Ch8 - Audit Report

SA 700 - Forming an opinion and reporting on FS

Objective
To form an opinion on the FS
To express the opinion through a written audit report

Forming an Opinion on the FS

- Shall form an opinion whether the FS in all material aspects is as per AFRF.
- To form this opinion the auditor needs to obtain reaosonable assurance
- The conclusion shall take into account:
Whether SAAE has been obtained
Whether uncorrected misstatements are material, individually or in aggregate
- The auditor shall express an unmodified opinion when he concludes tha the FS prepared, in all material
aspects is in accordance with AFRF
- The auditor shall modify his opinion as per SA 705 if the FS is not free from material misstatement or
the auditor is unable to obtain SAAE

Specific Evaluations by Auditor

Auditor to evaluate the following:

FS adequately discloses significant accouting policies

accounting policies are consistent with AFRF and are appropriate
Accounting estimates made by management are reasonable
Information presented in FS is relevant, reliable, comparable and undertandable
Terminology used in FS is appropriate
FS provides adequate disclosures

Audit Report

Form and Content of AR for audits conducted in accordance with SA

Title Report of an Independent Auditor

Addresse Addressed to the persons who appointed the Auditors
Opinion (EATND) Identify the entity whose FS have been audited
State that the FS has been audited
Identify the title of each statement that comprises the FS
Refer to the notes
Specify date of period covered by FS
Basis of Opinion (SRIA) Audit was conducted in accordance with SA
Refer to the section of Auditor's Report that describes the auditor's
responsibility
Includes a statement that the auditor is Independent
Whether auditor believes to have obtained SAAE
Going Concern
Key Audit Matters
Other information
Responsibilities of Management Preparation and Presentation of FS
Implementation and Operation of Internal Controls
Assessing the entity's ability to continue as a going concern
Responsibilities of Auditor Auditor's responsibilities include and state the following:
Objectives of an auditor
Reasonable assurance is the highest form of assurance and not a
guarantee
Misstatements can be due to fraud or error
State that auditor exercises professional judgement and maintains
professional skepticism
To identify ROMM
To obtain and understanding of the internal control system
To evaluate appropriateness of accounting policies and management's
use of Going concern assessment
To evaluate overall presentation, structure and content of FS
Other Reporting Responsibilities Communicating matters with TCWG
Signature
Place
Date
UDIN

SA 705 - Modifications to the opinion in the Independent Auditor's Report

Circumstances where modification of opinion is required:

When the auditor concludes that the FS as a whole are not free from Material misstatements
When the auditor is unable to obtain SAAE

Pervasive Definition:
Pervasive effects on the FS are those that, in the auditors judgement:
are not confined to specific elements, accounts or items of the FS
if so confined, represents a substantial portion of the FS
In relation to disclosure, are fundamental to the users' understanding of the FS

Types of Modified Opinion

Qualified Opinion
Auditor has obtained SAAE and conludes that misstatements are material but NOT pervasive
Auditor is unable to obtain SAAE and conludes that misstatements are material but NOT pervasive

Adverse opinion
The auditor has obtained SAAE and concludes that the misstatments are material and pervasive.

Disclaimer of opinion
The auditor is unable to obtain SAAE on which to base the opinion and concludes that the possible
effects on the FS of undetected misstatements could be both material and pervasive
When the auditor disclaims the opinion, they must not imclude key audit matters
In the basis of opinion, it must not include that the auditor has obtained SAAE

In case of modification of opinion, the same needs to be communicated to TCWG

Consequence of inability to obtain SAAE due to management imposed limitation after accepting the
engagement

SA 706 Emphasis of Matter Paragragh and Other Matter Paragraghs in Independent Auditor's Report

SA 706 deals with additional communication in the Auditor's report to draw attention of the users to:

Matter disclosed in the FS are of such importance that they are fundamental to the users understanding
Matter that are relevant to users understanding of audit, auditor's responsibilities and the auditors
report

Emplasis of Matter - refers to the matter appropriately presented and disclosed in the FS that is of such
importance that is fundamental to the users understanding of FS

Other Matter - refers to matters other than those presented and disclosed in FS that, in the auditor's
professional judgement, is relevant ot users understanding of audit, auditor's responsibilities and audit
report
EOM is not a substituite for
modification of opinion
SA 701 - key audit matters
Reporting as per SA 570 when an MURGC exists

When auditor includes EOM, the auditor shall:

Include a paragragh as a separate section with the tite EOM
Include a clear reference to the matter being emphasized in the FS. The paragragh shall refer to the
information disclosed in the FS
Indicate that the auditor's opinion is not modified in respect of the matter emphasized

Examples of EOM
Uncertainity regarding future outcome of an exceptional litigation or regulatory action
Significant subsequent event
Early application of new accounting standard
A major catastrophe

The auditor shall include OM when:

Not prohibitted by law and
When the matter is not considered as KAM

EOM and OM to be communicated to TCWG

SA 701 - Communicating Key Audit Matters in the Independent Auditor's Report

KAM Def:
Matters in the professional judgement, were of most signficance in the audit of the FS of the current
period.
KAM are matters selected from matters communicated with TCWG

Purpose of communicating key audit matters

enhancing communicative value of the auditor's report by providing greater transparency
provide additional info which helps users in understanding those matters
understanding entity and areas of significant matters
provide a basis to further engage with mngt and TCWG about certain matters regarding the entity

Factors to determine KAM includes:

High ROMM
Significant auditor's judgemental
significant events or transactions

Communicating KAM

Separate Para under the title KAM

Def of KAM
the auditor does not provide a separate opinion on these matters

KAM to communicated to TCWG

SA 710 - Comparitive information - Corresponding figures and comparitive financial statements

Comparitive info: the amounts and disclosures included in FS in respect of one or more prior period in
accordance with AFRF

Audit procedures regarding Compartive information

whether comparitive info agrees with PY FS
whether as per AFRF
Accounting policies consistent
to obtain WR for all periods referred to in Audit opinion

Corresponding Figures
Comparitive information where amounts and disclosure for prior period are included as an intergral part
of current period FS and are intended to be read only in relation to amounts and other disclosures
relating to current period. The level of detail presented in the corresponding amounts and disclosures is
dictated primarily by its relevance to the current period figures

Audit procedures
1. If the audit report for prior period was modified and the matter which gave rise to such modification is
unresolved, the auditor shall: refer to both CY and PY if the unresolved matter has a material impact in
CY FS. In basis of opinion, should state that the auditor has modified opion on CY FS on account of an
unresolved matter in PY FS.
2. If the auditor obtained audit evidence that material misstatement exists in the prior period FS on which
unmodified opinion was issued previously, the auditor shall verifiy whether the misstatment has been
dealt with as per AFRF. If not, to express a qualified/adverse opinion on current period FS, modified with
respect to corresponding figures included therein.
3. If prior period FS not audited, to perform audit procedures as per SA 510
4. If PY FS was audited by predecessor auditor - to include OM and mention the type of opinion and the
date of the report

Comparitive Financial Statements

Amounts and other disclosures for the prior period are included for comparision with FS of the current
period but, if audited, are referred to in the audtior's opinion. The level of info included in the comparitive
FS is comparable with that of the current period FS

1. When comparitive FS are presented, auditor shall refer to each period for which FS are presented and
on which auditor's opinion is expressed
2. When reporting on prior period information in connection with current year audit, there is a difference
of opinion, the reasons for such difference to be stated in Other matter paragragh as per SA 706
3. If prior period FS not audited, to perform audit procedures as per SA 510
4. If PY FS was audited by predecessor auditor - to include OM and mention the type of opinion and the
date of the report

Branch Audit - 143(8)

Any establishment or extension of a company is called as a branch

Proper summary of branch returns needs to be sent by branch
Persons eligible to be appointed as the auditor of branch
company existing auditor
any other person qualified for appointment as an auditor of the company as per this act
when branch located outside india
- company auditor
- the accountant
- any other person qualified to be the auditor

Branch audit shall audit the accounts of branch and send it to the company auditor

Joint Audit SA 299

More than one firm/individual is appointed as the statutory auditors of the company

Advantages

Sharing of expertise
advantage of mutual consolutation
Lower workload
Better quality & improved service
lower costs and staff devt costs
healthy competion leading to better performance

Disadvantage

Fee sharing
Psychological problems
superiority complex
problems with co-ordination
areas of common concern being neglected
uncertainity about the liability for work done

1. JA and key members from each team shall being involved in planning and shall develop an OAS and AP
2. Prior to commencement of the audit, JA shall discuss

D - division of areas and common areas

R - Reporting objectives

C - Consider and communicate the factors that are significant in directing the engagement team efforts
P - Results of Prelim engt activities
R - NTE of resources required

3. The audi shall discuss the NTE of audit procedures to be performed

4. JA to obtain common EL and MRL and signed by all JA
5. Work to be divided amount themselves and work allocation doc to be signed by all JA
6. JA are res for the work allocated to them
7. JA are jointly and serverally responsible for:

work not divided

decision taken by during planning in respect of common audit areas
matters brought to their notice and there was an agreement
FS complying with relevant statutes
P&D as per AFRF
Audit report is as per SAs

8. During the course of audit, if JA comes across matters which are relevant to the areas of responsibility
of other joint auditors which deserve their attention. Such matters to be communicated
9 Common Audit report
10. In Case of disagreement between JA, separate audit report - OM

SA 600 - Using the work of another Auditor

SA 600 applies where the prinicpal auditor uses the work of another auditor
Princi Audi - Auditor with the responsibility for reporting on the FS which includes financial info of
components
Other Auditor - Responsible for reporting on Component Fin info
Component - division, subsidiary , JV, associate co

Rights of PA

In certain situations, PA may confer a right to visit a component and examin the BOA and other records
When another auditor Is appointed for a component, PA may rely on the work of another auditor

Procedures of PA

1. PA to obtain SAAE that the work of other auditor is adequate for PA purpose
2. PA to inform the following to other auditor
- Matters which require special considertions
- procedures of Inter component transactions
- timetable for completion of audit

3. Advise the other auditor of significant accounting, auditing and reporting requirements
4. PA might discuss the written summary of procedures performed and findings with Other audi
5. PA may also wish to visit other auditor

Reporting Requirements of the Auditors Under Companies Act 2013

143(1) - Inquiry
STADPC

S - any company other than investment and banking company, whether the shares debentures an dother
securities have been sold at a price less than the purchase price
T - whether there exists any transactions which represent mere book entries are prejudicial to the
interest of the shareholders
A - whether the loans and advances made by the company are secured
D - whether loans and advances are presented as deposits
P - whether personal expenses have been accounted in the books
C - when the shares are allocated for cash, whether the cash has been received

143(2) - The auditor shall make a report on the accounts examined by him
143(3) - Reporting on other Matters

Whether sought and obtained all information and explanations which is necessary for the purpose of audit
Whether, in his opinion proper books of accounts are maintained as required by law and if proper returns
have been received from the Branch
Whether the branch audit report has been received by the company auditor
Whether the company's BS and P&L are in agreement with the BOA
whether the FS are in compliance with AS
the observations or comments of the auditor on the transactions which have any adverse effect on
functioning on the compnay
Whether any director disqualified u/s 164(2)
whther there are any other qualification or adverse remarks relating to maintenance of accounts
whether the company has adequate internal controls with reference to FS and the operating
effectiveness of such controls
Any other matters as may be prescribed which includes:
- whether the company has disclosed all pending litigations in the FS
- whether the company has provided for any material foreseeable losses on long term contracts
- whether there has been any delay in amounts to be transferred to investor education and protection
fund
- whether the management has reprsented that to the best of his knowledge, other than those disclosed
in FS, that no funds has been received by the company from person/entities that the company shall lend
or invest in other person/entities
- dividend paid/declared is in accordance with section 123
- whether the company uses an accounding software which has the feature of audi trail

Opinion on internal controls not applicable to

OPC or small Company
Turnover<50 crores and borrowings from banks/FI/body corporate at any point of time during the FY is <
25 crores

143(12) - during the course of audit, if the auditor has a reaosn to believe that an offence involving
fraud has been committed in the company by its officers or employees, auditor shall report such matter
to the CG if the amount involved in fraud in 1 crore or more
If less than 1 Cr audit to report to audit committee or board

143(11) CARO 2020

Applicability

CARO 2020 applies to all companies except:

Banking company
Insurance Company
Section 8 company
OPC and Small company

Private Limited Company, not being a holding or subsidiary of public company: (& conditions and to
refer CY FS for applicability)
PUSC<= 1 Crore
Total borrowings from Bank/FI at any point of time during the FY <= 1crore
Total revenue <=10 crores
1. PPE and Intangibles
a. Whether company is maintaining proper records of PPE and Intangible assets
b. Whether the management performes physical verified of PPE at reasonable intervals and if
discrepencies noted and has been properly dealth with in the books of accounts
c. whether the title deeds of all the immovable property disclosed in the FS are held in the name of the
company, if not to provide the details
d. whether the PPE & Intangibles has been revlaued and the change is >=10% than the net carrying
amount
e. Whether proceedings have been initiated under the Benami Transactions Act 1988

2. Inventory
a. Whether the management performes physical verified of Inventory at reasonable intervals and if
discrepencies of 10% of more were noted has been properly dealt with in the books of accounts
b. Whether the company has obtained any WCDL for more than 5 crores; whether the quarterly returns
filed by the entity are in agreement with the BOA

[Link]
a. Whether entity has provided LIGS to subsi, associates, JV and other entities
b. Whether the terms of the LIGS are not prejudicial to the interest of the SH
c. Whether schedule of repayment of Princi and Interest are regular

d. if any amount overdue for more than 90 days , whether reasonable steps taken to recover the same
e. whether Loan/ advance fallen due next year has been renewed or extended as a fresh loan

f. Whether any loan has been granted which is repayable on demand or there are no terms of repayment

4. LIGS
To be in compliance with 185 and 186 of the companies act

5. Public Deposits

Whether the company has obtained public deposits, if yes whether in compliance with the companies Act

6. Cost Records
Whether maintenance of cost records is required by the companu u/s 148(1) of the companies act

7. Statutory dues
Whether the entity has been regular in depositing the disputed and undisputed statutory dues. If any
outstanding due, for more than the period of 6 months, the same shall be reported in CARO
Whether any statutory dues have not been deposited on account of disputes, then amounts involved, the
forum in which the dispute is pending to be disclosed

8. Undisclosed Income
Whether any transactions not recorded in the books of accounts are surrendered and disclosed as income
under the Income tax Act, 1961

9. Borrowings
a. Whether the company has defaulted in repayment of loans and borrowings
b. whether they are declared as a wilful defaulter by the bank
c. whether the loans were applied for the purpose for which it was obtained
d. whether loans obtained for short term has been utilised for long term purpose
e. whether company has taken loans to meet obligations of subs, associates and JV
f. whether company has raised loan by pledge of securities held in subs, associates and JV

10. Funds Raised

a. whether funds raised as part of IPO and FPO are utilised for the purpose for which it was raised
b. whether the entity has made any preferrential allotment or private placement of shares, if so are they
in compliance with Co Act

11. Frauds
a. Whether any fraud has been noticed or reported during the year, if yes, the nature and amount
involved to be indicated
b. whether any report has been submitted to the CG u/s 143(12)
c. whether there were any whistle blower complaints during the year

12. Nidhi Company

a. Whether Nidhi company has complied with Net owned funds to deposits ratio of 1:20
b. Whether Nidhi company has maintained unencumbered deposits of 10%
c. Whether there has been default in payment of Interest or repayment of deposits

13. RPT
Whether all RPT are in compliance with 177 and 188 of the companies act

14. Internal Audit

a. Whether the company has an internal audit system
b. Whether the internal audit reports were considered by the auditors

15, Non Cash Transactions with the director

Whether the company has entered into any non cash transactions with the directors

16. NBFC
a. whether registered as NBFC u/s 45-iA of the RBI Act, 1934
b. whether the company has conducted non banking or house financing activies with valid certificate of
registration from RBI
c. whether the company is a Core investement company and fulfills to meet the criteria of CIC and
whether exempt from registration
d. whether the group has more than one CIC, if yes indicate the number of CIC as part of the group

17. Cash Losses

whether the company has incurred cash losses in the financial year and in the preceeding FY, if yes state
the same

18. Regisnation of Statutory Auditors

Whether there was resignation of stat auditors during the year

19. Material Uncertinity

Based on the financial ratios and other factors, whether the auditor is of the opinion that no material
uncertainity exists

20. CSR
a. in respect of ongoing projects, whether the company has transferred the unspent amount to a fund
within a period of 6 months from the expiry of the FY

b. Whether any remaining amount unspent for ongoing projects, whether transferred to special account
21. CARO in CFS
Whether any qualification or adverse remark has been made in the CARO of companies included in CFS in
which the entity is included. If yes, state the paragraghs numbers with such qualifications.

Clauses 1- 20 Not applicable for consolidated FS, applicable for standalone FS

Clause 21 Applicable for Consolidated FS, not applicable fro standalone FS