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CA FINAL AUDIT
Following points must be quoted while answering questions on Auditing
SA 250-Consideration of laws and regulations in an audit of Financial
1. This SA deals with the responsibility of the auditor in considering the laws and
regulation in performing an audit of the financial statement.
2. The effect of laws and regulation varies considerably. Those laws and regulation
which are applicable to an entity constitute its legal and regulatory framework.
3. It is the responsibility of the management with the oversight of the TCWG to
ensure that the operation of the entity are conducted according to the laws and
4. There are some laws and regulation which have a direct effect on the financial
statement in determining its reportable amounts and disclosure in financial
statements and management should also check compliance with the same.
Role of Auditor:
Obtain an understanding of the legal and regulatory framework.
Obtain sufficient and appropriate audit evidence that the company has
complied with all the laws and regulation which have a direct effect on the
financial statement in determining its reportable amounts and disclosure in
financial statements including tax and labour laws
Apply additional audit procedures to check any noncompliance if any
Inquiry with the management and examining correspondence with the legal
authority for noncompliance.
Respond appropriately to noncompliance or suspected noncompliance.
Obtaining written representation from the management about the possible
SA 240-Auditors responsibility relating to fraud in an audit of the
1. Fraud is an intentional misstatement of information by employee, management,
and TCWG or a third party in order to take advantage of the situation.
2. The primary responsibility of prevention and detection of fraud is that of the
management and TCWG.
3. The auditor shall evaluate the information obtained from other risk assessment
procedures and related activities performed to check one or more fraud risk factors
4. If fraud risk factors are present then the auditor will apply procedures to check the
risk of material misstatement due to fraud and the auditor will depute a person to
conduct in depth verification and applying unpredictable audit procedures.
5. After confirming about the existence of fraud he should escalate to the
management and get it rectified and disclose in the audit report if it’s not rectified
give a modified report.
6. Some laws require reporting of fraud directly to the legal authority.
7. The fraud may be
Fraudulent Financial Reporting.
Misappropriation of Assets.
SA-230 Audit Documentation
1. Audit Documentation refers to the working papers which are prepared by the
auditor to show that the audit has been conducted in accordance with the SA
on Auditing. It contains all the
Response of the management
2. They may be in physical and electronic form. The purpose of the working
To plan the audit based on previous years working papers
It acts as an evidence that the auditor was not negligent
Can be used to form conclusions
To supervise the work of audit assistants
3. The auditor shall prepare the audit documentation in such a way the it
enables an experienced auditor having no previous connection with the audit
Nature, timing and extent of audit procedures
The results of the audit procedures
Significant matters arising during the audit, conclusions reached etc.,
4. The auditor is the owner of the working papers. They must be retained for a
period of 7 years. Audit file must be prepared within 60 days from the date of audit
report. He may at his discretion make portions or extracts of the audit working
papers to the client. He will give access to his working papers to a third party only
when it is required by any law.
5. Audit file is divided into permanent audit file and temporary audit file.
SA-210 Agreeing to the terms of the audit engagement
1. The objective of this standard is to accept an audit engagement only when the
basis upon which it is to be performed has been agreed through
Establishing whether the precondition for the audit are present
Confirming through an audit engagement letter that there is a common
understanding between the auditor and the management/TCWG of the terms
of the engagement.
2. Audit Engagement letter is a letter written by the auditor to the client expressing
what the scope of audit is and what the auditor tries to cover in the audit. This
should be acknowledged by the client and sent back to the auditor.
3. In case of repetitive or recurring audit engagement letter will be sent again only
Significant changes in senior management
Changes in Ownership
Changes in legal and regulatory framework
Revision in terms of engagement
Indication of any misunderstanding by the client.
Change in the nature and size of the business.
SA-600 Using work of another auditor
1. Another auditor means auditor of a subsidiary, associate, branch, JV, division
2. Principal auditor is an auditor who has the responsibility of expressing an opinion
on the financial statements as a whole. He should consider the impact of work of
SA-610 Using work of internal auditor
1. Internal audit is a management examination of financial, operational and
administrative activities of the enterprise with a view to strengthen governance
mechanism, risk management and improvement in internal control.
2. The external auditor will determine
Whether the work of internal auditor is likely to be adequate for the purpose
of the audit.
If so, the planned effect of such work on the nature and timing of the audit
procedures to be applied by the external auditor
In determine so the external auditor will consider the following factors
The objectivity and scope of work of the internal audit function
The technical competence and skill of the internal auditors
Whether the work is conducted with
Due professional care and properly supervised.
Level of reporting
Evidences obtained and conclusions drawn thereon
Whether there is proper communication between the internal and external
Whether the work was properly supervised and documented.
2. The external auditor will perform audit procedures on the work of internal
auditors to determine its adequacy. However an external auditor can rely on
the work of internal auditor at his own discretion. He will be solely be
responsible for his opinion on financial statement.
SA 620 Using work of an Auditor’s Expert
The Auditor should consider the following factors in using work of an auditor’s
Check the source data used by him whether it is reliable and accurate
Check the assumption used by him whether they are appropriate
Skill and competence of expert
Methods used by the expert whether they are relevant
Objectivity and scope of expert work
Professional Qualification and licence
Whether the findings are relevant
Whether the expert is employed by the entity or outside agency
The extent to which management has control over the expert
Permission of the expert is to be taken before using his name in the auditor’s report.
SA-505 External Confirmation
1. The objective of the auditor in using external confirmation is to obtain sufficient
and appropriate audit evidence as external evidence is more reliable than internal
2. External confirmation is directly obtained from the third party
The auditor contacts the client to give him authorisation.
Client gives authorisation.
Auditor contacts third party for confirmation.
Third party gives the confirmation.
3. Auditor can send positive or negative confirmation requests. If the managements
asks the auditor to abstain from sending confirmation then the auditor must
understand the reason for such refusal if it is a sensitive matter and evidence of such
is available then the auditor must abstain and perform additional procedures.
SA-510 Initial Audit Engagement
1. This standard is applicable when an auditor is newly appointed for an existing
2. The objective of the auditor is to obtain sufficient and appropriate audit evidence
as whether the opening balances contain any misstatement which may affect current
year financial statement and whether the accounting policies of previous year are
carried forward in the current year.
3. If the previous year financial statement is unmodified then the closing balance of
PY is to be taken as opening balance. If PY FS are modified and the error is not
rectified then this year also the auditor shall express and modified opinion.
4. If the auditor is unable to obtain sufficient audit evidence that the opening
balances are free from misstatements and that the accounting policies are
consistently followed then the auditor shall express a modified opinion.
SA 500 Audit Evidence
1. The objective of the auditor is to design and perform audit procedures to obtain
sufficient (Quantity of audit evidence) and appropriate audit evidence (Quality and
2. Audit Techniques to obtain audit evidence
Inquiry(Questioning the management)
Inspection(Examining records or documents)
Recalculation(Checking mathematical accuracy)
Re-performance(Acts already done by management)
Analytical procedure (Evaluation of financial information using financial and
3. Methods of evaluation of audit evidence.
SA-550 Related Parties
1. The auditor needs to have an understanding of the related party relationships and
To recognise fraud risk factors, if any arising from related party relationships
and transactions that are relevant to the identification of the risk of material
To conclude that the financial statement are not misleading as a result of
related party relationships and transactions and present a true and fair view.
2. It is the responsibility of the management to recognise the related party and the
auditor needs to validate the procedure applied by them.
3. If the auditor identifies significant transactions outside the entities normal course
of business when performing the audit procedures the auditor shall enquire with the
management about the following
Nature of transactions
Whether related party could be involved.
4. The auditor may apply the following procedures for identification of related party
Life insurance policies acquired by the management.
Obtain a written representation from the management about the
completeness of the list of related parties.
Verify register maintained under sec 301.
Verify minutes of the board of directors.
Having discussion with the management.
Verify the financial statement of the previous year.
Sales transactions with unusual discounts.
Contracts whose terms are changed before expiry.
SA-570 Going Concern
1. Going concern is a fundamental accounting assumption that a company will
continue in foreseeable future. Management is responsible to ascertain whether
going concern is appropriate or not.
2. It is the duty of the auditor to apply procedures and obtain sufficient and
appropriate audit evidence to check the appropriateness of the going concern.
3. To conclude based on the audit evidence whether a material uncertainty exists
that casts doubt about the going concern assumption.
5. The auditor should apply the following procedures
Verify the subsequent events after the balance sheet date if they effect the
Impact of the legal cases before the company should also be assessed
The auditor may also check the interim financial statement
Verify the cash flow if it is negative or short term borrowings used for long
Examine the minutes of board meetings.
SA-560 Subsequent events
1.The objective of the auditor is to obtain sufficient audit evidence that the events
which occur after the balance sheet date and before audit report that require
adjustment or disclosure have been properly done.
2. Respond appropriately to the facts that come to the knowledge of the auditor after
the date of auditors report and before AGM.
3.The auditor should understand the procedure applied by the management in
determine the events that occurred after the balance sheet date, read minutes of
board meeting, check interim financial results, ask TCWG.
4. The events that occur between the date of financial statement and auditors report
are classified into two categories
Those that provide existence of conditions that existed on balance sheet date
Those that provide evidence of conditions that arose after the date of financial
4. The facts which become known to the auditor after the date of audit report
but before the financial statements are issued, then discuss with management
or TCWG. Determine whether such fact needs amendment and if so how it
will be done.
SA-520 Analytical Procedures
The objective of the auditor is to obtain sufficient and reliable evidence using
analytical procedure and design and perform analytical procedure near the end of
the audit that assist the auditor in forming an overall conclusion on the audit
1.Analytical procedure means evaluation of the financial information through
anlysis of both financial and non financial data.Analytical process is anlysis of
significant ratios and trends including investigation of fluctuation and figures which
deviate from the predicted amounts.
2.AP is applied on the assumption that relationship among data exists and continue
3.The auditor while applying AP must be careful about the reliability of the data.
4.The auditor should determine the suitability of a particular analytical procedure
5. Develop an expectation of recorded amounts or ratios and evaluate whether such
expectation is suuficient to identify a misstatement.
SA-530 Audit Sampling
1. This standard provide a resonable basis to the auditor in determining the
population from where sample is to be selected.
2. The objective of the auditor is to draw conclusions on the population by
performing audit procedures on the sample selected.
3. Confidence level: It is the mathematical probability that the error rate in the
sample will not differ from the error rate in the population by more than a stated
amount.It is always expressed as a percentage.
4. Sampling risk: The risk that the auditors conclusion based on sample may be
different from the conclusion if the entire population was subjected to the sameaudit
procedure.Higher the sample size lower the sampling risk.So the auditor selects and
audit sample which will keep the audit risk to an acceptably low level.
Random Selection Technique
Systematic selection technique
Haphazard Selection Technique
Block Selection technique
SA-580 Written Representations:
1. The auditor should obtain written representation from the management or TCWG
that they believe that they have fulfilled their responsibility of preparation of
financial statement and for completeness of information provided to the auditor.
2.To confirm certain matters and to support other audit evidence relevant the
financial statement , if required by the auditor or SA.
3.To respond appropriately to WR provided by the management.
4.WR is otained from the management to confirm certain matters and to suppoert
other audit evidences.WR is obtained when audit evidence is not available or
5.WR is provided for all the period covered by the auditor
6.As far as practicable WR must be near the date of Audit report but not after that.
7.If the management refuses to provide WR then, discuss with
management,reevaluate the integrity of management and effect of this on his
opinion and give a disclaimer of opinion.
The auditor shall request WR from managemen with appropriate responsibilities for
the financial statements.
SA-300 Planning an Audit of Financial Statements
Steps in Audit Planning
Auditor drafts the audit plan
Auditor will evolve and overall audit strategy
He will draft an audit programme.
Both audit plan and programme must be flexible in nature.
1.Audit planning is done to ensure that audit is conducted in an effective and
2.All critical areas are covered. All assistants are properly utilised and there is proper
coordination among the members.
3.Audit plan is more detailed than audit strategy. It contains the nature, timings and
extent of the audit procedures to be performed.Planning for audit procedures takes
place during the course of audit.
4.Following things are to be considered before drafting and audit plan
Determination of materiality
Using work of expert, other auditor or internal auditor’
Analytical procedure to be applied as risk assessment procedures
Obtaining a general understanding of the legal and regulatory framework
applicable to the entity and how the company follows such framework
Nature and extent of the audit evidences to be obtained
Degree of reliance to be placed on the internal control system and accounting
5. The auditor shall document the overall audit plan and audit strategy.It will
become part of the Audit documentation.
SA-315: Identifying and assessing the risk of material misstatement
The objective of the auditor is to identify and assess the risk of misstatement at
financial statement and assertion level through the following way
The auditor should check the control activity i.e authorisation levels to
significant class of transactions,A/c balance and disclosures in financial
Inquiry with management, In-house legal person, Employees
Implication of records
Discussion with the Audit team.
Check the IT system for recording of transactions
Obtain an understanding of the entity and its environment
Internal Control Questionnaire.
SA 220 Quality Control
This SA deals with responsibility of the auditor regarding quality control procedure
for audit of Financial Statements.This SA requires that
1.Apponinting right person for right job
2.Enagagement partner and Engagement Quality control reviewer to see that proper
policies are followed
3.Proper training to be given
4.Decide whether to continue the audit if the client is putting unnecessary pressure
to complete the audit or reducing fees or doing illegal activity