.
(d) Any other item of income.
16 (e) Capital receipt (i.e. Capital receipts Taxable u/h PGBP & not Capital Gain) {CG goes CP}
• C = Capital subsidy in nature of promoters contribution. • G = Govt. Grants for Fixed Assets.
• C = Compensation for surrender of Certain Rights. • P = Profit on Sale of Fixed Assets.
Where any land or building or both is transferred during the previous year for a consideration less than
17 value adopted or assessed or assessable by any authority of SG referred to in section 43CA or 50C, please
furnish: - Details of property ,Consideration received or accrued, Value adopted or assessed or assessable.
18 Particulars of depreciation allowable in Income-tax Act, 1961 of each asset or block of assets.
19 Capital exp on scientific research assets & entire Sec 35 series of PGBP & 32 AC, AB, ABA.
(a) Furnish details of amt debited to P/L, being in nature of capital, personal, advertisement exp etc.
(i.e. Any expenditure not disallowed u/s 37 or personal expense not debited in P & L.
(Ex: - Expenditure incurred on club, If same is incurred by co to meet personal exp of Director report.)
(b) Amounts inadmissible u/s 40(a) (i.e. when TDS not deducted or not deducted in due date = give details
21 of amt ,date of payment, Name & Address of payee)
(c) Amt debited to P/L = interest, salary, bonus, commission or remuneration inadmissible u/s 40(b)/ 40(ba)
(d) Disallowed income/ expenses i.e. Disallowance/deemed income under section 40A (3).
(i.e. Cash payment> Rs.10000.However exceptions given in Rule 6DD must be kept in mind).
22 Amt inadmissible u/s 23 of Micro, Small & Medium Enterprises Development Act, 2006.
Particulars of payments made to persons specified under section 40A (2) (b) (Related party).
23 Example: - Rent paid to brother-Report in form 3CD.
Also check if payment is excessive (> FMV or legitimate needs of business).
24 Amounts deemed to be Profits& Gains u/s 32AC, 33AB or 33ABA or 33AC
25 Amt of profit chargeable to tax u/s 41 & computation thereof.
In previous yr person received property (share of co not being co in which public are substantially
28 interested) without consideration or for inadequate consideration u/s 56(2) (vii a) & If yes = furnish details
29 In previous yr Person got consideration for shares > FMV us/ 56(2) (vii b) & If yes = Furnish details of it
Particulars of each loan or deposit in amt > limit us/ 269SS (taken or accepted >20000) or 269 T
31 (repayment > 20000) in cash. (Furnish details such as PAN, Amount, Name, Address & Payment Mode. )
Details of brought forward loss or depreciation allowance, incurred any speculation loss, incurred any loss
32 referred to in Sec 73A on any specified business in previous yr, change in shareholding due to which losses
can’t be allowed to be carried forward u/s 79.
33, 34 If Person is required to deduct or collect tax, furnished statement of tax deducted or tax collected in
prescribed time, liable to pay interest u/s 201(1A) or section 206C(7).

AUDIT SAGA
* If Trading concern = give quantitative details of principal items of goods traded

35 * If a manufacturing = give quantitative details of principal items of RM, FG & by-products (Opening
Stock, Purchases & Sales)
36 If domestic company = Details of Tax on Distributed Profits.
Whether Cost audit (37)/ Audit under Central Excise Act (38)/ Special Audit u/s 72A of Finance Act was
37, 38, carried out (39). If yes = give details of disqualification or disagreement on any matter/ item/ value/
39 quantity as may be reported/ identified by Auditor.
40 Details on Turnover, Gross profit, etc. for previous year & preceding previous year (A/c Ratios)
S.N. Particulars Previous Yr Preceding PY
1 Total Turnover XX XXX
2 Gross Profit/ Turnover XX X
..... ......................... ........ ............
41 Furnish details of demand raised or refund issued in previous yr under any tax laws other than Income-tax
Act, 1961 and Wealth tax Act, 1957 with details of relevant proceedings.
• Normally, Report of Tax auditor cannot be revised later.

Circumstances
of Revision of
TAX AUDIT
• When accounts are revised in following circumstances, Tax Auditor to revise his Tax audit report also.
REPORT
• Revision of accounts of a company after its adoption in the annual general meeting.
• Change in law with retrospective effect.
• Change in interpretation of law (e.g.) CBDT Circular, Notifications, Judgments, etc.
• Tax Auditor to state it is Revised Report & clearly specify reasons of revision & refer to earlier report.
• A CA can accept maximum 60 tax audit assignments.

Guidance Note
on Tax Audit
• Clarification issued by Institute on Tax Audit Assignments = Tax audit reports may be signed by partners in
by ICAI
any manner whosoever in accordance with specified audit limits.

• 1 partner can individually sign all tax audit reports subject to specified tax audit assignment limits on behalf
of all partners in firm of CAs in practice or all partners of the firm can collectively sign tax audit reports.
• Ex: - 6 partners = 360 tax audit assignments be accepted & even 1 partner can sign all 360 Tax audit report
Where any expenditure in respect of which payment is made in excess of 10,000 at a time otherwise than by
40 A(3)
Account-payee cheque or draft, 100% of such payment shall be disallowed.
INSERTION OF CLAUSE 30A & 30B in FORM 3CD
Clause 30A =
30A (a) Whether primary adjustment to transfer price in 92CE = been made during PY? (Yes/No)
30A (b) If yes, please furnishthe following details: -
* Under which clause of 92CEprimary adjustment is made? * Amount of primary adjustment:
* Whether excess money available with associated enterprise is required to be repatriated to India as per 92CE? (Yes/No)
* If yes, whether the excess money has been repatriated within the prescribed time (Yes/No)
* If no, imputed interest income on such excess money which has not been repatriated in prescribed time.
Clause 30Ahas been introduced, requiring reporting of primary adjustments & various other details, for making secondary
adjustments 92CE. 92CE for secondary transfer pricing adjustments, introduced by Finance Act 2017 from AY 2018-19
It requires making of secondaryadjustmentin certain cases where primary transfer pricing adjustments made. These cases
are where transfer pricing adjustment has been: -
* Made by the taxpayer of his own accord in his return of income
* Made by the assessing officer and accepted bythe taxpayer
* Determined under an Advance Pricing Agreement entered into by the assessee under section 92CC
* Made as per Safe Harbour Rulesframed under section 92CB
* Arising as result of a resolution of an assessmentunder Mutual Agreement Procedure under DTAA entered in 90 or 90A.

AUDIT SAGA
No secondaryadjustmentisrequired if the amountof primaryadjustmentmade in anyprevious year doesnot > 1 crore. Due to
the primaryadjustment, if there is an increase in the total income or a reduction in the loss of the assessee, adjustment
(difference between the arm’s length price and the actual transaction price) is regarded asexcessmoneyavailable with
associated enterprise, and is to be repatriated to India within the prescribed time. Rule 10CB provides for a time limit of 90
days for repatriation of the excessmoney. Where the excessmoneyis not repatriated to India within the prescribed time, it is
deemed asan advance to the associated enterprise and interest is to be computed on such advance in the prescribed manner,
asa secondaryadjustment. Secondaryadjustmentsare applicable onlyin respectof transfer pricing adjustmentsrelating to
international transactions, and notin respectof domestic transfer pricing adjustments.
Clause 30A requires reporting of whether primaryadjustmentto transfer price, as referred to in section 92CE(1), has been
made during the previous year. Thus the tax auditor is required to verify whether anyprimaryadjustmentis‘made’ in termsof
S. 92CE(1) during the previous year under consideration. The primaryadjustmentmade maynot necessarilyrelate to
previous year under consideration. Primaryadjustmentswhich do notwarrantsecondaryadjustmentsshould also be reported.
Clause 30B = Limitation on Interest Deduction: -

30B (a) = Whether assessee incurred exp in PY by interest or similar nature > 1 Crore in 94B?(Yes/No)
30B (b) = If yes, please furnishthe following details:-
* Expenditure by way of interest or of similar nature incurred
* Earnings before interest, tax, depreciation and amortization (EBITDA) during the previous year
* Expenditure by way of interest or of similar nature as per (i) above which exceeds 30% of EBITDA
* Details of interest expenditure brought forward as per subsection (4) of section 94B: A.Y. Amount
* Details of interest expenditure carriedforwardas per subsection(4) of section 94B
INSERTION OF CLAUSE 36A in FORM 3CD
Clause 36A =
(a) = Whether the assessee received amount in the nature of dividend in clause (22) of Section 2.
(b) = If yes, please furnish the following details:-
* Tax auditor obtain from the taxpayer a certificate containing a list of closely held co in which he is beneficial owner
* Obtain certificate from taxpayer giving particulars of loans or advances received by concern of his substantial interest
* Include appropriate remarks of his inability to independently verify the info & reliance on certificates obtained Above
* Verify Form 26AS if taxpayer to know if the closely held company has deducted tax at source
* Whether Amount is chargeable to tax as dividend 2(22)(e) been a subject matter of litigation = needs to consider
INSERTION OF CLAUSE 42 in FORM 3CD
Tax auditor to review Due diligence procedures carried out by taxpayer in accordance with Rule 114H & results of such
procedures. Tax auditor should review list of Reportable Accounts identified by due diligence process and the information
to be maintained and reported by Taxpayer. In case any reportable accounthas been omitted, or there is any error or
omission in Form 61B, the same may be reported under the Form No. 3CD. The auditor should verify if the taxpayer has
filed Form No. 61B for correcting errors or omissions in the form filed originally.
(a) Whether assessee is required to furnish statement in Form No.61 or Form No. 61A or Form No. 61B? (Yes/No)
(b) If yes, please furnish: -
42 Income Tax Type Due Date of Whether form contains If not please furnish list of
(a) Dept Reporting of date for furnish info on transa ctions the details/tran sactions
entity ID No. Form furnish required to be reported which are not reported

Ca Final Auditing Revision Charts

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CA FINAL – AUDIT

_____“ONE STOP SOLUTION” FOR CA FINAL AUDIT REVISION______

FEATURES OF SUMMARY CHART

Compiled by CA SANIDHYA SARAF “APNA MENTOR” 976-040-0350

NO. TITLE OF SQC/ SA/ SRE~

SAs by CA SANIDHYA SARAF Pg 1 “APNA MENTOR” 976-040-0350

Ethical considerations in Code of Conduct includes: - (IPCC OP = Same for SA 200)

ensure it comply to Professional & Regulatory standards & effective reporting

On acceptance of client relationship or on deciding on continuance of existing relationship,

System of Quality Control to provide reasonable assurance by considering following factors: -

System of Quality Control to establish policies & procedures to monitor effectiveness of

SAs by CA SANIDHYA SARAF Pg 2 “APNA MENTOR” 976-040-0350

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

respects as per applicable FRF

* To Report on FS & Communicate as required by SA's.

* Remain Alert to conditions indicating possible misstatement due to Error or fraud

Area of work for Auditor determined by following factors: -

SAs by CA SANIDHYA SARAF Pg 3 “APNA MENTOR” 976-040-0350

* Frauds, particularly involving senior management or collusion.

SA 210: - Agreeing the Terms of Engagement

Determine whether applied Financial Reporting Framework (FRF) is = Acceptable.

Limitations Imposed by Mgt = Not accept unless required by Law

No Limitations Imposed by Mgt = Ascertain existence of Pre Conditions if: -

Auditor to assess below: -

Recurring Audit * Whether Circumstances require Revision in Terms of Audit Engagement

Auditor to consider whether Proposed changed terms of engagement effects Level

SAs by CA SANIDHYA SARAF Pg 4 “APNA MENTOR” 976-040-0350

* Change in Financial Reporting Framework

Form &Contents of Engagement Letter: - Agreed terms of Audit Engagement recorded in

SA 220: - Quality Control For An Audit of FS

* Leadership responsibility = Engagement Partner appointed to take responsibility of Quality

control in Audit Work

Control & to Direct, Review & Supervise work of his Team

Direction explained of what is expected of them & how to achieve it.

Persons carrying out supervisory responsibilities should: -

Review of work of Audit staff to ensure: -

SAs by CA SANIDHYA SARAF Pg 5 “APNA MENTOR” 976-040-0350

Info assisting Auditor

Matters * Review of FS & Proposed Audit Report

(EQCR) * Consider Audit Report is Appropriate

Additional * Appropriate Conclusions drawn

* By Auditor = Issues Detected &Conclusion on Compliance & Nature & Scope

SA 230: - Audit Documentation

* Record of Audit Procedures, Performance, Test of Controls, Substantive Procedures, Relevant

SAs by CA SANIDHYA SARAF Pg 6 “APNA MENTOR” 976-040-0350

• Records for Future Audit

NTE of Audit Procedures to comply with laws: -

Documentation of Departure from a relevant requirement: -

If under Exceptional circumstances, Auditor performs New or Additional audit

* Identified risks of Material Misstatements (MM)

SAs by CA SANIDHYA SARAF Pg 7 “APNA MENTOR” 976-040-0350

SA 240: - Auditor's Responsibility in relation to Fraud in Audit of FS

• Perform Risk Assessment Procedures i.e.: -

• Consider Impact of fraud on FS

If Auditor is unable to continue Engagement: - Auditor to determine: -

* Primarily of Mgt & TCWG

SAs by CA SANIDHYA SARAF Pg 8 “APNA MENTOR” 976-040-0350

• Manipulate, Falsify, Alter A/c records & Supporting docs

• Intentional Misappropriation of Assets

• Discrepancies in A/c Records = Due to improper Recording, Unauthorized

Cash/ Assets to misappropriate it

* Individual knows Internal Control System is weak or can be Forbidden or if Individual in

_“ONE STOP SOLUTION” FOR CA FINAL AUDIT REVISION__