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INDEX

Sr. No Particulars Page Nos.

1.1 Introduction 2-5

1.2 1.1 Objectives Of Standards on Auditing 6-7

1.3 Methodology 8

1.4 Scope Of Standards on Auditing 9-10

1.5 1.2 Importance Of Standards on Auditing 11

1.6 Review Of Literature 12

1.7 Limitations Of Standards on Auditing 13

2 Detailed Overview Of Standards on Auditing 14-34

4 1) Suggestions, Recommendations & Conclusion 35-37

5 2) Bibliography 38

1
1.1 INTRODUCTION:

The word audit is derived from the Latin word audire which means to hear. It is an important tool

of management. It is concerned with making an analytical and critical analysis of the books of

accounts, checking and verification of evidence in support of entries appearing in the books of

accounts, and ascertaining the authenticity of the financial statements. It is also concerned with

the examination of accounting data to determine the extent of an audit examination is too made

on the basis of evidential document such as invoice, money receipts and other records by the

authorized representative of the client. Auditor has used to send for the accountants and

hear whatever they had to say in connection with the accounts. The auditor has to look into the

facts behind figures and he must certify their accuracy. Auditing is to ascertain the balance sheet

and profit and loss account that they show a true and fair view of the financial state of affairs of a

concern. The Institute of Chartered Accountants of India has issued a number of statements of

standard auditing practices and accounting standards for guidance of Auditor of India.

According to DICKSEE, An audit may be said to be such an examination of the

books, accounts and vouchers of a business, as will enable the auditor to satisfy

himself that the balance sheet is properly drawn up, so as to exhibit a true and fair value of the

state of the affairs of the business, whether the profit and loss account gives a true

and fair value of the profit and loss for the financial year.

In order to facilitate understanding of the scope and authority of the pronouncements of the

Auditing and Assurance Standards Board ('AASB'), the ICAI has issued revised preface viz.,

Preface to Standards on Quality Control for Auditing, Review, Other Assurance and Related

Services, which has come into effect from 1st April, 2008. Standards of the following nature

issued by the AASB shall be collectively known as 'the Engagement Standards':

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Standards on Quality Control (SQC) are applicable to the auditing firms which performs Audits

and Reviews of Historical Financial information and other Assurance and related services

engagements.

Standards on Auditing (SAs), to be applied in the audit of historical financial information.

Standards on Review Engagements (SREs), to be applied in the review of historical financial

information.

Standards on Assurance Engagements (SAEs), to be applied in assurance engagements, dealing

with subject matters other than historical financial information.

Standards on Related Services (SRSs), to be applied to engagements involving application of

agreed upon procedures to information, compilation engagements, and other related services

engagements, as may be specified by the ICAI.

Auditing and Assurance Standard ('AAS') have been re-numbered and classified in the above five

categories as Standards on Auditing:

AUDITS AND REVIEWS OF HISTORICAL FINANCIAL INFORMATION

SA Title of Standard on Auditing Effective


from

SQC1 Quality control for Firms that perform audits and reviews of historical financial 1-4-2009
information and other assurance and related services engagement

SA Standards on Auditing (SAs)

100 - 199 Introductory Matters

3
SA Title of Standard on Auditing Effective
from

200 - 299 GENERAL PRINCIPLES AND RESPONSIBILITIES

200 Overall objectives of the Independent Auditor and the conduct of an audit, in 1-4-2010
accordance with standards on auditing

210* Agreeing the Terms of Audit Engagements 1-4-2010

220 Quality Control for an Audit of Financial Statements 1-4-2010

230 Audit Documentation 1-4-2009

240 The Auditor's Responsibilities relating to Fraud in an Audit of Financial Statements 1-4-2009

250 The Auditor's Responsibilities relating to Laws and Regulations in an Audit of 1-4-2009
Financial Statements

260 Communications with those Charged with Governance 1-4-2009

265 Communicating Deficiencies in internal control to those charged with Governance 1-4-2010
and management

299 Responsibilities of Joint Auditors 1-4-1996

300 - 499 RISK ASSESSMENT AND RESPONSE TO ASSESSED RISKS

300 Planning and Audit of Financial Statements 1-4-2008

315 Identifying and Assessing the Risks of Material Misstatement through understanding 1-4-2008
the Entity and its Environment

320 Materiality in Planning and performing an audit 1-4-2010

330 The Auditor's Responses to Assessed Risks 1-4-2008

402 Audit Considerations Relating to an Entity Using a Service OrganSAtion 1-4-2010

4
SA Title of Standard on Auditing Effective
from

450 Evaluation of misstatements identified during the audit 1-4-2010

500 - 599 AUDIT EVIDENCE

500 Audit Evidence 1-4-2009

501 Audit Evidence - Specific Considerations for selected Items 1-4-2010

505 External Confirmations 1-4-2010

510 Initial Audit Engagements - Opening Balances 1-4-2010

520 Analytical Procedures 1-4-2010

530 Audit Sampling 1-4-2009

540 Auditing Accounting Estimates, including fair value estimates, and related 1-4-2009
disclosures

550 Related Parties 1-4-2010

560 Subsequent Events 1-4-2009

570 Going Concern 1-4-2009

580 Written Representation 1-4-2009

600 - 699 USING WORK OF OTHERS

600 Special consideration audits of group financial statements under (including the work
of component auditors) consideration of the Board

610 Using the Work of Internal Auditor 1-4-2010

620* Using the Work of an auditor's Expert 1-4-2010

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SA Title of Standard on Auditing Effective
from

700 - 799 AUDIT CONCLUSIONS AND REPORTING

700 Forming an Opinion and Reporting on Financial Statements 1-4-2012

705 Modifications to the Opinion in the Independent Auditor's Report 1-4-2012

706 Emphasis of matter Paragraphs and Other Matter Paragraphs in the Independent 1-4-2012
Auditor's Report

710 Revised Comparative Information- corresponding figures and Comparative financial 1-4-2011
Statements

720 Auditor's Responsibility in Relation to Other Information in Documents containing 1-4-2010


Audited Financial Statements

800 - 899 SPECIALIZED AREAS

800 Special Considerations- Audits of Financial Statements prepared in accordance with 1-4-2011
special purpose framework

805 Special Considerations- Audits of single purpose financial statements and specific 1-4-2011
elements, accounts, or items of a financial statement

810 Engagements to report on summary financial statements 1-4-2011

SRE 2000 STANDARDS ON REVIEW ENGAGEMENTS (SREs)


-2699

2400 Engagements to Review Financial Statements 1-4-2010

2410 Review of Interim Financial Information performed by the independent auditor of 1-4-2010
the entity

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SA Title of Standard on Auditing Effective
from

ASSURANCE ENGAGEMENTS OTHER THAN AUDITS OR REVIEWS OF


HISTORICAL FINANCE INFORMATION

SAE3000 - STANDARDS ON ASSURANCE ENGAGEMENTS (SAEs)


3699

3000 - 3399 APPLICABLE TO ALL ASSURANCE ENGAGEMENTS

3400 - 3699 SUBJECT SPECIFIC STANDARDS

3400 The Examination of Prospective Financial Information 1-4-2007

3410 Assurance report on controls at a service origination 1-4-2011

RELATED SERVICES

SRS 4000 - STANDARDS ON RELATED SERVICES (SRSs)


4699

4400 Engagements to Perform Agreed-upon Procedures Regarding Financial Information 1-4-2004

4410 Engagements to Compile Financial Information 1-4-2004

1.2 OBJECTIVES OF STANDARDS ON AUDITING:

(A) Verification of accounts and financial statement

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The main objective of an audit is to verify and establish that at a given date balance sheet

presents true and fair view of financial position of the business and the profit and loss account

gives the true and fair value of the profit or loss for the accounting period.

The auditor must:-

Verify the accuracy of posting, balancing reconfirm the validity of transactions with supporting

documents Confirm existence of assets and liabilities Assess the system of internal

control Ascertain whether distinction has been made between capital and revenue items

(B) Fraud

Fraud is the word used to mean intentional error. This is done deliberately which implies that

there is intent to deceive, to mislead. These are more serious than intentional errors. A great

variety of intentional errors may be found. Intentional errors are the most difficult to detect and

auditors generally devote greater attention to this type. Auditors while studying the possibility

and nature of fraud must keep this always in mind and should not take any exception for those

who held high offices. These things generally start in a non-consequential way after a

subordinate staff member first borrow small amounts from the cash box to meet his temporary

difficulty and gradually it becomes his habit to borrow in such a manner. Fraud also takes place

in forms other than cash defalcation.

Frauds may be divided into the following categories:-

Misappropriation of goods

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In these types the businessman appropriates the goods to wrong accounts for committing frauds

and escaping from tax liabilities.

Misappropriation of goods can be detected by thorough checking of records and physical

verification of stock as well as purchase and sale.

Misappropriation of cash

This system can be done by theft of cash receipts, petty cash cherubs, creditors, purchases etc.

The transaction relating to the receipt of cash are omitted from the records or recorded with

lesser amount in the cash book. Some of the examples are as follows:-Cash sale may not be

recorded at all omitting credit not received from supplier and discount allowed to them

Manipulation of accounts

These frauds may be committed by manipulated wrong statement and accounts. These are made

only to give fraud to the higher authorities. This type of fraud is committees by manager, director

or board of directors.

(C) Detection and Prevention of Errors

Accounting is the device for collecting and presenting useful information in financial terms

about a business enterprise. It should as well be recognized that accounting data may contain

errors for a variety of reasons. Even today human element is the

mostimportant element of recording and processing the accounting data. It is themanagement

that is responsible for prevention of errors and fraud.

1.3 METHODOLOGY:

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This section highlights describes sources of literature, techniques employed in data collection,

research purpose, data analysis as well as critics to the method use. In a research process, it is

important that information provided satisfies the purpose and should be reliable as well.

Therefore this will depend on the method of data collection employed. The reason to this is due

to the fact that if data collected does not suit the purpose, then it would be difficult to analyze

and the research would be considered as inappropriate. Therefore, we will analyze information

which would enable us to satisfy our purpose


PRIMARY DATA:
It is done physically and personally by the researcher in any of the following illustrative but

not exhaustive methods such as Phone Interview, Questionnaires, Observation, Personal

interview, etc.
PROBLEMS IN COLLECTING PRIMARY DATA:
Lack of resources and time,
Expensive,
No participation,
SECONDARY DATA:
We tried to use data on the subject matter ascertained from textbooks, articles, journals on

Budgeting and Budgetary control which will be through the assistance search engine such as

Google. These materials aided us in getting most of the information for the research. It includes

that data which are collected from some earlier research work and used in the study, the

researcher has presently undertaken. Sources of secondary data collection include Internet,

Books, Textbook, Journals, etc.

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1.4SCOPE OF STANDARDS ON AUDITING:
A) Functions of Auditing

Important functions of auditing can be summed up as follows:


Reviewing systems and procedures of business.
Examining documentary evidence to establish the accuracy of recorded transactions.
Reviewing the system of accounting and Internal Controls.
To verify the valuation and existence of assets.
To examine the mathematical accuracy of accounting statements.
To see whether the statutory requirements have been complied with.
Reporting as to what extent, accounts exhibit true and fairness.
To make recommendations for improvement in Internal Control and Accounting System.
To verify the distinction between capital and revenue items.
B) Aspects to be covered in Audit

The principal aspects to be covered in an audit concerning final statements of accounts are as

follows:-

An examination of the system of accounting and integral controls to ascertain whether it

is appropriate for the business and helps in properly recording all transactions.
Reviewing the systems and procedures to find out whether they are adequate and

comprehensive.
Check the arithmetical accuracy of books of accounts by the verification of postings,

balances etc.
Examine the documentary evidence to establish the accuracy, authenticity and validity of

transactions recorded.
Verifying that a proper distinction is made between capital and revenue items.
Verification of the title, existence and valuation of assets appearing in the balance sheet.
Examination that the statutory requirements are complied with.
Verifications of the liabilities stated in the balance sheet.
Comparison of balance sheet and profit and loss account and other statements with

underlying records in order to see that they are in accordance there with.
Checking the results shown by the balance sheet and profit and loss account to see

whether the results shown are true and fair.

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Reporting to the proper person as to what extent, accounts reveal a true and fair view of

the state of affairs and of the profit and loss account of the organization.

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1.5 IMPORTANCE OF STANDARDS ON AUDITING:

The fact that audit is compulsory by law, in certain cases by it should show that there must be

some positive utility in it. The chief utility of audit lies in reliable financial statements on the

basis of which the state of affairs may be easy to understand. Apart from this obvious utility,

there are other advantages of audit. Some or all of these are of

considerable value even to those enterprises and organizations where audit is notcompulsory, the

se are given below:-

(a) It safeguards the financial interest of persons who are not associated with the

management of the entity, whether they are partners or shareholders.


(b) It acts as a moral check on the employees from committing defalcations or embezzlement
(c) Audited statements of account are helpful in settling liability for taxes, negotiating loans

and for determining the purchase consideration for a business.


(d) These are also useful for settling trade disputes for higher wages or bonus as well

acclaims in respect of damage suffered by property, by fire or some other calamity.


(e) An audit can also help in the detection of wastages and losses to show the different ways

by which these might be checked, especially those that occur due to the absence of

inadequacy of internal checks or internal control measures.


(f) Audit ascertains whether the necessary books of account and allied records have been

properly kept and helps the client in making good deficiencies or inadequacies in this

respect
(g) As an appraisal function, audit reviews the existence and operations of various controls in

the organizations and reports weaknesses, inadequacies, etc., in them.

1.6 REVIEW OF LITERATURE:

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The ICAI. vide Announcement dt 17th May 2016 has released various Revised Standards on

Auditing (i.e. SA 700, SA 701, SA 705, SA 706, SA 260 & SA 570), as under:

Revised SA 260, Communication with Those Charged with Governance

Revised SA 570, Going Concern

Revised SA 700, Forming an Opinion and Reporting on Financial Statements

New SA 701, Communicating Key Audit Matters in the Independent Auditors Report

Revised SA 705, Modifications to the Opinion in the Independent Auditors Report

Revised SA 706, Emphasis of Matter Paragraphs and Other Matter Paragraphs in the

Independent Auditors Report

It may be noted that recently on 3rd Dec., 2015 ICAI had issued Exposure Drafts of above

Revised Standards on Auditing, for Comments from its Members to be sent latest by January 18,

2016. After consideration of the suggestions/ comments from its members, the ICAI has issued

these standards.

We will consider SA 570 & SA 700 old vs. revised to understand the changes better.

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1.7 LIMITATIONS OF STANDARDS ON AUDITING:

A. At this stage, it must be clear that the objective of an audit of financial statements

into enable an auditor to express an opinion on such financial statements. In fact,

it is the auditors opinion which helps determination of the true and fair view

of the financial position and operating results of an enterprise. It is very

significant to note that the AAS-2 makes it a subtle point that such an opinion

expressed by the auditor is neither an assurance as to the future viability of the

enterprise nor the efficiency or effectiveness with which management has

conducted affairs of the enterprise. Further, the process of auditing is such that it

suffers from certain inherent limitations, i.e. the

limitation which cannot be overcome irrespective of the nature and extent of audit

procedures. It is very important to understand these inherent limitations of an

audit since understanding of the same would only provide clarity as to the overall

objectives of an audit. The inherent limitations are:-

B. ( I ) First of all, auditors work involves exercise of judgment, for example, in

deciding the extent of audit procedures and in assessing the reasonableness of the

judgment and estimates made by the management in preparing the financial

statements. Further

muchof the evidence available to the auditor can enable him to draw only reasona

bleconclusions there from. The audit evidence obtained by an auditor is generally

persuasive in nature rather than conclusive in nature. Because of these factors, the

auditor can only express an opinion. Therefore, absolute certainty in auditing is

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rarely attainable. There is also likelihood that some material misstatements of the

financial information resulting from fraud or error, if either exists, may not be

detected

C.

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D. 2. DETAILED OVERVIEW OF STANDARDS ON AUDITING:

A) The principal aspects to be covered in an audit concerning final statements of accounts

are as follows:-
An examination of the system of accounting and integral controls to ascertain whether it

is appropriate for the business and helps in properly recording all transactions.
Reviewing the systems and procedures to find out whether they are adequate and

comprehensive.
Check the arithmetical accuracy of books of accounts by the verification of postings,

balances etc.
Examine the documentary evidence to establish the accuracy, authenticity and validity of

transactions recorded.
Verifying that a proper distinction is made between capital and revenue items.
Verification of the title, existence and valuation of assets appearing in the balance sheet.
Examination that the statutory requirements are complied with.
Verifications of the liabilities stated in the balance sheet.
Comparison of balance sheet and profit and loss account and other statements with

underlying records in order to see that they are in accordance there with.
Checking the results shown by the balance sheet and profit and loss account to see

whether the results shown are true and fair.


Reporting to the proper person as to what extent, accounts reveal a true and fair view of

the state of affairs and of the profit and loss account of the organization.

E.
F.

B) Revised Standards on Auditing:

G. The ICAI. vide Announcement dt 17th May 2016 has released various Revised

Standards on Auditing (i.e. SA 700, SA 701, SA 705, SA 706, SA 260 & SA 570),

as under:

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Revised SA 260, Communication with Those Charged with Governance

Revised SA 570, Going Concern

Revised SA 700, Forming an Opinion and Reporting on Financial Statements

New SA 701, Communicating Key Audit Matters in the Independent Auditors Report

Revised SA 705, Modifications to the Opinion in the Independent Auditors Report

Revised SA 706, Emphasis of Matter Paragraphs and Other Matter Paragraphs in the

Independent Auditors Report

H. It may be noted that recently on 3rd Dec., 2015 ICAI had issued Exposure Drafts

of above Revised Standards on Auditing, for Comments from its Members to be

sent latest by January 18, 2016. After consideration of the suggestions/ comments

from its members, the ICAI has issued these standards.

I.

J. We will consider SA 570 & SA 700 old vs revised to understand the changes

better.

K.

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C) SA 570: GOING CONCERN (Effective for audits of financial statements for periods

beginning on or after April 1, 2009) (OLD):

I. Scope of this SA

1. This Standard on Auditing (SA) deals with the auditors responsibility in the audit

of financial statements with respect to managements use of the going concern assumption in the

preparation and presentation of the financial statements.

L. Going Concern Assumption

2. Under the going concern assumption, an entity is viewed as continuing in

business for the foreseeable future. General purpose financial statements are prepared on a going

concern basis, unless management either intends to liquidate the entity or to cease operations, or

has no realistic alternative but to do so. Special purpose financial statements3 may or may not be

prepared in accordance with a financial reporting framework for which the going concern basis is

relevant. When the use of the going concern assumption is appropriate, assets and liabilities are

recorded on the basis that the entity will be able to realise its assets and discharge its liabilities in

the normal course of business.

M. Responsibilities of Management

3. Some financial reporting frameworks contain an explicit requirement for management to make a

specific assessment of the entitys ability to continue as a going concern, and standards regarding

matters to be considered and disclosures to be made in connection with going concern. The

financial reporting framework may require the management to make an assessment of the

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entitys ability to continue as a going concern and prepare the financial statements on a going

concern basis unless the management intends to liquidate the entity or cease operations, or has no

realistic alternative but to do so. In case the financial statements have not been prepared on a

going concern basis, the fact would need to be appropriately disclosed, together with the basis on

which the financial statements are prepared and the reason why the entity is not regarded as a

going concern. The detailed requirements regarding managements responsibility to assess the

entitys ability to continue as a going concern and related financial statement disclosures may

also be set out in law or regulation.

4. In other financial reporting frameworks, there may be no explicit requirement for management to

make a specific assessment of the entitys ability to continue as a going concern. Nevertheless,

since the going concern assumption is a fundamental principle in the preparation of financial

statements as discussed in paragraph 2, managements responsibility for the preparation and

presentation of the financial statements includes a responsibility to assess the entitys ability to

continue as a going concern even if the financial reporting framework does not include an

explicit requirement to do so.

5. Managements assessment of the entitys ability to continue as a going concern involves making

a judgment, at a particular point in time, about inherently uncertain future outcomes of events or

conditions. The following factors are relevant to that judgment:

N. The degree of uncertainty associated with the outcome of an event or condition

increases significantly the further into the future an event or condition or the

outcome occurs. For that reason, financial reporting frameworks normally require

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an explicit management assessment specify the period for which management is

required to take into account all available information.

O. The size and complexity of the entity, the nature and condition of its business

and the degree to which it is affected by external factors affect the judgment

regarding the outcome of events or conditions.

P. Any judgment about the future is based on information available at the time at

which the judgment is made. Subsequent events may result in outcomes that are

inconsistent with judgments that were reasonable at the time they were made.

Q. Responsibilities of the Auditor

6. The auditors responsibility is to obtain sufficient appropriate audit evidence about the

appropriateness of managements use of the going concern assumption in the preparation and

presentation of the financial statements and to conclude whether there is a material uncertainty

about the entitys ability to continue as a going concern. This responsibility exists even if the

financial reporting framework used in the preparation of the financial statements does not

include an explicit requirement for management to make a specific assessment of the entitys

ability to continue as a going concern.

7. However, as described in SA 200, the potential effects of inherent limitations on the auditors

ability to detect material misstatements are greater for future events or conditions that may cause

an entity to cease to continue as a going concern. The auditor cannot predict such future events

or conditions. Accordingly, the absence of any reference to going concern uncertainty in an

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auditors report cannot be viewed as a guarantee as to the entitys ability to continue as a going

concern.

II. Effective Date: This SA is effective for audits of financial statements for periods

beginning on or after April 1, 2009.

III. Objectives: The objectives of the auditor are: (a) To obtain sufficient appropriate audit

evidence about the appropriateness of managements use of the going concern

assumption in the preparation and presentation of the financial statements; (b) To

conclude, based on the audit evidence obtained, whether a material uncertainty exists

related to events or conditions that may cast significant doubt on the entitys ability to

continue as a going concern; and (c) To determine the implications for the auditors

report.

R.

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D) SA 570: GOING CONCERN (Effective for audits of financial statements for periods

beginning on or after April 1, 2017) (REVISED):

I. Scope of this SA:


1. This Standard on Auditing (SA) deals with the auditors responsibilities in the audit of financial

statements relating to going concern and the implications for the auditors report. (Ref: Para. A1)

S. Going Concern Basis of Accounting

T. 2. Under the going concern basis of accounting, the financial statements are

prepared on the assumption that the entity is a going concern and will continue its

operations for the foreseeable future. General purpose financial statements are

prepared using the going concern basis of accounting, unless management either

intends to liquidate the entity or to cease operations, or has no realistic alternative

but to do so. Special purpose financial statements may or may not be prepared in

accordance with a financial reporting framework for which the going concern

basis of accounting is relevant (e.g., the going concern basis of accounting is not

relevant for some financial statements prepared on a tax basis). When the use of

the going concern basis of accounting is appropriate, assets and liabilities are

recorded on the basis that the entity will be able to realize its assets and discharge

its liabilities in the normal course of business.

U. Responsibility for Assessment of the Entitys Ability to Continue as a Going

Concern

V. 3. Some financial reporting frameworks contain an explicit requirement for

management to make a specific assessment of the entitys ability to continue as a


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going concern, and standards regarding matters to be considered and disclosures

to be made in connection with going concern. The detailed requirements

regarding managements responsibility to assess the entitys ability to continue as

a going concern and related financial statement disclosures may also be set out in

law or regulation.

W. 4. In other financial reporting frameworks, there may be no explicit requirement

for management to make a specific assessment of the entitys ability to continue

as a going concern. Nevertheless, where the going concern basis of accounting is

a fundamental principle in the preparation of financial statements as discussed in

paragraph 2, the preparation of the financial statements requires management to

assess the entitys ability to continue as a going concern even if the financial

reporting framework does not include an explicit requirement to do so.

X. 5. Managements assessment of the entitys ability to continue as a going concern

involves making a judgment, at a particular point in time, about inherently

uncertain future outcomes of events or conditions. The following factors are

relevant to that judgment:

Y. The degree of uncertainty associated with the outcome of an event or condition

increases significantly the further into the future an event or condition or the

outcome occurs. For that reason, most financial reporting frameworks that require

an explicit management assessment specify the period for which management is

required to take into account all available information.

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Z. The size and complexity of the entity, the nature and condition of its business

and the degree to which it is affected by external factors affect the judgment

regarding the outcome of events or conditions.

AA. Any judgment about the future is based on information available at the

time at which the judgment is made. Subsequent events may result in outcomes

that are www.taxguru.in 3 inconsistent with judgments that were reasonable at the

time they were made.

AB. Responsibilities of the Auditor

AC. 6. The auditors responsibilities are to obtain sufficient appropriate audit

evidence regarding, and conclude on, the appropriateness of managements use of

the going concern basis of accounting in the preparation of the financial

statements, and to conclude, based on the audit evidence obtained, whether a

material uncertainty exists about the entitys ability to continue as a going

concern. These responsibilities exist even if the financial reporting framework

used in the preparation of the financial statements does not include an explicit

requirement for management to make a specific assessment of the entitys ability

to continue as a going concern.

AD. 7. However, as described in SA 200,1 the potential effects of inherent

limitations on the auditors ability to detect material misstatements are greater for

future events or conditions that may cause an entity to cease to continue as a

going concern. The auditor cannot predict such future events or conditions.

Accordingly, the absence of any reference to a material uncertainty about the

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entitys ability to continue as a going concern in an auditors report cannot be

viewed as a guarantee as to the entitys ability to continue as a going concern.

II. Effective Date : This SA is effective for audits of financial statements for periods

beginning on or after 01st April, 2017.


AE.
III. Objectives: The objectives of the auditor are: (a) To obtain sufficient appropriate audit

evidence regarding, and conclude on, the appropriateness of managements use of the

going concern basis of accounting in the preparation of the financial statements; (b) To

conclude, based on the audit evidence obtained, whether a material uncertainty exists

related to events or conditions that may cast significant doubt on the entitys ability to

continue as a going concern; and (c) To report in accordance with this SA.
E) Significant changes introduced in the revised auditing standards SA 570-

Going Concern:

AF.The revised Auditing Standard introduced for SA 570 Going concern is for the

audits of financial statements for the periods beginning on or after 01st April,

2017.

AG. Significant changes introduced in the standard:

AH. Scope

AI. The earlier standard which was effective for audits of financial statements for

periods beginning on or after April 1, 2009, the scope was restricted to the

assessment of managements use of going concern assumption in preparation &

presentation of financial statement. However, in the revised standard introduced

from April 1, 2017, the scope of the auditor has been increased manifolds which
26
includes auditors responsibility in the audit of financial statements relating to

going concern and the implications for the auditors report. The auditor is now

required to specifically mention in the auditors report regarding each of the

circumstances prescribed like existence of material uncertainty regarding

understanding of the financial statements. SA 700 Forming an opinion and

reporting on financial statement (Revised) also includes illustrative wording to be

included in the auditors report for all the entities in relation to going concern to

describe the respective responsibilities of those responsible for the financial

statements and the auditor in relation to going concern.

AJ.

AK.

AL. Reporting requirement as per enhanced scope

AM. Further, wordings has also been prescribed for conditions when the auditor

has obtained sufficient appropriate audit evidence regarding the appropriateness

of the managements use of going concern basis of accounting but adequate

disclosure of a material uncertainty is not made in the financial statement.To

report on the basis of the above requirements, where the role of the auditor has

increased considerably, the auditor shall evaluate whether sufficient appropriate

audit evidence has been obtained regarding, and shall conclude on, the

appropriateness of managements use of the going concern basis of accounting in

the preparation of the financial statements.

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AN. If the auditor concludes that managements use of going concern basis of

accounting is appropriate but material uncertainty exists, the auditor shall

determine whether the financial statements:

AO. a. Adequately disclose the principal events or conditions that may cast

significant doubt on the entitys ability to continue as going concern and

managements plan to deal with these events or conditions; and

AP.b. Disclose clearly there is material uncertainty related to events or conditions that

may cast significant doubt on the entitys ability to continue as going concern and,

therefore, that it may be unable to realize its assets and discharge its liabilities in

the normal course of business.

AQ. Audit procedures to be applied for the purpose of reporting

AR. To comply with the enhanced scope and the reporting requirements,

auditor is required to collect additional audit evidence to support his findings.

Thus, even when no material uncertainty exists, the auditor has to evaluate

whether in view of the requirements of the applicable financial reporting

framework, the financial statements provide adequate disclosure about events or

conditions that may cast significant doubt on the entitys ability to continue as a

going concern. Examples of such disclosures could be:

AS. a. Principal events or conditions

AT.b. Managements evaluation of the significance of those events or conditions in

relation to the entitys ability to meet its obligations


28
AU. c. Managements plans that mitigate the effect of these events or

conditions; or

AV.d. Significant judgments made by management as part of its assessment of the

entitys ability to continue as a going concern.

AW. Written Representation

AX. The auditor may consider it appropriate to obtain specific written

representations beyond the audit evidences obtained regarding managements

plans for future actions in relation to its going concern assessment and the

feasibility of those plans.

AY.Reporting as per newly introduced SA 701 Communicating key matters in

Independent Auditors report

AZ. The newly introduced auditing standard, SA 701 deals with auditors

responsibility to communicate key audit matters in the auditors report. When SA

701 applies, matters relating to going concern may be determined to be key audit

matters, and explains that a material uncertainty related to events or conditions

that may cast significant doubt on the entitys ability to continue as a going

concern is, a key audit matter.

BA. Applicability in the public sector entity

BB. Managements use of the going concern basis of accounting is also

relevant to public sector entities. Going concern risks may arise, but are not

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limited to, situations where public sector entities operate on a for-profit basis,

where government support may be reduced or withdrawn, or in the case of

privatization. Events or conditions that may cast significant doubt on an entitys

ability to continue as a going concern in the public sector may include situations

where the public sector entity lacks funding for its continued existence or when

policy decisions are made that affect the services provided by the public sector

entity.

BC.

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F) Standard on Auditing (SA) 700 (Revised), Forming an Opinion and

Reporting on Financial Statements


I. Scope of this SA:

BD. 1. This Standard on Auditing (SA) deals with the auditors responsibility

to form an opinion on the financial statements. It also deals with the form and

content of the auditors report issued as a result of an audit of financial statements.

BE. 2. SA 7011 deals with the auditors responsibility to communicate key

audit matters in the auditors report. SA 7052 (Revised) and SA 7063 (Revised)

deal with how the form and content of the auditors report are affected when the

auditor expresses a modified opinion or includes an Emphasis of Matter

paragraph or an Other Matter paragraph in the auditors report. Other SAs also

contain reporting requirements that are applicable when issuing an auditors

report.

BF.3. This SA applies to an audit of a complete set of general purpose financial

statements and is written in that context. SA 8004 deals with special

considerations when financial statements are prepared in accordance with a

special purpose framework. SA 8055 deals with special considerations relevant to

an audit of a single financial statement or of a specific element, account or item of

a financial statement. This SA also applies to audits for which SA 800 or SA 805

apply.

BG. 4. The requirements of this SA are aimed at addressing an appropriate

balance between the need for consistency and comparability in auditor reporting

globally and the need to increase the value of auditor reporting by making the
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information provided in the auditors report more relevant to users. This SA

promotes consistency in the auditors report, but recognizes the need for

flexibility to accommodate particular circumstances of individual jurisdictions.

Consistency in the auditors report, when the audit has been conducted in

accordance with SAs, promotes credibility in the global marketplace by making

more readily identifiable those audits that have been conducted in accordance

with globally recognized standards. It also helps to promote the users

understanding and to identify unusual circumstances when they occur.

II. Effective Date: This SA is effective for audits of financial statements for periods

beginning on or after 01st April, 2017.


III. Objectives: The objectives of the auditor are: (a) To form an opinion on the financial

statements based on an evaluation of the conclusions drawn from the audit evidence

obtained; and (b) To express clearly that opinion through a written report.

BH.

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G) Significant changes introduced in the revised auditing standard SA 700:

BI. SA 700 (OLD) BJ. SA 700 (REVISED)


1. Introductory paragraph: BM. 1. Introductory

BK. Introduction paragraph paragraph:

is included. BN. No introductory

BL. Introduction is paragraph is included as noted

separate from the Audit in SA 700 (Old).

Opinion section. BO. Introduction is

included as part of the

succeeding Audit Opinion

section.
BP.2. Auditors Opinion: BT.2. Auditors Opinion:

BQ. This section is BU. This section is

included within the body of the included at the top, immediately

audit report. after the addressee.

BR. Auditors opinion is BV. Auditors opinion is

expressed after the Basis for expressed before the Basis for

Opinion in case of a modified Opinion unlike in the SA 700

opinion or below Auditors (Old).

Responsibility section in case BW. The Opinion section

of an unmodified opinion. of the auditors report shall also:

BS. These requirements were not o Identify the entity whose AFS

explicitly required under the have been audited; o State that

opinion section. Most of these the AFS have been audited

33
were noted in the introductory unless a disclaimer of opinion is

paragraph. expressed in which case it shall

state that the auditor was

engaged to audit, refer SA 705

(Revised) par 19(b); o Identify

the title of each statement

comprising the AFS; o Refer to

the notes, including summary of

significant accounting policies;

and o Specify the date covered

by the AFS.
Basis for Opinion: 3. Basis for Opinion:

BX. The Basis for


CA. The Basis for Opinion section is
Opinion section is not included
included for all types of auditors opinions
for all types of auditors
including the unmodified opinion.
opinions but for modified
CB. This section is
opinions only.
included after the Opinion
BY. This section is
section of the audit report.
included before the Opinion
CC. The Basis for
section of the audit report.
Opinion section shall state
BZ. These requirements
that: o The Audit was conducted
were not explicitly required
in terms of IAS; o Refers to the
under this section. Most of these
section of the audit report that
requirements were noted in
describes auditors
34
other parts of the audit report responsibilities; o Includes a

and not specifically on this statement that the auditor has

section. complied with all ethical

requirements specifically stating

the auditors independence; o

Includes a statement that the

auditor exercised professional

skeptics throughout the audit; o

State whether the auditor

believes audit evidence

obtained is sufficient and

appropriate to provide a basis

for opinion.
CE. Where a material uncertainty (that CG. 4. Going Concern:

casts doubt on the audited entitys ability to CH. The revised SA

continue as a going concern) exists, the auditor requires Going Concern to be

shall include an Emphasis of Matter reported in a separate section

paragraph. under a separate heading and

CF. SA 701 (new) is a new paragraph.

standard that is effective for CI. Where a material uncertainty

audits of AFS for periods (that casts doubt on the audited

ending on or after 15 December entitys ability to continue as a

2016. Key audit matters were going concern) exists, the

not specifically required to be auditor shall include a separate

35
reported on in a separate section section in the auditors report

of the audit report. under the heading Material

Uncertainty Related to Going

Concern. Note that we no

longer reporting this under an

Emphasis of matter

paragraph.

CJ. It is important to note that SA

701 (new) read in conjunction

with SA 706 (revised) states that

the auditor shall include

Emphasis of Matter paragraph

(or Other Matter paragraph)

in the audit report provided that

the matter communicated has

not been determined to be a key

audit matter per requirements of

SA 701 (new). Such a matter

will be disclosed under the

Key Audit Matters section of

the audit report. See below


CK. 5. Key Audit Matters: CM. 5. Key Audit Matters:

CL. SA 701 (new) is a new CN. SA 701 (new) is a new

standard that is effective for standard that is effective for

36
audits of AFS for periods audits of AFS for periods

ending on or after 15 December ending on or after 15 December

2016. Key audit matters were 2016.

not specifically required to be CO. The audit shall include

reported on in a separate section a separate section in the

of the audit report. auditors report under the

heading Key Audit Matters,

as per the requirements of SA

701(new).

CP. The Key Audit Matters

section is placed in close

proximity to the auditors

opinion to give appropriate

prominence to the

communicated information and

to acknowledge the perceived

value of engagement specific

information to intended users.

CQ. It is important to note

that SA 705 (revised) prohibits a

Key Audit Matters section (or

Other Information section)

from the auditors report when

the auditor disclaims an


37
opinion. This is because

communicating any key audit

matters other than the ones

giving rise to a disclaimer of

opinion may suggest AFS are

more credible in relation to

those other matters. This will be

inconsistent with the disclaimer

of opinion. Therefore, there is

no Key Audit Matters section

(or Other Information section)

in an audit report where there is

a disclaimer of opinion.
CR. 6. Other information: CT.6. Other information:

CS. This section is for reporting in CU. This section was not

accordance with the explicitly required to be

requirements of SA 720 positioned here under the old

(revised) under the heading SA 700. The section was for

Other Information. This reporting in accordance with the

section is included immediately requirements of SA 720 (old).

after the Key Audit Matters

section in the audit report.


CV. 7. Responsibilities for CY. 7. Responsibilities for

Financial Statements: Financial Statements:

CW. This section has now CZ. This section was


38
been positioned far below on positioned at the top of the audit

the audit report, below the report just below the

Opinion section in order to Introductory section, before

add value to the users of the Opinion section.

financial statements. DA. The auditor was not

CX. The auditor shall explicitly required to

explicitly communicate in this communicate in this section of

section that management is the audit report that

responsible for assessing the management is responsible for

entitys ability to continue as a assessing the entitys ability to

going concern and whether the continue as a going concern and

use of the going concern basis is whether the use of the going

appropriate. concern basis is appropriate.

This was done elsewhere in the

audit report.
DB. 8. Auditors DF.8. Auditors Responsibilities:

Responsibilities: DG. This section was

DC. This section has now positioned below the

been positioned within the body Managements Responsibility

of the audit report, far below the section just before the

Opinion section in order to Opinion section.

add value to the users of DH. The location of the

financial statements. auditors responsibilities was

DD. According to SA 700 only within the body of the

39
(revised) par 41, the description audit report This section did not

of the auditors responsibilities explicitly state these

can be located either: (a) Within requirements. Some of the

the body of the auditors requirements we stated

reports; (b) As an appendix to elsewhere in the audit report,

the auditors report; or (c) On a e.g. objectives of the auditor

website of the entity (an were normally stated in the

appropriate authority) where the Introductory section of the

law permits. audit report.

DE. This section shall DI. SA 701 (new) is a new

explicitly state: (a) The standard that is effective for

objectives of the auditor; (b) audits of AFS for periods

That reasonable assurance is a ending on or after 15 December

high level assurance; (c) That 2016. Key audit matters were

misstatements can arises from not specifically required to be

fraud or error and describe that reported on in this section

they are considered material.


DJ. 9. Other Reporting DL. 9. Other Reporting

Responsibilities: Responsibilities:

DK. There are no DM. There are no

differences in this section. This differences in this section. This

section remains before the section remains before the

auditors signature. auditors signature.

40
DN. 10. Name of the DP.10. Name of the Engagement

Engagement Partner: Partner:

DO. Unlike in the old SA DQ. The name of the

700 (old), the name of the engagement partner was not

engagement partner shall be specifically required to be

explicitly included in the audit included in the audit report.

report for listed entities unless Signature and name of the firm

there is a significant personal alone was sufficient.

security threat to the

engagement partner. Signature

and name of the firm alone is

not sufficient.
DR.

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DS. 4. SUGGESTIONS, RECOMMENDATIONS & CONCLUSION:

DT. The goal of an audit is to form and express an opinion on financial

statements. The audit is performed to get reasonable assurance on whether the

financial statements are free of material misstatement. An audit also includes

assessing the accounting principles used and the significant estimates made by the

management. Audit conclusions and reporting are one of the principles governing

an audit. Reporting is the last procedure of the process of an audit.

DU. STEPS INVOLVED

DV. An audit involves the following steps: Gathering of audit evidence,

evaluation of the evidence, deciding on their reliability and acceptability, drawing

a conclusion based on such evaluations, forming an opinion based on a set of

conclusions and expressing an opinion. The auditor should get sufficient and

appropriate audit evidence both at the transaction level, as well as the account

level. He should evaluate the adequacy of the evidence in his possession, both in

terms of quality and quantity. The auditor should draw a conclusion on each of the

line items of the financial statements, based on the transactions examined by him.

A set of conclusions, on such line items, leads to forming an opinion on the

financial statements as a whole, both at the transaction level as well as at the

account level, which, he should express in his report without any fear or favor.

DW. Gathering of audit evidence: An auditor should be thorough in his

efforts to gather the audit evidence, and be impartial in its evaluation. Substantive

procedures such as enquiry, information, confirmation, observation, compilation,


42
verification and valuation, etc. are used to substantiate the transactions. Carrying

out such procedures on a reasonable number of transactions provides a basis for

drawing a conclusion on a particular head of account (line item). Having gathered

the audit evidence by substantive procedures, the auditor should ensure that the

entity has complied with the necessary requirements such as requirements of law,

applicable Accounting Standards issued by the ICAI/ NACAS , accounting

policies adapted by the entity from time to time, and internal control systems.

DX. Evaluation of audit evidence: Having gathered the audit evidence, the

auditor goes through the evidence with a fine-toothed comb to properly evaluate

it, judge their reliability and draw logical conclusions. He has to document the

reasons for accepting or rejecting certain replies and reports.

DY. Analysis of evidence: The auditor uses analytical procedures such as

accounting ratios, analyses; intercompany comparisons, comparing the industry

norm with the data of the unit, etc. to analyze the data.

DZ. Audit conclusions: Such analyses help the auditor to draw conclusions

regarding various aspects of the line items of the financial statements. These

conclusions should be independent and factual, and not based on assumptions. A

set of such conclusions leads to forming an opinion.

EA. Compliance with code of conduct: Professional ethics of the ICAI hold

an auditor guilty of professional misconduct for negligence if he doesn't gather

enough evidence to justify his opinion. He would be liable if the evidence in his

43
possession is contradictory to the opinion expressed by him. This makes drawing

a conclusion a critical aspect of an audit.

EB. EXPRESSION OF OPINION

EC. The auditor discusses his observations with those charged with

governance, such as the audit committee of the company, before finalizing the

report. The auditor should be firm in his opinion, and exercise his independence at

this level. This part of the audit is critical, and calls for resilience on the part of

the auditor. An audit report, being a public document, should be drafted skillfully.

The code of conduct prohibits an auditor from divulging any information received

by him in the course of his professional assignment, unless legally required so to

do. Therefore, the auditor shouldn't hesitate to take the help of a legal expert on

whether to include certain comments in his report.

ED.

EE.

EF.

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EG. 5. BIBLIOGRAPHY:

1) https://www.scribd.com/doc/58324715/Project-on-Auditing

2) http://www.slideshare.net/soumeetsarkar/audit-project-46669166

3) file:///G:/Project%20Topics/Mcom%202/sa570%20old.pdf

4) http://assets.cacharya.com/Standard-on-Auditing-A6E5QP34.pdf?1437806351

5) https://www.bcasonline.org/Referencer2015-

6) 16/Accounting%20&%20Auditing/standards_on_auditing.html

7) http://resource.cdn.icai.org/15401Link36_SA570-final_standard.pdf

8) http://www.caclubindia.com/articles/significant-changes-introduced-in-the-revised-

auditing-standard-sa-570-going-concern-27044.asp

EH.

EI. THANK YOU!

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