ICICI

Audit documentation requirement and observation as per QRB

CA Amrita Chattopadhyay 
on 10 July 2019


The audit profession has been in news in the recent times due to various frauds reported in the corporate world. Various questions have been raised on the professional work done by Chartered Accountants. Generally Chartered Accountants work in most ethical manner in environment of constraints & challenges prevailing in the business environment. To display the audit work done, audit documentation plays a very important role to justify that audit procedures have been applied, evidence obtained and conclusions reached by auditor in the audit engagement. Audit documentation also facilitates the planning, performance & supervision of the engagement and is the basis for review for the quality of work.

Quality Review Board - Introduction

(Source: A report on Audit Quality Review Findings (2012-15))

Government of India has, in exercise of the powers conferred under Section 28A of the Chartered Accountants Act, 1949, constituted the Quality Review Board (the ‘Board') to perform the following functions under Section 28B of the Chartered Accountants Act, 1949:

a) To make recommendations to the Council with regard to the quality of services provided by the members of the Institute;

b) To review the quality of services provided by the members of the Institute including audit services; and

c) To guide the members of the Institute to improve the quality of services and adherence to the various statutory and other regulatory requirements.

In terms of the procedure issued by the Board, the quality review is directed towards evaluation of audit quality and adherence to various statutory and other regulatory requirements. The review would involve assessment of the work done by the Statutory Auditors while carrying out their audit function so that the Board is able to assess (a) the quality of audit and reporting by the Statutory Auditors; and (b) the quality control framework adopted by the Statutory Auditors/ audit firm in conducting the audit.

Findings observed during the quality review conducted:

The Board initiated a system of review of statutory audit services of the audit firms auditing accounts of public interest entities in India since August 2012 pursuant to a process comprising selection of the audit firms for review and engagement of Technical Reviewers. As of January, 2015, 60,693 firms are registered with the ICAI which include 18,412 partnership firms and 42,281 proprietary firms. During the financial years 2012-13, 2013-14 and 2014-15, the Quality Review Board initiated reviews of 37, 56 and 123 Quality Review assignments respectively. Since August 2012, the Quality Review Board had selected a total of 216 Quality Review assignments for initiating reviews of statutory audits performed by 139 Audit firms, registered with the ICAI, of 168 companies/entities, being public interest entities listed at prominent stock exchanges in India.

Based on the observations made by QRB and the documentation requirement as per the Auditing Standard and the non-compliance has been mapped for improvement.

General Principals and responsibilities of Auditor


Auditing Standard

Documentation Requirement

Non-compliance as per QRB report

SA 220 – Quality Control for an Audit of Financial Statement

a. Compliance with ethical requirement & resolution of issues

b. Compliance with Independence requirement

c. Acceptance and continuance of client relationships and audit engagements.

a. No mechanism to deal with possible breaches of independence requirement

b. Audit program has initials of team member from whom independence confirmation was not obtained.

SA 210 – Agreeing the terms of Audit engagement

a. Acceptance of audit engagementthrough audit engagement letter

a. Engagement letter was not as per format prescribed as per SA 210

b. Engagement letter did not specify management's responsibility

c. Engagement letter not signed by Those Charged with Governance

d. Engagement letter did not have other services provided

e. Engagement letter did not have terms of assignment and fees

f. No documented policy regarding client acceptance and client continuation.

SA 230 - Documentation

a. Documenting nature, timing and audit procedure performed.

b. Who performed the audit work and the date such work was completed

c. Review of the work performed and date and extent of such review

d. Discussion of significant matter with TCWG

e. Addressing the inconsistency with respect to the audit work performed and the final conclusion reached.

a. The audit observations were not linked with the audit papers.

b. No documentation with regard to the work done by team, client acceptance, declaration of independence

c. Lack of documentation policy with regard to confidentiality, safe custody, integrity, adherence to the ethical standard.

d. No documentary evidence regarding qualification of auditor's report

e. Audit documentation not linked to the audit planning procedures

SA 240 – The Auditor's responsibilities relating to Fraud in an Audit of Financial Statements

d. Identified and assessed risk of material misstatement due to fraud at financial statement level & assertion level

e. Audit procedure applied on identification of fraud risk

f. Decision reached on performance of the audit procedures and the discussion with the engagement team

g. Communication of fraud to management / Those Charged with Governance

h. If revenue recognition is not subjected to fraud, the reason for the same.

a. Firm did not include all the elements of how the audit plan assessed and addressed the fraud risk.


Risk assessment and response to assessed risk


Auditing Standard

Documentation Requirement

Non-compliance as per QRB report

SA 300 Planning an Audit of Financial Statement

a. Overall scope, timing and Conduct of audit

b. Audit plan containing the risk assessment procedure / Standard audit program

c. Any significant changes made to the overall audit strategy or the audit plan

a. Audit plan did not cover the nature, timing and extent of direction & supervision of engagement team

b. Audit strategy did not include specific details of related parties transaction

c. No evidence of any audit planning or risk assessment by audit firm

SA 315 Identifying and Assessing the risks of material misstatement through understanding the entity & its environment

a. Significant decisions taken during the discussion with engagement team

b. Risk assessment at the financial statement level & assertion level and the audit procedure performed

Note: Depending on the complexity of the audit, documentation requirement of SA 300 & SA 315 can be combined

a. The risk of material misstatement were not identified at the assessment level at the planning stage.

b. Audit risk analysis was not comprehensive to make it commensurate with size of audit

c. c. Audit procedures were not documented for the risk identified

SA 320 Materiality in Planning & Performing an Audit

a. Materiality of financial statement as a whole

b. Materiality levels for particular classes of transactions, account balance or disclosures

c. Performance materiality based on the risk of material misstatement

a. Materiality & performance materiality was not documented

b. No evaluation made to determine the materiality level

SA 330 The Auditor's response to Assessed Risk

a. Audit procedures adopted to address the risk

b. Linking of procedures with the risk identified at the assertion level

c. Results of audit procedure including the conclusions where these are otherwise not clear.

a. Risk of material misstatement not linked to class of transactions, account balance

b. No documents available for test of controls

c. Audit procedure as response to assessed risk of material misstatement were not documented in the file.


Audit Evidence


Auditing Standard

Documentation Requirement

Non-compliance as per QRB report

SA 500 Audit Evidence

a. Appropriateness of audit evidence

b. Documents selected for test of controls and test of details

c. Modifications or additions to the audit procedures

a. No evidence of work being reviewed by partner

b. No formal means of addressing the audit risk

c. No evidence for evaluating the accounting estimate and management representation.

d. No evidence for the year end adjustment

SA 505 External Confirmations

d. Details of external confirmation sent & received

e. Reconciliation of confirmation with books of accounts

a. Procedure and manner of obtaining external confirmations was not documented

b. Log of confirmation sent, received, not received

c. External confirmations were not tallied with books.

d. Confirmation of debtors and payables not available

e. No confirmations obtained from related parties.

SA 520 Analytical Procedures

a. Suitability of substantive analytical procedure.

b. Expectation of recorded amount or ratio

c. Investigating results of analytical procedure

a. No working / evidence regarding analytical procedure carried on

b. The firm did not document the application of analytical procedure

SA 530 Audit Sampling

a. Document the sample design, size and selection of items

b. Sample selection in such a way that each sampling unit has chance of selection

c. Project the misstatement or deviation found in the sample to population

a. Sample selection was not adequate to mitigate the risk

b. Basis of selection of sample has not been documented

c. Sample selection did not represent the population

SA 550 Related Parties

a. Identification of related parties

b. Identification of related party relationship

a. The firm has not obtained the signed copy of related parties

b. Sampling procedure to test the selected parties transaction

c. No documents for verification of figures

SA 570 (Revised) Going Concern

a. Risk assessment procedure

b. Additional audit procedure when events / conditions are identified

SA 600 Using work of Another Auditor

SA 610 (Revised) Using work of Internal Auditors

SA 620 Using work of an Auditor's expert

a. Conclusion regarding adequacy of work and reliance

b. Audit procedure performed by external auditor

a. Report of the work done by expert / internal auditor was not obtained

b. No document regarding the evaluation of scope of work

c. Details of tie-up with auditor's expert or consultant was not on record.


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