SA 200-299

SA 200-299

GENERAL PRINCIPLES AND RESPONSIBILITIES OF AN AUDITOR

SA 200 Overall Objectives of an Independent Auditor and the conduct of Audit in accordance with Standards on Auditing

What is Auditing? Auditing is an independent examination of Financial Statements with an objective to give opinion on such Financial Statements.

Financial Statements comprises of

Balance sheetStatement of Profit and loss Cash Flow statementNotes to AccountsReceipts and payments in case of Government entities

Professional skepticism

It is an attitude of an Auditor

Not accepting Critical Analysis Critical Reasoning evidence as it is given by the client

Ethical requirements while conducting Audit ,to be followed by an Auditor.

Independence (not influenced by any person)Integrity (straight forward, honest)ConfidentialityProfessional behaviorAudit Planning

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ObjectivityTo give opinion on financial statementFinancial Statement are prepared as per financial reporting Frame Work(format of Balance Sheet and P&L)Whether the Financial Statement are free from any mis-statement arising due to fraud and Errors?Audit EvidenceAudit Documentation

Inherent Limitations of an Audit

Audit is Judgmental(Due to Random/Test checking, lack of time, Huge Volume, Not a 100% verification)Complex Internal control

Fraud

Audit is based on Test Check

Audit Evidence is persuasive in nature rather than conclusive in nature

PersuasiveConclusiveVsNot possibleAuditor gather evidence as test basis(this sample may or may not be representative)Error is humane(both client and auditor)Documents could be forged(now a days with latest technology)Client personnel may not always tell the truth

Audit Risk

Risk of giving wrong opinion on the Financial Statement is known as Audit Risk

Inherent RiskControl Risk Internal control is unable to detect any mis- statement Ie. Internal controls are not functioning properly in the OrganizationDetection Risk The Auditor is unable to detect any material mis-statement(Auditor cant verify each and every transaction)

SA 210 Agreeing the Terms of Audit EngagementThis SA relates to Audit Engagement letterAuditor will send the engagement letter to the Client and the client has to confirm the Terms of Engagement.

Engagement Letter contains the followingIntroductory line1.Auditors Responsibility2.Managements Responsibility(Maintain Books of Accountants, prepare Financial Statement etc )Scope (using sampling technique, evaluates internal control, using professional skepticism, Audit is based on Companies Act or as per IT Act(in case of proprietor firm/partnership firm)) Fees

Peer review (it is board of ICAI to verify the audit working papers of an auditor(here the auditor informs the client that our working papers are subject to peer review) )Acknowledgment (above said terms are acceptable then sign and return to us)Whether Engagement letter is send in case of recurring or repetitive Audit.Yes, in case of Change in the Management , Board of DirectorsChange in Law and Regulation

SA 220 Quality Control for an Audit of Financial StatementsThis SA deals with specific responsibilities of the auditor regarding quality control procedure for an audit of financial statement.

Objective

The objective of the auditor is to implement quality control procedure at the engagement level that provide the auditor with reasonable assurance that,

The audit complies with professional standard, regulatory and legal requirement, andThe auditors report issued is appropriate in the circumstances

The requirement of this SA are as followsHuman Resource Right person for right job Proper staff policiesEngagement Performance Compliance of audit principle Proper training in audit and accountingAcceptance & Continuance of Clients whether client is doing illegal business whether client is putting pressure to complete the work

Leadership ResponsibilityWhether requirement are properly communicatedWhether proper review policy has been establishedWhether quality policies have been formed & communicatedMonitoringThe work of the audit assistant should be monitored or reviewed on a regular basisThe review should be conducted by senior staff

Ethical Requirement The audit assistant should comply, withIndependenceIntegrityConfidentialityObjectivityProfessional behavior

SA 230 Audit DocumentationIt refers to working papers prepared and maintained by the auditor to show that the work is done without negligence.

Purpose of working papers

To plan the audit based on previous year Working PapersTo guide the Audit engagement teamTo form conclusion on Financial StatementsTo show that auditor is not negligent of his duties

Working paper should be prepared and completed before the Audit report is issued ,and maintained for a minimum period of 7 Years.

Assembly of Working Paper can be done even after the audit is completed. Ie; within 60 days

Working Paper should be prepared in a manner even an in-experienced auditor understand the contents

Form of Working Paper either in electronic form or physical formOwnership of Working Paper is with auditor and he can make available the Working Paper at his own discretion Types of Working Paper files Permanent audit file Current audit file(MOA ,AOA, Partnership (It comprises of the WP deed, significant a/c policies) relevant to current year of Audit(minutes of meeting, CY observations, engagement letter))

SA 240 The Auditors responsibilities relating to Fraud in an Audit of Financial Statements

Auditor detects mis-statement due to fraud or error.

Inform the Management

Agrees & Rectifies Disagrees or Do not Rectify

Fraud is disclosed Error is rectified Inform to TCWGin Report

Agrees & Rectifies Disagrees or Do not Rectify

Fraud is disclosed in Report Error is rectified Qualify the report Resign

If fraud is done by management then inform TCWG If fraud is done by TCWG then auditor can qualify the report or resign

Prime responsibility to detect fraud is vested with Management

It refers to conditions,situations,opportunity,Incentive and pressure to commit fraudTypes of fraudFraudulent Financial Reporting Mis-appropriation of Assetpassing fictitious entries ,Over or under valuation of assets ,Fake journal entries Stealing of Inventory ,Using the Asset for personal use

Fraud risk factor

SA 250 Consideration of Laws and Regulation in an Audit of Financial Statements

Non compliance:-Acts of omission or commission which is not as per prevailing law and regulations

Eg: Non payment of Service Tax, non filing of TDS return , Failure to pay sales tax, Labour Law.

Management is responsible for compliance of Law & Regulation. The auditor should apply procedures to find out the compliance of law is done on regular basis

Following are the indicators which may show that there is non compliance of Law and Regulation

Unusual payment towards legal feesBeing payment for fines and penaltiesEnquiry with Management and TCWGAdverse media commentsLitigation & claims as per legal council

Following are the Management responsibility

Monitoring legal requirementMonitoring of compliance of ConductBetter internal controlEngaging legal advisors

Auditor detects non compliance of Law

Inform the Management

Management Agrees Management disagrees No issue Inform TCWG Agrees Disagree No issue Qualify the report

SA 260 Communication with TCWGIt oversea the functions of ManagementIt takes strategic decision about the organizationThe management complies the requirement of TCWGManagement is required to provide information and explanation to the auditors .If Management doesnt co-operate then the auditor should escalate the matter to TCWG.

Under following circumstances matters are escalated to TCWGDifficult encountered while conducting AuditExpected modification to audit reportAccounting policy undergoing significant changesIndependence is lessDisagree with ManagementModes of communication to TCWG

Orally Writing

The following factors are also considered for modes of communication,Size , operating structure and controlling environment of the organizationLegal requirementsExpectation of TCWGChanges in TCWG or Governing body

SA 265 Communication of Deficiencies in Internal Control to TCWG

Internal Control is the plans, policies or procedures of organization to ensure that business is conducted in an efficient and effective manner.

Deficiency in Internal Control

When Internal Control When Internal Controlare unable to prevent, are missing to prevent,detect any mis statement detect any mis statement

The following factors are considered for the purpose of communicationDisclosure of material mis-statement due to fraud or error where the Management also involvedEvidence of ineffective response by ManagementManagement failure to implement remedial actionIdentification of fraud where Management is also involvedEvidence of ineffective Risk assessment procedure

SA 299 Responsibility of Joint Auditors When more than one Chartered Accountant are appointed to conduct the audit of entity, they are known as joint auditors

Why Joint Auditors are appointed?

High volume of High complexity of transaction transaction

How work is divided among joint auditors?

Based on Based on Nature Based ontime of work location

Important points relating to SA 299Joint auditor should co-ordinate with each other share the information.Where the areas are specifically divided the joint auditors will be specifically responsible for the respective area.Where the work is not divided ,the joint auditors will be jointly and severally responsible for those undivided area.If something goes wrong on a particular area which is being divided then only the respective auditor will be responsible.Joint auditor can issue one report but where they have difference of opinion in such case separate report can also be issue.

a presentation by Ajil salam A

Sarath R KrishnanVishal E V & Anjali P Nair And all my dear Teachers and Friends

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