Download - SA200
DEFINATION & MEANING of SA200:
(a) Applicable financial reporting framework – The financial reporting framework adopted by
management and, where appropriate, those charged with governance in the preparation and
presentation of the financial statements that is acceptable in view of the nature of the entity
and the objective of the financial statements, or that is required by law or regulation.
The term “fair presentation framework” is used to refer to a financial reporting framework
that requires compliance with the requirements of the framework and:
(i) Acknowledges explicitly or implicitly that, to achieve fair presentation of the financial
statements, it may be necessary for management to provide disclosures beyond those
specifically required by the framework; or
(ii) Acknowledges explicitly that it may be necessary for management to depart from a
requirement of the framework to achieve fair presentation of the financial statements. Such
departures are expected to be necessary only in extremely rare circumstances.
The term “compliance framework” is used to refer to a financial reporting framework that
requires compliance with the requirements of the framework, but does not contain the
acknowledgements in (i) or (ii) above.
(b) Audit evidence – Information used by the auditor in arriving at the conclusions on which
the auditor’s opinion is based. Audit evidence includes both information contained in the
accounting records underlying the financial statements and other information. For purposes of
the SAs:
(i) Sufficiency of audit evidence is the measure of the quantity of audit evidence. The
quantity of the audit evidence needed is affected by the auditor’s assessment of the risks of
material misstatement and also by the quality of such audit evidence.
(ii) Appropriateness of audit evidence is the measure of the quality of audit evidence; that is,
its relevance and its reliability in providing support for the conclusions on which the auditor’s
opinion is based.
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(c) Audit risk – The risk that the auditor expresses an inappropriate audit opinion when the
financial statements are materially misstated. Audit risk is a function of the risks of material
misstatement and detection risk.
(d) Auditor – “Auditor” is used to refer to the person or persons conducting the audit, usually
the engagement partner or other members of the engagement team, or, as applicable, the firm.
Where an SA expressly intends that a requirement or responsibility be fulfilled by the
engagement partner, the term “engagement partner” rather than “auditor” is used.
“Engagement partner” and “firm” are to be read as referring to their public sector equivalents
where relevant.
(e) Detection risk – The risk that the procedures performed by the auditor to reduce audit risk
to an acceptably low level will not detect a misstatement that exists and that could be
material, either individually or when aggregated with other misstatements.
(f) Financial statements – A structured representation of historical financial information,
including related notes, intended to communicate an entity’s economic resources or
obligations at a point in time or the changes therein for a period of time in accordance with a
financial reporting framework. The related notes ordinarily comprise a summary of
significant accounting policies and other explanatory information. The term “financial
statements” ordinarily refers to a complete set of financial statements as determined by the
requirements of the applicable financial reporting framework, but can also refer to a single
financial statement.
(g) Historical financial information – Information expressed in financial terms in relation to a
particular entity, derived primarily from that entity’s accounting system, about economic
events occurring in past time periods or about economic conditions or circumstances at
points in time in the past.
(h) Management – The person(s) with executive responsibility for the conduct of the entity’s
operations. For some entities in some jurisdictions, management includes some or all of those
charged with governance, for example, executive members of a governance board, or an
owner-manager.
(i) Misstatement – A difference between the amount, classification, presentation, or
disclosure of a reported financial statement item and the amount, classification, presentation,
or disclosure that is required for the item to be in accordance with the applicable financial
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reporting framework. Misstatements can arise from error or fraud. When the auditor
expresses an opinion on whether the financial statements are presented fairly, in all material
respects, or give a true and fair view, misstatements also include those adjustments of
amounts, classifications, presentation, or disclosures that, in the auditor’s judgment, are
necessary for the financial statements to be presented fairly, in all material respects, or to give
a true and fair view.
(j) Premise, relating to the responsibilities of management and, where appropriate, those
charged with governance, on which an audit is conducted – That management and, where
appropriate, those charged with governance have the following responsibilities that are
fundamental to the conduct of an audit in accordance with SAs. That is,
REQUIREMENTS:
Ethical Requirements Relating to an Audit of Financial Statements
The auditor shall comply with relevant ethical requirements, including those pertaining to
independence, relating to financial statement audit engagements.
Professional Skepticism
The auditor shall plan and perform an audit with professional skepticism recognising that
circumstances may exist that cause the financial statements to be materially misstated.
Professional Judgment
The auditor shall exercise professional judgment in planning and performing an audit of
financial statements. Sufficient Appropriate Audit Evidence and Audit Risk
To obtain reasonable assurance, the auditor shall obtain sufficient appropriate audit evidence
to reduce audit risk to an acceptably low level and thereby enable the auditor to draw
reasonable conclusions on which to base the auditor’s opinion. Conduct of an Audit in
Accordance with SAs Complying with SAs Relevant to the Audit
The auditor shall comply with all SAs relevant to the audit. An SA is relevant to the audit
when the SA is in effect and the circumstances addressed by the SA exist.
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The auditor shall have an understanding of the entire text of an SA, including its application
and other explanatory material, to understand its objectives and to apply its requirements
properly.
The auditor shall not represent compliance with SAs in the auditor’s report unless the auditor
has complied with the requirements of this SA and all other SAs relevant to the audit.
To achieve the overall objectives of the auditor, the auditor shall use the objectives stated in
relevant SAs in planning and performing the audit, having regard to the interrelationships
among the SAs.
(a) Determine whether any audit procedures in addition to those required by the SAs are
necessary in pursuance of the objectives stated in the SAs;
(b) Evaluate whether sufficient appropriate audit evidence has been obtained.
Complying with Relevant Requirements
The auditor shall comply with each requirement of an SA unless, in the circumstances of the
audit:
(a) The entire SA is not relevant; or
(b) The requirement is not relevant because it is conditional and the condition does not exist.
In exceptional circumstances, the auditor may judge it necessary to depart from a relevant
requirement in an SA. In such circumstances, the auditor shall perform alternative audit
procedures to achieve the aim of that requirement. The need for the auditor to depart from a
relevant requirement is expected to arise only where the requirement is for a specific
procedure to be performed and, in the specific circumstances of the audit, that procedure
would be ineffective in achieving the aim of the requirement . Failure to Achieve an
Objective
If an objective in a relevant SA cannot be achieved, the auditor shall evaluate whether this
prevents the auditor from achieving the overall objectives of the auditor and thereby requires
the auditor, in accordance with the SAs, to modify the auditor’s opinion or withdraw from the
engagement. Failure to achieve an objective represents a significant matter requiring
documentation in accordance with SA 230.
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AUDITOR’S RESPONSIBILITY:
(i) For the preparation and presentation of the financial statements in accordance with the
applicable financial reporting framework; this includes the design, implementation and
maintenance of internal control relevant to the preparation and presentation of financial
statements that are free from material misstatement, whether due to fraud or error; and
(ii) To provide the auditor with:
a. All information, such as records and documentation, and other matters that are relevant to
the preparation and presentation of the financial statements;
b. Any additional information that the auditor may request from management and, where
appropriate, those charged with governance; and
c. Unrestricted access to those within the entity from whom the auditor determines it
necessary to obtain audit evidence.
In the case of a fair presentation framework, the responsibility is for the preparation and fair
presentation of the financial statements in accordance with the financial reporting framework;
or the preparation of financial statements that give a true and fair view in accordance with the
financial reporting framework. This applies to all references to “preparation and presentation
of the financial statements” in the SAs. The “premise, relating to the responsibilities of
management and, where appropriate, those charged with governance, on which an audit is
conducted” may also be referred to as the “premise”.
(l) Professional skepticism – An attitude that includes a questioning mind, being alert to
conditions which may indicate possible misstatement due to error or fraud, and a critical
assessment of audit evidence.
(m) Reasonable assurance – In the context of an audit of financial statements, a high, but not
absolute, level of assurance.
(n) Risk of material misstatement – The risk that the financial statements are materially
misstated prior to audit. This consists of two components, described as follows at the
assertion level:
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(i) Inherent risk – The susceptibility of an assertion about a class of transaction, account
balance or disclosure to a misstatement that could be material, either individually or when
aggregated with other misstatements, before consideration of any related controls.
(ii) Control risk – The risk that a misstatement that could occur in an assertion about a class
of transaction, account balance or disclosure and that could be material, either individually or
when aggregated with other misstatements, will not be prevented, or detected and corrected,
on a timely basis by the entity’s internal control.
SA 300 PLANNING AN AUDIT OF FINANCIAL STATEMENTS:
EFFECTIVE DATE:
This SA is effective for audits of financial statements for periods beginning on or after 1st
April, 2008
INTRODUCTION to SA300:
This Standard on Auditing (SA) deals with the auditor’s responsibility to plan an audit of
financial statements. This SA is framed in the context of recurring audits. Additional
considerations in initial audit engagements are separately identified. Standard on Auditing
(SA) 300, "Planning an Audit of Financial Statements" should be read in the context of the
"Preface to the Standards on Quality Control, Auditing, Review, Other Assurance and
Related Services2," which sets out the authority of Standards on Auditing (SAs).
SCOPE of SA300:
This Standard deals with the auditor’s responsibility to plan an audit of financial statement s.
This standard is framed with reference to recurring audits.
OBJECTIVE of SA300:
The objective of the auditor is to plan the audit so that it will be performed in an effective
manner.
REQUIREMENTS:
Requirements of Involvement of Key Engagement Team Members of Revised Standard on
Auditing (SA) 300 :
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The engagement partner and other key members of the engagement team shall be involved in
planning the audit, including planning and participating in the discussion among engagement
team members.
Preliminary Engagement Activities :
The auditor shall undertake the following activities at the beginning of the current audit
engagement:
a. Performing procedures required by SA 2203, "Quality Control for Audit Work" regarding
the continuance of the client relationship and the specific audit engagement;
b. Evaluating compliance with ethical requirements, including independence, as required by
A 220; and
c. Establishing an understanding of the terms of the engagement, as required by SA 2104,
"Terms of Audit Engagements".
Planning Activities :
The auditor shall establish an overall audit strategy that sets the scope, timing and direction of
the audit, and that guides the development of the audit plan.
In establishing the overall audit strategy, the auditor shall:
Identify the characteristics of the engagement that define its scope;
Ascertain the reporting objectives of the engagement to plan the timing of the audit and the
nature of the communications required;
Consider the factors that, in the auditor's professional judgment, are significant in directing
the engagement team's efforts;
Consider the results of preliminary engagement activities and, where applicable, whether
knowledge gained on other engagements performed by the engagement partner for the entity
is relevant; and
Ascertain the nature, timing and extent The auditor shall develop an audit plan that shall
include a description of The nature, timing and extent of planned risk assessment procedures,
as determined under SA 315, "Identifying and Assessing the Risks of Material Misstatement
Through Understanding the Entity and Its Environment".
The nature, timing and extent of planned further audit procedures at the assertion level, as
determined under SA 3306, "The Auditor's Responses to Assessed Risks". Other planned
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audit procedures that are required to be carried out so that the engagement complies with
SAs. The auditor shall update and change the overall audit strategy and the audit plan as
necessary during the course of the audit. The auditor shall plan the nature, timing and extent
of direction and supervision of engagement team members and the review of their work.
Documentation :
The auditor shall document:
a. The overall audit strategy;
b. The audit plan; and
c. Any significant changes made during the audit engagement to the overall audit strategy or
the audit plan, and the reasons for such changes.
Additional consideration in Initial Audit Engagements :
The auditor shall undertake the following activities prior to starting an initial audit:
a. Performing procedures required by SA 220 regarding the acceptance of the client
relationship and the specific audit engagement; and
b. Communicating with the predecessor auditor, where there has been a change of auditors, in
compliance with relevant ethical requirements.
Application and Other Explanatory Material The Role and Timings of Planning :
A1. Planning an audit involves establishing the overall audit strategy for the engagement and
developing an audit plan. Adequate planning benefits the audit of financial statements in
several ways, including the following:
• Helping the auditor to devote appropriate attention to important areas of the audit.
• Helping the auditor identify and resolve potential problems on a timely basis.
• Helping the auditor properly organise and manage the audit engagement so that it is
performed in an effective and efficient manner.
• Assisting in the selection of engagement team members with appropriate levels of
capabilities and competence to respond to anticipated risks, and the proper assignment of
work to them.
• Facilitating the direction and supervision of engagement team members and the review of
their work.
• Assisting, where applicable, in coordination of work done by auditors of components7 and
experts.
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A2. The nature and extent of planning activities will vary according to the size and
complexity of the entity, the key engagement team members' previous experience with the
entity, and changes in circumstances that occur during the audit engagement.
A3. Planning is not a discrete phase of an audit, but rather a continual and iterative process
that often begins shortly after (or in connection with) the completion of the previous audit
and continues until the completion of the current audit engagement. Planning, however,
includes consideration of the timing of certain activities and audit procedures that need to be
completed prior to the performance of further audit procedures. For example, planning
includes the need to consider, prior to the auditor's identification and assessment of the risks
of material is statement, such matters as:
• The analytical procedures to be applied as risk assessment procedures.
• Obtaining a general understanding of the legal and regulatory framework applicable to the
entity and how the entity is complying with that framework.
• The determination of materiality.
• The involvement of experts.
• The performance of other risk assessment procedures.
A4. The auditor may decide to discuss elements of planning with the entity's management to
facilitate the conduct and management of the audit engagement (for example, to coordinate
some of the planned audit procedures with the work of the entity's personnel). Although these
discussions often occur, the overall audit strategy and the audit plan remain the auditor's
responsibility. When discussing matters included in the overall audit strategy or audit plan,
care is required in order not to compromise the effectiveness of the audit. For example,
discussing the nature and timing of detailed audit procedures with management may
compromise the effectiveness of the audit by making the audit procedures too predictable.
SA210 AGREEING THE TERMS OF THE AUDIT ENGAGEMENTS:
INTRODUCTION SA210:
This Standard on Auditing (SA) deals with the auditor’s responsibilities in agreeing the terms
of the audit engagement with management and, where appropriate, those charged with
governance. This includes establishing that certain preconditions for an audit, responsibility
for which rests with management and, where appropriate, those charged with governance, are
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present. Proposed SA 220 (Revised) deals with those aspects of engagement acceptance that
are within the control of the auditor.
EFFECTIVE DATE:
This SA is effective for audits of financial statements for periods beginning on or after April
1, 2010.
OBJECTIVES of SA210:
The objective of the auditor is to accept or continue an audit engagement only when the basis
upon which it is to be performed has been agreed, through:
a Establishing whether the preconditions for an audit are present; and
b. Confirming that there is a common understanding between the auditor and management
and, where appropriate, those charged with governance of the terms of the audit engagement.
PRECONDITIONS FOR AN AUDIT :
The use by management of an acceptable financial reporting framework in the preparation of
the financial statements and the agreement of management and, where appropriate, those
charged with governance to the premise5 on which an audit is conducted. For the purposes of
this SA, references to “management” should be read hereafter as “management and, where
appropriate, those charged with governance
Requirements of Preconditions for an Audit :
In order to establish whether the preconditions for an audit are present, the auditor shall:
a. Determine whether the financial reporting framework to be applied in the preparation of
the financial statements is acceptable; and
b. Obtain the agreement of management that it acknowledges and understands its
responsibility
(i) For the preparation of the financial statements in accordance with the applicable financial
reporting framework, including where relevant their fair presentation
(ii) For such internal control as management determines is necessary to enable the
preparation of financial statements that are free from material misstatement, whether due to
fraud or error; and
(iii) To provide the auditor with:
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a. Access to all information of which management is aware that is relevant to the preparation
of the financial statements such as records, documentation and other matters;
b. Additional information that the auditor may request from management for the purpose of
the audit; and
c. Unrestricted access to persons within the entity from whom the auditor determines it
necessary to obtain audit evidence.
Limitation on Scope Prior to Audit Engagement Acceptance :
If management or those charged with governance impose a limitation on the scope of the
auditor’s work in the terms of a proposed audit engagement such that the auditor believes the
limitation will result in the auditor disclaiming an opinion on the financial statements, the
auditor shall not accept such a limited engagement as an audit engagement, unless required
by law or regulation to do so.
Agreement on Audit Engagement Terms :
The auditor shall agree the terms of the audit engagement with management or those charged
with governance, as appropriate. The agreed terms of the audit engagement shall be recorded
in an audit engagement letter or other suitable form of written agreement and shall include
a. The objective and scope of the audit of the financial statements;
b. The responsibilities of the auditor;
c. The responsibilities of management;
d. Identification of the applicable financial reporting framework for the preparation of the
financial statements; and
e. Reference to the expected form and content of any reports to be issued by the auditor and a
statement that there may be circumstances in which a report may differ from its expected
form and content.
The auditor may determine that the law or regulation includes responsibilities that, in the
auditor’s judgment, are equivalent in effect to those set out in that paragraph. For such
responsibilities that are equivalent, the auditor may use the wording of the law or regulation
to describe them in the written agreement. For those responsibilities that are not prescribed by
law or regulation such that their effect is equivalent.
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SA-220 QUALITY CONTROL FOR AN AUDIT OF FINANCIAL STATEMENTS:
EFFECTIVE DATE :
Quality Control for an Audit of Financial Statements is effective for audits of financial
statements for periods beginning on or after April 1, 2010.
INTRODUCTION :
SCOPE :
This Standard on Auditing (SA) deals with the specific responsibilities of the auditor
regarding quality control procedures for an audit of financial statements. It also addresses,
where applicable, the responsibilities of the engagement quality control reviewer. This SA is
to be read in conjunction with relevant ethical requirements
OBJECTIVE :
The objective of the auditor is to implement quality control procedures at the engagement
level that provide the auditor with reasonable assurance that:
(a) The audit complies with professional standards and regulatory and legal requirements; and
(b) The auditor’s report issued is appropriate in the circumstances.
System of Quality Control and Role of Engagement Teams :
Quality control systems, policies and procedures are the responsibility of the audit firm.
Under SQC 1, the firm has an obligation to establish and maintain a system of quality control
to provide it with reasonable assurance that:
(a) The firm and its personnel comply with professional standards and regulatory and legal
requirements; and
(b) The reports issued by the firm or engagement partners are appropriate in the
circumstances2.
This SA is premised on the basis that the firm is subject to SQC 1.
Within the context of the firm’s system of quality control, engagement teams have a
responsibility to implement quality control procedures that are applicable to the audit
engagement and provide the firm with relevant information to enable the functioning of that
part of the firm’s system of quality control relating to independence.
Engagement teams are entitled to rely on the firm’s system of quality control, unless
information provided by the firm or other parties suggests otherwise.
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DEFINATION & MEANING :
Engagement partner :
The partner or other person in the firm who is a member of the Institute of Chartered
Accountants of India and is in full time practice and is responsible for the engagement and its
performance, and for the report that is issued on behalf of the firm, and who, where required,
has the appropriate authority from a professional, legal or regulatory body.
Engagement quality control reviewer :
A partner, other person3 in the firm, suitably qualified external person, or a team made up of
such individuals, with sufficient and appropriate experience and authority to objectively
evaluate, before the report is issued, the significant judgments the engagement team made
and the conclusions they reached in formulating the report. However, in case the review is
done by a team of individuals, such team should be headed by a member of the Institute.
Engagement team :
All personnel performing an engagement, including any experts contracted by the firm in
connection with that engagement.
Firm :
A sole practitioner/proprietor, partnership, or any such entity of professional accountants, as
may be permitted by law.
REQUIREMENTS :
Leadership Responsibilities for Quality on Audits
The engagement partner shall take responsibility for the overall quality on each audit
engagement to which that partner is assigned.
Relevant Ethical Requirements
Throughout the audit engagement, the engagement partner shall remain alert, through
observation and making inquiries as necessary, for evidence of non-compliance with relevant
ethical requirements by members of the engagement team.
If matters come to the engagement partner’s attention through the firm’s system of quality
control or otherwise that indicate that members of the engagement team have not complied
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with relevant ethical requirements, the engagement partner, in consultation with others in the
firm, shall determine the appropriate action.
Independence
The engagement partner shall form a conclusion on compliance with independence
requirements that apply to the audit engagement. In doing so, the engagement partner shall:
(a) Obtain relevant information from the firm and, where applicable, network firms, to
identify and evaluate circumstances and relationships that create threats to independence;
(b) Evaluate information on identified breaches, if any, of the firm’s independence policies
and procedures to determine whether they create a threat to independence for the audit
engagement; and
(c) Take appropriate action to eliminate such threats or reduce them to an acceptable level by
applying safeguards, or, if considered appropriate, to withdraw from the audit engagement,
where withdrawal is permitted by law or regulation. The engagement partner shall promptly
report to the firm any inability to resolve the matter for appropriate action.
Acceptance and Continuance of Client Relationships and Audit Engagements
The engagement partner shall be satisfied that appropriate procedures regarding the
acceptance and continuance of client relationships and audit engagements have been
followed, and shall determine that conclusions reached in this regard are appropriate. If the
engagement partner obtains information that would have caused the firm to decline the audit
engagement had that information been available earlier, the engagement partner shall
communicate that information promptly to the firm, so that the firm and the engagement
partner can take the necessary action.
Assignment of Engagement Teams
The engagement partner shall be satisfied that the engagement team, and any auditor’s
experts who are not part of the engagement team, collectively have the appropriate
competence and capabilities to:
(a) Perform the audit engagement in accordance with professional standards and regulatory
and legal requirements; and
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(b) Enable an auditor’s report that is appropriate in the circumstances to be issued.
Engagement Performance
The engagement partner shall take responsibility for:(a) The direction, supervision and
performance of the audit engagement in compliance with professional standards and
regulatory and legal requirements;(b) The auditor’s report being appropriate in the
circumstances.
Reviews
The engagement partner shall take responsibility for reviews being performed in accordance
with the firm’s review policies and procedures. On or before the date of the auditor’s report,
the engagement partner shall, through a review of the audit documentation and discussion
with the engagement team, be satisfied that sufficient appropriate audit evidence has been
obtained to support the conclusions reached and for the auditor’s report to be issued.
Consultation
The engagement partner shall:
(a) Take responsibility for the engagement team undertaking appropriate consultation on
difficult or contentious matters;
(b) Be satisfied that members of the engagement team have undertaken appropriate
consultation during the course of the engagement, both within the engagement team and
between the engagement team and others at the appropriate level within or outside the firm;
(c) Be satisfied that the nature and scope of, and conclusions resulting from, such
consultations are agreed with the party consulted; and
(d) Determine that conclusions resulting from such consultations have been implemented.
Documentation
The auditor shall document:
(a) Issues identified with respect to compliance with relevant ethical requirements and how
they were resolved.
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(b) Conclusions on compliance with independence requirements that apply to the audit
engagement, and any relevant discussions with the firm that support these conclusions.
(c) Conclusions reached regarding the acceptance and continuance of client relationships and
audit engagements.
(d) The nature and scope of, and conclusions resulting from, consultations undertaken during
the course of the audit engagement.
The engagement quality control reviewer shall document, for the audit engagement reviewed,
that:
(a) The procedures required by the firm’s policies on engagement quality control review have
been performed;
(b) The engagement quality control review has been completed on or before the date of the
auditor’s report; and
(c) The reviewer is not aware of any unresolved matters that would cause the reviewer to
believe that the significant judgments the engagement team made and the conclusions they
reached were not appropriate.
SA-230 AUDIT DOCUMENTATION:
EFFECTIVE DATE:
This SA is effective for audits of financial statements for periods beginning on or after April
1, 2009.
SCOPE:
1. This Standard on Auditing (SA) deals with the auditor’s responsibility to prepare audit
documentation for an audit of financial statements. It is to be adapted as necessary in the
circumstances when applied to audits of other historical financial information. The specific
documentation requirements of other SAs do not limit the application of this SA. Laws or
regulations may establish additional documentation requirement
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Nature and Purposes of Audit Documentation:
Audit documentation that meets the requirements of this SA and the specific documentation
requirements of other relevant SAs provides:
(a) Evidence of the auditor’s basis for a conclusion about the achievement of the overall
objective of the auditor; and
(b) Evidence that the audit was planned and performed in accordance with SAs and
applicable legal and regulatory requirements.
Audit documentation serves a number of additional purposes, including the following:
Assisting the engagement team to plan and perform the audit.
Assisting members of the engagement team responsible for supervision to direct and
supervise the audit work, and to discharge their review responsibilities in accordance with
Proposed SA 220 (Revised).
Enabling the engagement team to be accountable for its work.
Retaining a record of matters of continuing significance to future audits.
Enabling the conduct of quality control reviews and inspections in accordance with SQC 1.
Enabling the conduct of external inspections in accordance with applicable legal,
regulatory or other requirements.
OBJECTIVE :
The objective of the auditor is to prepare documentation that provides:
(a) A sufficient and appropriate record of the basis for the auditor’s report; and
(b) Evidence that the audit was planned and performed in accordance with SAs and
applicable legal and regulatory requirements.
DEFINATION & MEANING :
Audit documentation :
The record of audit procedures performed, relevant audit evidence obtained, and conclusions
the auditor reached (terms such as “working papers” or “workpapers” are also sometimes
used)
Audit file :
One or more folders or other storage media, in physical or electronic form, containing the
records that comprise the audit documentation for a specific engagement.
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REQUIREMENTS :
Timely Preparation of Audit Documentation
The auditor shall prepare audit documentation on a timely basis.
Documentation of the Audit Procedures Performed and Audit Evidence Obtained
Form, Content and Extent of Audit Documentation :
The auditor shall prepare audit documentation that is sufficient to enable an experienced
auditor, having no previous connection with the audit, to understand:
(a) The nature, timing, and extent of the audit procedures performed to comply with the SAs
and applicable legal and regulatory requirements;
(b) The results of the audit procedures performed, and the audit evidence obtained; and
(c) Significant matters arising during the audit, the conclusions reached thereon, and
significant professional judgments made in reaching those conclusions.
In documenting the nature, timing and extent of audit procedures performed, the auditor shall
record:
(a) The identifying characteristics of the specific items or matters tested;
(b) Who performed the audit work and the date such work was completed; and
(c) Who reviewed the audit work performed and the date and extent of such review.
The auditor shall document discussions of significant matters with management, those
charged with governance, and others, including the nature of the significant matters discussed
and when and with whom the discussions took place. If the auditor identified information that
is inconsistent with the auditor’s final conclusion regarding a significant matter, the auditor
shall document how the auditor addressed the inconsistency.
SA-240 THE AUDITOR’S RESPONSIBILITY TO CONSIDER FRAUD AND ERROR
IN AN AUDIT OF FINANCIAL STATEMENTS:
EFFECTIVE DATE :
This SA is effective for audits relating to accounting period beginning on or after 1st April,
2009.
INTRODUCTION:
The purpose of this Auditing and Assurance Standard (AAS) is to establish standards on the
auditor's responsibility to consider fraud and error in an audit of financial statements. While
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this AAS focuses on the auditor's responsibilities with respect to fraud and error, the primary
responsibility for the prevention and detection of fraud and error rests with both those
charged with governance and the management of an entity. In this Standard, the term
'financial information' encompasses 'financial statements'. In some circumstances, specific
legislations and regulations may require the auditor to undertake procedures additional to
those set out in this AAS.
When planning and performing audit procedures and evaluating and reporting the results
thereof, the auditor should consider the risk of material misstatements in the financial
statements resulting from fraud or error.
SCOPE:
This Standard on Auditing (SA) deals with the auditor’s responsibilities relating to fraud in
an audit of financial statements. Specifically, it expands on how SA 315, “Identifying and
Assessing the Risks of Material Misstatement Through Understanding the Entity and Its
Environment,” and SA 330, “The Auditor’s Responses to Assessed Risks,” are to be applied
in relation to risks of material misstatement due to fraud.
OBJECTIVES :
The objectives of the auditor are :
(a) To identify and assess the risks of material misstatement in the financial statements due to
fraud;
(b) To obtain sufficient appropriate audit evidence about the assessed risks of material
misstatement due to fraud, through designing and implementing appropriate responses; and
(c) To respond appropriately to identified or suspected fraud.
DEFINITIONS & MEANING :
For purposes of the SAs, the following terms have the meanings attributed below:
(a) Fraud - An intentional act by one or more individuals among management, those charged
with governance, employees, or third parties, involving the use of deception to obtain an
unjust or illegal advantage.
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(b) Fraud risk factors - Events or conditions that indicate an incentive or pressure to commit
fraud or provide an opportunity to commit fraud.
REQUIREMENTS :
Professional Skepticism
In accordance with SA 200, the auditor shall maintain an attitude of professional skepticism
throughout the audit, recognizing the possibility that a material misstatement due to fraud
could exist, notwithstanding the auditor’s past experience of the honesty and integrity of the
entity’s management and those charged with governance. Unless the auditor has reason to
believe the contrary, the auditor may accept records and documents as genuine. If conditions
identified during the audit cause the auditor to believe that a document may not be authentic
or that terms in a document have been modified but not disclosed to the auditor, the auditor
shall investigate further. Where responses to inquiries of management or those charged with
governance are inconsistent, the auditor shall investigate the inconsistencies.
Discussion Among the Engagement Team
SA 315 requires a discussion among the engagement team members and a determination by
the engagement partner of matters which are to be communicated to those team members not
involved in the discussion. This discussion shall place particular emphasis on how and where
the entity’s financial statements may be susceptible to material misstatement due to fraud,
including how fraud might occur. The discussion shall occur notwithstanding the engagement
team members’ beliefs that management and those charged with governance are honest and
have integrity.
Risk Assessment Procedures and Related Activities
When performing risk assessment procedures and related activities to obtain an
understanding of the entity and its environment, including the entity’s internal control,
required by SA 3155. the risks of material misstatement due to frau Evaluation of Fraud Risk
Factors The auditor shall evaluate whether the information obtained from the other risk
assessment procedures and related activities performed indicates that one or more fraud risk
factors are present. While fraud risk factors may not necessarily indicate the existence of
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fraud, they have often been present in circumstances where frauds have occurred and
therefore may indicate risks of material misstatement due to fraud.
Evaluation of Audit Evidence
The auditor shall evaluate whether analytical procedures that are Identification and
Assessment of the Risks of Material Misstatement Due to Fraud
In accordance with SA 315, the auditor shall identify and assess the risks of material
misstatement due to fraud at the financial statement level, and at the assertion level for
classes of transactions, account balances and disclosures When identifying and assessing the
risks of material misstatement due to fraud, the auditor shall, based on a presumption that
there are risks of fraud in revenue recognition, evaluate which types of revenue, revenue
transactions or assertions give rise to such risks. presumption is not applicable in the
circumstances of the engagement and, accordingly, has not identified revenue recognition as
a risk of material misstatement due to fraud. The auditor shall treat those assessed risks of
material misstatement due to fraud as significant risks and accordingly, to the extent not
already done so, the auditor shall obtain an understanding of the entity’s related controls,
including control activities, relevant to such risks
Responses to the Assessed Risks of Material Misstatement Due to Fraud
Overall Responses
In accordance with SA 330, the auditor shall determine overall responses to address the
assessed risks of material misstatement due to fraud at the financial statement level.
In determining overall responses to address the assessed risks of material misstatement due
to fraud at the financial statement level, the auditor shall:
(a) Assign and supervise personnel taking account of the knowledge, skill and ability of the
individuals to be given significant engagement responsibilities and the auditor’s assessment
of the risks of material misstatement due to fraud for the engagement;
(b) Evaluate whether the selection and application of accounting policies by the entity,
particularly those related to subjective measurements and complex transactions, may be
indicative of fraudulent financial reporting resulting from management’s effort to manage
earnings; and
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(c) Incorporate an element of unpredictability in the selection of the nature, timing and extent
of audit procedures.
Audit Procedures Responsive to Assessed Risks of Material
Misstatement Due to Fraud at the Assertion Level . In accordance with SA 330, the auditor
shall design and perform further audit procedures whose nature, timing and extent are
responsive to the assessed risks of material misstatement due to fraud at the assertion level
Audit Procedures Responsive to Risks Related to Management Override of Controls.
Management is in a unique position to perpetrate fraud because of management’s ability to
manipulate accounting records and prepare fraudulent financial statements by overriding
controls that otherwise appear to be operating effectively. Although the level of risk of
management override of controls will vary from entity to entity, the risk is nevertheless
present in all entities. Due to the unpredictable way in which such override could occur, it is a
risk of material misstatement due to fraud and thus a significant risk.
SA-500 - AUDIT EVIDENCE:
INTRODUCTION & SCOPE OF STANDARD ON AUDITING (SA) 500
This Standard on Auditing (SA) explains what constitutes audit evidence in an audit of
financial statements, and deals with the auditor’s responsibility to design and perform audit
procedures to obtain sufficient appropriate audit evidence to be able to draw reasonable
conclusions on which to base the auditor’s opinion. This SA is applicable to all the audit
evidence obtained during the course of the audit. Other SAs deal with specific aspects of the
audit (for example, SA 3152), the audit evidence to be obtained in relation to a particular
topic (for example, SA 570 (Revised)3), specific procedures to obtain audit evidence (for
example, Proposed SA 520 (Revised)4), and the evaluation of whether sufficient appropriate
audit evidence has been obtained (Proposed SA 200 (Revised)5 and SA 3306).
EFFECTIVE DATE :
This SA is effective for audits of financial statements for periods beginning on or after April
1, 2009.
OBECTIVE :
Objective of Revised Standard on Auditing (SA) 500 Audit Evidence
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The objective of the auditor is to design and perform audit procedures in such a way as to
enable the auditor to obtain sufficient appropriate audit evidence to be able to draw
reasonable
conclusions on which to base the auditor’s opinion.
DEFINATION & MEANING :
For purposes of the SAs, the following terms have the meanings attributed below:
a. Accounting records – The records of initial accounting entries and supporting records, such
as checks and records of electronic fund transfers; invoices; contracts; the general and
subsidiary ledgers, journal entries and other adjustments to the financial statements that are
not reflected in journal entries; and records such as work sheets and spreadsheets supporting
cost allocations, computations, reconciliations and disclosures.
b. Appropriateness (of audit evidence) – The measure of the quality of audit evidence; that is,
its relevance and its reliability in providing support for the conclusions on which the auditor’s
opinion is based.
c. Audit evidence – Information used by the auditor in arriving at the conclusions on which
the auditor’s opinion is based. Audit evidence includes both information contained in the
accounting records underlying the financial statements and other information.
d. Management’s expert – An individual or organisation possessing expertise in a field other
than accounting or auditing, whose work in that field is used by the entity to assist the entity
in reparing the financial statements.
e. Sufficiency (of audit evidence) – The measure of the quantity of audit evidence. The
quantity of the audit evidence needed is affected by the auditor’s assessment of the risks of
material misstatement and also by the quality of such audit evidence.
Requirements of Sufficient Appropriate Audit Evidence of Revised Standard on
Auditing (SA) 500
The auditor shall design and perform audit procedures that are appropriate in the
circumstances for the purpose of obtaining sufficient appropriate audit evidence.
Information to Be Used as Audit Evidence
When designing and performing audit procedures, the auditor shall consider the relevance
and reliability of the information to be used as audit evidence. When information to be used
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as audit evidence has been prepared using the work of a management’s expert, the auditor
shall, to the extent necessary, having regard to the significance of that expert’s work for the
auditor’s purposes,
a. Evaluate the competence, capabilities and objectivity of that expert;
b. Obtain an understanding of the work of that expert; and
c. Evaluate the appropriateness of that expert’s work as audit evidence for the relevant
assertion.
When using information produced by the entity, the auditor shall evaluate whether the
information is sufficiently reliable for the auditor’s purposes, including as necessary in the
circumstances:
a. Obtaining audit evidence about the accuracy and completeness of the information; and
b. Evaluating whether the information is sufficiently precise and detailed for the auditor’s
purposes.
Selecting Items for Testing to Obtain Audit Evidence
When designing tests of controls and tests of details, the auditor shall determine means of
selecting items for testing that are effective in meeting the purpose of the audit procedure.
Sufficient Appropriate Audit Evidence
A1. Audit evidence is necessary to support the auditor’s opinion and report. It is cumulative
in nature and is primarily obtained from audit procedures performed during the course of the
audit. It may, however, also include information obtained from other sources such as previous
audits provided the auditor has determined whether changes have occurred since the previous
audit that may affect its relevance to the current audit)7 or a firm’s quality control procedures
for client acceptance and continuance. In addition to other sources inside and outside the
entity, the entity’s accounting records are an important source of audit evidence. Also,
information that may be used as audit evidence may have been prepared using the work of a
management’s expert. Audit evidence comprises both information that supports and
corroborates management’s assertions, and any information that contradicts such assertions.
In addition, in some cases the absence of information (for example, management’s refusal to
provide a requested representation) is used by the auditor, and therefore, also constitutes audit
evidence.
A2. Most of the auditor’s work in forming the auditor’s opinion consists of obtaining and
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evaluating audit evidence. Audit procedures to obtain audit evidence can include inspection,
observation, confirmation, recalculation, re performance and analytical procedures, often in
some combination, in addition to inquiry. Although inquiry may provide important audit
evidence, and may even produce evidence of a misstatement, inquiry alone ordinarily does
not provide sufficient audit evidence of the absence of a material misstatement at the
assertion level
A3. As explained in Proposed SA 200 (Revised),8 reasonable assurance is obtained when the
auditor has obtained sufficient appropriate audit evidence to reduce audit risk (i.e., the risk
that the auditor expresses an inappropriate opinion when the financial statements are
materially misstated) to an acceptably low level.
A4. The sufficiency and appropriateness of audit evidence are interrelated. Sufficiency is the
measure of the quantity of audit evidence. The quantity of audit evidence needed is affected
by the auditor’s assessment of the risks of misstatement (the higher the assessed risks, the
more audit evidence is likely to be required) and also by the quality of such audit evidence
(the higher the quality, the less may be required). Obtaining more audit evidence, however,
may not compensate for its poor quality.
A5. Appropriateness is the measure of the quality of audit evidence; that is, its relevance and
its reliability in providing support for the conclusions on which the auditor’s opinion is based.
The reliability of evidence is influenced by its source and by its nature, and is dependent on
the individual circumstances under which it is obtained.
A6. SA 330 requires the auditor to conclude whether sufficient appropriate audit evidence has
been obtained.9 Whether sufficient appropriate audit evidence has been obtained to reduce
audit risk to an acceptably low level, and thereby enable the auditor to draw reasonable
conclusions on which to base the auditor’s opinion, is a matter of professional judgment. SA
200 (Revised) contains discussion of such matters as the nature of audit procedures, the
timeliness of financial reporting, and the balance between benefit and cost, which are relevant
factors when the auditor exercises professional judgment regarding whether sufficient
appropriate audit evidence has been obtained.
Sources of Audit Evidence :
A7. Some audit evidence is obtained by performing audit procedures to test the accounting
records, for example, through analysis and review, re performing procedures followed in the
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financial reporting process, and reconciling related types and applications of the same
information. Through the performance of such audit procedures, the auditor may determine
that the accounting records are internally consistent and agree to the financial statements.
A8. More assurance is ordinarily obtained from consistent audit evidence obtained from
different sources or of a different nature than from items of audit evidence considered
individually. For example, corroborating information obtained from a source independent of
the entity may increase the assurance the auditor obtains from audit evidence that is generated
internally, such as evidence existing within the accounting records, minutes of meetings, or a
management representation.
A9. Information from sources independent of the entity that the auditor may use as audit
evidence may include confirmations from third parties, analysts’ reports, and comparable
data about competitors (benchmarking data).
Audit Procedures for Obtaining Audit Evidence :
As required by, and explained further in, SA 315 and SA 330, audit evidence to draw
reasonable conclusions on which to base the auditor’s opinion is obtained by performing:
(a) Risk assessment procedures; and
(b) Further audit procedures, which comprise:
i. Tests of controls, when required by the SAs or when the auditor has chosen to do so; and ii.
Substantive procedures, including tests of details and substantive analytical procedures.
A11. The audit procedures described in paragraphs A14-A25 below may be used as risk
assessment procedures, tests of controls or substantive procedures, depending on the context
in which they are applied by the auditor. As explained in SA 330, audit evidence obtained
from previous audits may, in certain circumstances, provide appropriate audit evidence where
the auditor performs audit procedures to establish its continuing relevance.
A12. The nature and timing of the audit procedures to be used may be affected by the fact
that some of the accounting data and other information may be available only in electronic
form or only at certain points or periods in time. For example, source documents, such as
purchase orders and invoices, may exist only in electronic form when an entity uses
electronic commerce, or may be discarded after scanning when an entity uses image
processing systems to facilitate storage and reference.
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A13. Certain electronic information may not be retrievable after a specified period of time,
for example, if files are changed and if backup files do not exist. Accordingly, the auditor
may find
it necessary as a result of an entity’s data retention policies to request retention of some
information for the auditor’s review or to perform audit procedures at a time when the
information is available.
Inspection :
A14. Inspection involves examining records or documents, whether internal or external, in
paper form, electronic form, or other media, or a physical examination of an asset. Inspection
of records and documents provides audit evidence of varying degrees of reliability,
depending on their nature and source and, in the case of internal records and documents, on
the effectiveness of the controls over their production. An example of inspection used as a
test of controls is inspection of records for evidence of authorisation.
A15. Some documents represent direct audit evidence of the existence of an asset, for
example, a document constituting a financial instrument such as a stock or bond. Inspection
of such documents may not necessarily provide audit evidence about ownership or value. In
addition, inspecting an executed contract may provide audit evidence relevant to the entity’s
application of accounting policies, such as revenue recognition.
A16. Inspection of tangible assets may provide reliable audit evidence with respect to their
existence, but not necessarily about the entity’s rights and obligations or the valuation of the
assets. Inspection of individual inventory items may accompany the observation of inventory
counting.
Observation
A17. Observation consists of looking at a process or procedure being performed by others,
for example, the auditor’s observation of inventory counting by the entity’s personnel, or of
the performance of control activities. Observation provides audit evidence about the
performance of a process or procedure, but is limited to the point in time at which the
observation takes place, and by the fact that the act of being observed may affect how the
process or procedure is performed. See Proposed SA 501 (Revised) for further guidance on
observation of the counting of inventory.
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External Confirmation :
A18. An external confirmation represents audit evidence obtained by the auditor as a direct
written response to the auditor from a third party (the confirming party), in paper form, or by
electronic or other medium. External confirmation procedures frequently are relevant when
addressing assertions associated with certain account balances and their elements. However,
external confirmations need not be restricted to account balances only. For example, the
auditor may request confirmation of the terms of agreements or transactions an entity has
with third parties; the confirmation request may be designed to ask if any modifications have
been made to the agreement and, if so, what the relevant details are. External confirmation
procedures also are used to obtain audit evidence about the absence of certain conditions, for
example, the absence of a “side agreement” that may influence revenue recognition. See
Proposed SA 505 (Revised) for further guidance.
Reperformance :
A20. Reperformance involves the auditor’s independent execution of procedures or controls
that were originally performed as part of the entity’s internal control.
Analytical Procedures:
A21. Analytical procedures consist of evaluations of financial information made by a study of
plausible relationships among both financial and non-financial data. Analytical procedures
also encompass the investigation of identified fluctuations and relationships that are
inconsistent with other relevant information or deviate significantly from predicted amounts.
See Proposed SA 520 (Revised) for further guidance.
Inquiry :
A22. Inquiry consists of seeking information of knowledgeable persons, both financial and
nonfinancial, within the entity or outside the entity. Inquiry is used extensively throughout
the audit in addition to other audit procedures. Inquiries may range from formal written
inquiries to informal oral inquiries. Evaluating responses to inquiries is an integral part of the
inquiry process.
A23. Responses to inquiries may provide the auditor with information not previously
possessed or with corroborative audit evidence. Alternatively, responses might provide
information that differs significantly from other information that the auditor has obtained, for
example, information regarding the possibility of management override of controls. In some
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cases, responses to inquiries provide a basis for the auditor to modify or perform additional
audit procedures.
A24. Although corroboration of evidence obtained through inquiry is often of particular
importance, in the case of inquiries about management intent, the information available to
support management’s intent may be limited. In these cases, understanding management’s
past history of carrying out its stated intentions, management’s stated reasons for choosing a
particular course of action, and management’s ability to pursue a specific course of action
may provide relevant information to corroborate the evidence obtained through inquiry.
A25. In respect of some matters, the auditor may consider it necessary to obtain written
representations from management and, where appropriate, those charged with governance to
confirm responses to oral inquiries. See SA 580 (Revised) for further guidance.
SA 501 AUDIT EVIDENCE-PECIFIC CONSIDERATIONS FOR SELECTED ITEMS
EFFECTIVE DATE :
This SA is effective for audits of financial statements for periods beginning on or after April
1, 2010.
INTRODUCTON :
SCOPE :
This SA deals with specific considerations by the auditor in obtaining sufficient
appropriate audit evidence with respect to certain aspects of inventory, litigation
and claims involving the entity, and segment information in an audit of financial statements.
OBJECTIVE :
The objective of the auditor is to obtain sufficient appropriate audit evidence regarding the:
(a) Existence and condition of inventory;
(b) Completeness of litigation and claims involving the entity; and
(c) Presentation and disclosure of segment information in accordance with the
applicable financial reporting framework.
REQUIREMENTS :
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Inventory
1.When inventory is material to the financial statements, the auditor shall obtain sufficient
appropriate audit evidence regarding the existence and condition of inventory. Management
ordinarily establishes procedures under which inventory is physically counted at least once a
year to serve as a basis for the preparation of the financial statements and, if applicable, to
ascertain the reliability of the entity’s perpetual inventory system.
2. Attendance at physical inventory counting involves:
(i)Evaluate management’s instructions and procedures for recording and controlling the result
s of the entity’s physical inventory counting;
(ii) Observe the performance of management’s count procedures;
(iii) Inspect the inventory; and
(iv) Perform test counts;
3.If physical inventory counting is conducted at a date other than the date of the financial stat
ements, the auditor shall, in addition to the procedures specified above, perform audit proced
ures to obtain audit evidence about whether
hanges in inventory between the count date and the date of the financial statement are properl
y recorded.
4.If the auditor is unable to attend physical inventory counting due to unforeseen circumstanc
es, the auditor shall make or observe some physical counts on an alternative date, and perfor
m audit procedures on intervening transactions.
5.If attendance at physical inventory counting is impracticable, the auditor shall perform alter
native audit procedures to Obtain sufficient appropriate audit evidence regarding the existenc
e and condition of inventory. If it is not possible to do so,the auditor shall modify the opinion
in the auditor’s report in accordance with SA 705 .
6.When inventory under the custody and control of a third party is material to the financial st
atements, the auditor shall obtain sufficient appropriate auditevidence regarding the existence
and condition of that inventory by performing external confirmation from the third party as to
the quantities and condition of inventory held on behalf of the entity.
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Litigation and Claims
1.The auditor shall design and perform audit procedures in order to identify litigation and clai
ms involving the entity which may give rise to a risk of material misstatement, including
(a)Inquiry of management and, where applicable, others within the entity, including in‐house
legal counsel;
(b) Reviewing minutes of meetings of those charged with governance and correspondence be
tween the entity and its external legal counsel; and
(c) Reviewing legal expense accounts.
2.If the auditor assesses a risk of material misstatement regarding litigation or claims that hav
e been identified, or when audit procedures performed indicate that other material litigation o
r claims may exist, the auditor shall, in addition to the procedures required by other SAs, seek
direct communication with the entity’s external legal counsel. The auditor shall do so through
a letter of inquiry, prepared by management and sent by the auditor, requesting the entity’s ex
ternal legal counsel to communicate directly with the auditor. If law, regulation or the respect
ive legal professional body prohibits the entity’s external legal counsel from communicating
directly with the auditor, the auditor shall perform alternative audit procedures.
3.If: (a) management refuses to give the auditor permission to communicate or meet with th
e entity’s external legal counsel, or the entity’s external legal counsel refuses to respond appr
opriately to the letter of inquiry, or is prohibited from responding; and
(b) The auditor is unable to obtain sufficient appropriate audit evidence by performing altern
ative audit procedures, the auditor shall modify the opinion in the auditor’s report in accordan
ce with SA 705.
4. The auditor shall request management and, where appropriate, those charged with govern
ance to provide written representations that all known actual or possible litigation and claims
whose effects should be considered when preparing the financial statements have been disclo
sed to the auditor and appropriately accounted for and disclosed in accordance with the applic
able financial reporting framework
Segment Information
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The auditor shall obtain sufficient appropriate audit evidence regarding the presentation and d
isclosure of segment information in accordance with the applicable financial reporting frame
work by(a) Obtaining an understanding of the methods used by management in determining
segment information, and:
(i) Evaluating whether such methods are likely to result in disclosure in accordance with the
applicable FRF and
(ii) Where appropriate, testing the application of such methods; and
(b) Performing analytical procedures or other audit procedures appropriate in the circumstan
ces.
SA 505 EXTERNAL CONFIRMATIONS
EFFECTIVE DATE :
This SA is effective for audits releating to accounting periods beginning on or after April 1,
2010.
INTRODUCTION :
SCOPE :
This Standard on Auditing (SA) deals with the auditor’s use of external confirmation procedu
res to obtain audit evidence. It does not address inquiries regarding litigation and claims since
SA 501 (Revised) deals with such inquiries.
OBJECTIVE :
The objective of the auditor, when using external confirmation procedures, is to design and p
erform such procedures to obtain relevant and reliable audit evidence.
DEFINITIONS & MEANING :
For purposes of the SAs, the following terms have the meanings given below:
a) External confirmation – Audit evidence obtained as a direct written response to the audi
tor from a third party (the confirming party), in paper form, or by electronic or other medium.
b) Positive confirmation request –
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A request that the confirming party respond directly to the auditor indicating whether the con
firming party agrees or disagrees with the information in the request, or providing the request
ed information.
c) Negative confirmation request –
A request that the confirming party respond directly to the auditor only if the confirming part
y disagrees with the information provided in the request.
d) Non‐response –
A failure of the confirming party to respond, or fully respond, to a positive confirmation requ
est, or a confirmation request returned undelivered.
e) Exception- A response that indicates a difference between information requested to be co
nfirmed, or contained in the entity’s records, and information provided by the
confirming party.
REQUIREMENTS :
I. External Confirmation Procedures
When using external confirmation procedures, the auditor shall maintain control
over external confirmation requests, including:
(a) Determining the information to be confirmed or requested
(b) Selecting the appropriate confirming party
(c) Designing the confirmation requests, including determining that requests are
properly addressed; and
(d) Sending the requests, including follow‐up requests when applicable, to the confirming pa
rty.
II. Management’s Refusal to Allow the Auditor to Send a Confirmation Request
1. If management refuses to allow the auditor to send a confirmation request, the auditor shal
l:
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(a) Inquire as to management’s reasons for the refusal, and seek audit evidence as to their va
lidity and reasonableness and will also evaluate this while assessing the risk of material misst
atement and also on his audit procedures.
(b) Perform alternative audit procedures designed to obtain relevant and reliable
audit evidence.
2.If the auditor concludes that management’s refusal to allow the auditor to send a confirmati
on request isunreasonable, or the auditor is unable to obtain relevant and reliable audit eviden
ce from alternative audit procedures, the auditor shall communicate with TCWG in The audit
or also shall determine the implications for the audit and the auditor’s pinion in accordance w
ith SA 705.
III. Results of the External Confirmation Procedures
1. Reliability of Responses to Confirmation Requests
1. If the auditor identifies factors that give rise to doubts about the reliability of the response t
o a confirmation request, the auditor shall obtain further audit evidence
to resolve those doubts.
2. If the auditor determines that a response to a confirmation request is
not reliable, the auditor shall evaluate the implications on the assessment of the relevant risks
of material misstatement and on the related nature, timing and extent of other audit procedure
s.
2. Non‐Responses
In the case of each non‐response, the auditor shall perform alternative audit procedures to obt
ain relevant and reliable audit evidence.
3. Exceptions
The auditor shall investigate exceptions to determine whether or not they are indicative of mi
sstatements.
IV. Negative Confirmations
Negative confirmations provide less persuasive audit evidence than positive confirmations.
Accrdingly, the auditor shall not use negative confirmationrequests as the sole substantive au
34
dit procedure to address an assessed risk of material misstatement at the assertion level unless
all of the following are present
(a) The auditor has assessed the risk of material misstatement as low and has obtained suffici
ent appropriate audit evidence regarding the operating effectiveness of controls relevant to th
e assertion;
(b) The population of items subject to negative confirmation procedures comprises a large nu
mber of small, homogeneous, account balances, transactions or conditions;
(c) A very low exception rate is expected; and
(d) The auditor is not aware of circumstances or conditions that would cause recipients of
negative confirmation requests to disregard such requests
V. Evaluating the Evidence Obtained
The auditor shall evaluate whether the results of the external confirmation procedures provide
relevant and reliable audit evidence, or whether performing further audit procedures is necess
ary.
SA 510 INITIAL AUDIT ENGAGEMENTS OPENING BALANCES
EFFECTIVE DATE :
This SA is effective for audit of financial statement for period beginning on or after
April 1,2010.
INTRODUCTION :
SCOPE :
The purpose of this Standard on Auditing (SA) is to establish standards regarding audit of
opening balances in case of initial engagements, i.e.when the financial statements are audited
for the first time or when the financial statements for the preceding period were audited by
another auditor. This Standard would also be considered by the auditor so that he may
become aware of contingencies and commitments existing at the beginning of the current
period.
35
“Opening balances” means those account balances which exist at the beginning of the
period. Opening balances are the closing balances of the preceding period brought forward to
the current period and reflect the effect of:
(a) transactions and other events of the preceding periods; and
(b) accounting policies applied in the preceding period.
For initial audit engagements, the auditor should obtain sufficient appropriate audit evidence
that:
(a) the closing balances of the preceding period have been correctly brought forward to the
current period;
(b) the opening balances do not contain misstatements that materially affect the financial
statements for the current period; and
(c) appropriate accounting policies are consistently applied. In an initial audit engagement,
the auditor will not have previously obtained audit evidence supporting the opening balances.
DEFINITIONS & MEANING :
For the purposes of the SAs, the following terms have the meanings attributed below:
(a) Initial audit engagement – An engagement in which either:
(i) The financial statements for the prior period were not audited; or
(ii) The financial statements for the prior period were audited by a predecessor auditor.
(b) Opening balances – Those account balances that exist at the beginning of the period.
Opening balances are based upon the closing balances of the prior period and reflect the
effects of transactions and events of prior periods and accounting policies applied in the prior
period. Opening balances also include matters requiring disclosure that existed at the
beginning of the period, such as contingencies and commitments.
(c) Predecessor auditor – The auditor from a different audit firm, who audited the financial
statements of an entity in the prior period and who has been replaced by the current auditor.
36
REQUIREMENTS :
Audit Procedures
For the purpose of this Statement, the sufficiency and appropriateness of the audit evidence,
the auditor will need to obtain regarding opening balances, would depend on the following
matters:
The accounting policies followed by the entity.
Whether the auditor’s report contained an unqualified opinion, a qualified opinion,
adverse opinion or disclaimer of opinion where the financial statements for the
preceding period were audited.
The nature of the opening balances, including the risk of their misstatement in the
financial statements for the current period.
The materiality of the opening balances relative to the financial statements for the
current period.
The auditor will need to consider whether the accounting policies followed in the preceding
period, as per which the opening balances have been arrived at, were appropriate and that
those policies are consistently applied in the financial statements for the current period and
where such accounting policies are inappropriate, the same have been changed in the current
period and adequately disclosed.
The nature of the opening balances, including the risk of their misstatement in the
financial statements for the current period.
The materiality of the opening balances relative to the financial statements for the
current period.
The auditor will need to consider whether the accounting policies followed in the preceding
period, as per which the opening balances have been arrived at, were appropriate and that
those policies are consistently applied in the financial statements for the current period and
where such accounting policies are inappropriate, the same have been changed in the current
period and adequately disclosed.
37
When the financial statements for the preceding period were audited by another auditor, the
current auditor may be able to obtain sufficient appropriate audit evidence regarding opening
balances by perusing the copies of the audited financial statements. Ordinarily, the current
auditor can place reliance on the closing balances contained in the financial statements for the
preceding period, except when during the performance of audit procedures for the current
period the possibility of misstatements in opening balances is indicated. When the financial
statements of the preceding period were not audited or the auditor is not satisfied by using the
procedures .For current assets and liabilities, some audit evidence can ordinarily be obtained
as part of the audit procedures performed during the current period. For example, the
collection/payment of opening accounts receivable/ accounts payable during the current
period will provide some audit evidence as to their existence, rights and obligations,
completeness and valuation at the beginning of the period.
Audit Conclusions and Reporting
If, after performing procedures including those set out above, the auditor is unable to obtain
sufficient appropriate audit evidence concerning opening balances, the auditor should, as
appropriate, express:
(a) a qualified opinion, or
(b) a disclaimer of opinion.
The auditor may also express an opinion which is qualified or disclaimed regarding the profit
or loss and unqualified regarding state of affairs, as appropriate. If the opening balances
contain misstatements which materially affect the financial statements for the current period
and the effect of the same is not properly accounted for and adequately disclosed, the auditor
should express a qualified opinion or an adverse opinion, as appropriate.
SA 520 ANALYTICAL REVIEW PROCEDURES:
EFFECTIVE DATE :
This SA is effective for all audits relating to accounting periods beginning on or after
April 1,2010.
INTRODUCTION :
1. The purpose of this Standard on Auditing (SA) is to establish standards on the application
of analytical procedures during an audit.
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2. The auditor should apply analytical procedures at the planning and overall review stages of
the audit. Analytical procedures may also be applied at other stages.
3. “Analytical procedures” means the analysis of significant ratios and trends, including the
resulting investigation of fluctuations and relationships that are inconsistent with other
relevant information or which deviate from predicted amounts. Nature and Purpose of
Analytical Procedures.
SCOPE :
This Standard on Auditing (SA) deals with the auditor’s use of analytical procedures as
substantive procedures (“substantive analytical procedures”), and as procedures near the end
of the audit that assist the auditor when forming an overall conclusion on the financial
statements. The use of analytical procedures as risk assessment procedures is dealt with in SA
3153 . SA 330 includes requirements and guidance regarding the nature, timing and extent of
audit procedures in response to assessed risks; these audit procedures may include substantive
analytical procedures.
OBJECTIVES :
The objectives of the auditor are:
(a) To obtain relevant and reliable audit evidence when using substantive analytical
procedures; and
(b) To design and perform analytical procedures near the end of the audit that assist the
auditor when forming an overall conclusion as to whether the financial statements are
consistent with the auditor’s understanding of the entity
DEFINITION & MEANING :
For the purposes of the SAs, the term “analytical procedures” means evaluations of financial
information through analysis of plausible relationships among both financial and non-
financial data. Analytical procedures also encompass such investigation as is necessary of
identified fluctuations or relationships that are inconsistent with other relevant information or
that differ from expected values by a significant amount. The auditor’s choice of procedures,
methods and level of application is a matter of professional judgement.
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REQUIREMENTS :
Substantive Analytical Procedures : When designing and performing substantive analytical
procedures, either alone or in combination with tests of details, as substantive procedures in
accordance with SA 3305, the auditor shall:
(a) Determine the suitability of particular substantive analytical procedures for given
assertions, taking account of the assessed risks of material misstatement and tests of details, if
any, for these assertions;
(b) Evaluate the reliability of data from which the auditor’s expectation of recorded amounts
or ratios is developed, taking account of source, comparability, and nature and relevance of
information available, and controls over preparation;
(c) Develop an expectation of recorded amounts or ratios and evaluate whether the
expectation is sufficiently precise to identify a misstatement that, individually or when
aggregated with other misstatements, may cause the financial statements to be materially
misstated; and
(d) Determine the amount of any difference of recorded amounts from expected values that is
acceptable without further investigation Analytical Procedures that Assist When Forming an
Overall Conclusion
The auditor shall design and perform analytical procedures near the end of the audit that
assist the auditor when forming an overall conclusion as to whether the financial statements
are consistent with the auditor’s understanding of the entity.
Investigating Results of Analytical Procedures
If analytical procedures performed in accordance with this SA identify fluctuations or
relationships that are inconsistent with other relevant information or that differ from expected
values by a significant amount, the auditor shall investigate such differences by:
(a) Inquiring of management and obtaining appropriate audit evidence relevant to
management’s responses; and
(b) Performing other audit procedures as necessary in the circumstances.
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Application and Other Explanatory Materia :
Nature and Purpose of Analytical Procedures :
Analytical procedures include the consideration of comparisons of the entity's financial
information with, for example:
Comparable information for prior periods.
Anticipated results of the entity, such as budgets or forecasts.
Predictive estimates prepared by the auditor, such as an estimation of depreciation
charge for the year.
Similar industry information, such as a comparison of the entity's ratio of sales to
trade debtors with industry averages, or with other entities of comparable size in the
same industry
Analytical procedures also include consideration of relationships:
Among elements of financial information that would be expected to conform to a
predictable pattern based on the entity's experience, such as gross margin percentages.
Between financial information and relevant non-financial information, such as payroll
costs to number of employees.
Various methods may be used in performing the above procedures.
These range from simple comparisons to complex analyses using advanced statistical
techniques. Analytical procedures may be applied to consolidated financial statements,
financial statements of components (such as subsidiaries, divisions or segments) and
individual elements of financial information. The auditor's choice of procedures, methods and
level of application is a matter of professional judgement.
Analytical procedures are used for the following purposes:(a) to assist the auditor in planning
the nature, timing and extent of other audit procedures;(b) as substantive procedures when
their use can be more effective or efficient than tests of details in reducing detection risk for
specific financial statement assertions; and(c) as an overall review of the financial statements
in the final review stage of the audit.
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SA 610 USING THE WORTK OF INTERNAL AUDITORS :
EFFECTIVE DATE :
This SA is effective for all audits relating to accounting periods beginning on or after
April 1,2010.
INTRODUCTION :
SCOPE :
1. This Standard on Auditing (SA) deals with the external auditor’s responsibilities regarding
the work of internal auditors when the external auditor has determined, in accordance with
SA 315,3 that the internal audit function is likely to be relevant to the audit.
2. This SA does not deal with instances when individual internal auditors provide direct
assistance to the external auditor in carrying out audit procedures or where, in terms of the
applicable legal and regulatory framework, it is not permissible for the internal auditor to
provide access to his working papers to the third parties
Relationship between the Internal Audit Function and the External Auditor
3. The role and objectives of the internal audit function are determined by management and,
where applicable, those charged with governance. While the objectives of the internal audit
function and the external auditor are different, some of the ways in which the internal audit
function and the external auditor achieve their respective objectives may be similar.
OBJECTIVES :
The objectives of the external auditor, where the entity has an internal audit function that the
external auditor has determined is likely to be relevant to the audit, are to determine:
(a) Whether, and to what extent, to use specific work of the internal auditors; and
(b) If so, whether such work is adequate for the purposes of the audit.
DEFINITIONS & MEANING :
For purposes of the SAs, the following terms have the meanings attributed below:
(a) Internal audit function – An appraisal activity established or provided as a service to the
entity. Its functions include, amongst other things, examining, evaluating and monitoring the
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adequacy and effectiveness of internal control. The Preface to the Standards on Internal
Audit, issued by the Institute of Chartered Accountants of India, issued in November 2004
describes internal audit as “an independent management function, which involves a
continuous and critical appraisal of the functioning of an entity with a view to suggest
improvements thereto and add value to and strengthen the overall governance mechanism of
the entity, including the entity’s strategic risk management and internal control system.
Internal audit, therefore, provides assurance that there is transparency in reporting, as a part
of good governance.”
(b) Internal auditors – Those individuals who perform the activities of the internal audit
function. Internal auditors may belong to an internal audit department or equivalent function.
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