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Auditing
The Ultimate Shot
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 Auditing - The Ultimate Shot

1. Auditing: basic concepts of auditing in one shot, lets start

See its very simple: Auditing is
• Independent examination of
• Financial information / statements of an
• Entity, with a view to
• Express an opinion thereon
Now let’s understand the terms one by one

Independent examination Independence of what ? Simple dude its

Independence of mind and appearance

It simply means Auditor should not be biased

Should not act under any influence of management
Should work in objective manner

• Auditor shall not participate in book keeping Auditor shall not have any
of client entity. interest in clients entity
• Fin. St. of client entity must be prepared by (Sec 141) and CA act 1949)
clients mngt. Only (Sec 129)

Financial information/statements Entity

• SPL CFS • Profit making as well as NPO’s
• B/sheet Schedule of changes in cap. • Any size
• Notes to a/c • Any legal form

Lets see: its opinion on presentation in F.St. and opinion on its

Opinion
legal compliances. Means dikhne me bhi achi hai and legal bhi hai
Opinion on Presentation framework : true and fair view presented in fin. St. that means PRD
 Policies are –  Disclosures –
• acceptable and consistent as per applicable FRF. • All the disclosures are made and
 Regulations – • appropriately made irt
• internal as well as external are complied with. o A/c,
o Amt,
o Period

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 Auditing - The Ultimate Shot

Opinion on Compliance framework : complying applicable FRF that means

 Requirements of governing statute and Ind AS or AS are complied with.
 Requirements to be followed in preparation (pehle vale me likha tha presentation) of fin. St. are complied
with, that means fin/. St. are prepared in true and fair manner.

2. Audit process

• Planning karte hai hum Planning is done On the basis of

which procedures are performed
• Uske basis per Procedures perform karte hai so that evidences can be obtained
• Ta jo Evidences collect kar sake and on the basis of evidences
conclusions are drawn and on the
• And un evidences ke base par Conclusions nikal sake basis of conclusions opinions are
• And conclusion ke basis par Opinion in report de sake framed in AR.

Planning SA-300

Detail discussion in SA 300

Strategy So till the time no tension Plan

Detail discussion in SA 315

Procedures (Imp)
So till the time no tension

Compliance procedures (TOC) (CP) Substantive procedures (TOD) (SP)

Examine IC : whether IC’s Examine Transactions, Accounts and Disclosures :

• Exist / designed whether TAD is CA V
• Operating efficiently • Complete
• Working in Continuity throughout • Accurate
the period • Valid
IC hai, kaam karte hai an regualr kaam karte hai Iske baad hai substantive ANALYTICAL
procedures detail in SA 315 and 520
Perform CP to determine NTE of SP, if
IC weak IC Strong
Nature external and written internal and oral What the hell this is
Timing Frequency more less Don’t worry read
Extent more less page no. 7

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 Auditing - The Ultimate Shot

Evidences SA-500 and 501, Conclusions and Opinion

Auditor shall obtain Sufficient And Appropriate Evidences (SAAE) wrt MMS / Non
compliances / disagreement with management……… Now if evidences obtained and MMS is

Material but not persuasive Material & persuasive

Qualified Adverse

if unable to obtain evidences/ limitations on scope of work and MMS is

Material but not persuasive Material & persuasive

Qualified Disclaimer

3. TCWG 4. Systems
Persons who are responsible for proper
direction and control of the entity. IC system Accounting system
Highest level of mngt in entity
Both the systems can either be good or weak

5. Internal controls
It is set of systems and protocols in an organization designed by mngt for
• Prevention of employee frauds not mngt frauds
• Prevention of errors Internal controls
• Smooth operations
• Legal compliances
Operational Financial
• Avoiding MMS in FS
Its so simple see, systems hai kuch rules hai organisation me, jo frauds, errors ko rokte hai,
kaam ko ache se chalate hai, law comply karvate hai, or Materal misstament in F.St. hone se
rokte hai…..

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 Auditing - The Ultimate Shot

6. Assurance

Absolute assurance
Reasonable assurance
70% to 90% 100%

This is high level of assurance not the absolute assurance

These engagements • Internal controls designed by mngt.
need/provide only • Audit of F.St done by auditor
Reasonable assurance • Other type of assurance engagements performed by auditor

• investigation
These provide
• Forensic audit
absolute assurance
• Certification engagements

7. Risk assessment procedures and Substantive Analytical Procedures

To assess the risk perform procedures And then on the basis of risk assessed perform substantive
analytical procedures
 If risk assessed is high then SAP will be high
 Risk is a risk of MMS in F.St.

RAP SAP

• Procedures performed to Assess RMMS in FS • Here procedures performed to obtain SAAE

• Before SAP • After SAP
• Performed during planning and performance • Performed during performance stage.
stage.
What the hell this is
• RAP may be revised during performance Again procedure
stage Don’t worry read
page no. 7

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 Auditing - The Ultimate Shot

8. How audit procedures are performed What the hell this is

Again and again procedure
• Inquiry Rate Of Interest On CAR Is Don’t worry read page no. 7

• Inspection
• Observation
• Confirmation
• Analytical procedures
• Re Performance
• Recalculation

9. Concept of Materiality

Type Guidance meaning

1. Overall Say 5% of PAT • M indicates the maximum
materiality (20Cr.) = 1cr. tolerable level of MMS.
(M) • It depends upon auditors
perception of SH’s sensitivity

2. Performance Say 75% of M • PM is used by auditor to

Materiality Plan and Perform Audit
(PM) • This is less than M just to
leave the scope of
undetected MMS i.e.
detection error

3. Clearly trivial Say 5% of M • If uncorrected MMS is

differences within CTD then express
(CTD) clear opinion

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 Auditing - The Ultimate Shot

Sir ye kya hi hai Procedures are given three times Page no 3, 5 and 6
Imp Imp
Cool down cool down…. Listen …..

1st Q Procedures kon kon se hai
What are the procedures
Procedures are Two
TOC and TOD
Page no 3 vale
Ab ek baar fir se padho with smile……….
Next Q why to perform Next Q How to perform
Means unse milega Kya Means karein kaise?
These are performed to Ab how to perform
assess Risk and according to uske lie hai
to the risk identified we ROI On CAR Is
decide the Nature Timing Page no 6 vala
and Extent of our work
Page No 5 vale

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 Auditing - The Ultimate Shot

1. The SA’s world

SA’s are useful while auditing or examining historical fin. St. or info.
Series -- Total 9 SA’s
300 Series -- Total 4 SA’s
400 Series – Total 2 SA’s
500 Series – Total 11 SA’s
600 Series -- Total 3 SA’s
700 Series -- Total 6 SA’s
800 Series -- Total 3 SA’s
Total = 38 SA’s

2. The SRS’s world

Standard for Other related services like compilation
SRS – 4400
SRS – 4410

3. The SQC’s world

Maintain quality at the time of audit.
SQC - 1

4. The SAE’s world

Prospective fin information
SAE – 3400
SAE – 3402
SAE -- 3420

5. The SRE’s world

Review of limited no of items in FS ( interim Fin info.)
SRE – 2400
SRE – 2410

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 Auditing - The Ultimate Shot

SA – 500 Audit Evidences

Audit evidence means Information used by auditor to draw conclusions on which audit opinion is based

Information includes accounting records and other information also

Audit evidences should be Sufficient and appropriate

• Quantity • Quality of evidence

• RMM high then QTY high • Relevance and reliability
• Qlty low then Qnty high of evidence

How Audit procedures are performed to obtain SAAE Imp Rate Of Interest On CAR Is

• Inquiry : inq. Is seeking app info.

• Inspection: Examination of records/doc/tangible assets
• Observation: Witnessing a process or procedure.
• Confirmation: Confirmation is response to the inquiry
• Analytical procedures: Studying significant ratios and trends, investigating unusual fluctuations.
• Recalculation : Mathematical accuracy
• Re Performance: Auditors independent execution of procedures and controls that were
originally performed as part of entities control.

Reliability of Audit evidences Imp

• External are more reliable

• Internal are also reliable if IC are good
• Directly obtained by auditor are more reliable
• Written are more reliable
• Original are more reliable
If there is inconsistency in evidences or doubt on reliability of evidences
* Extend audit procedures
* modify Audit procedures
* perform additional procedures

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 Auditing - The Ultimate Shot

Management expert Imp

Individual / organization possessing expertise in a field other than accounts and audit whose work
in that field is used by entity to assist the entity in preparation of Fin. St.
Eg: lawyer, Engin., Actuary, Valuer etc.

As a auditor before using work of mngt. Expert, our duty is to : -

• Evaluate Competence/ Capability/ Objectivity of ME
• Understand work of Mngt expert.
• Evaluate Appropriateness of Mngt. Expert’s work as AE for relevant assertions

Whether to rely on mngt. expert;’s work

YES NO

If yes then use the If no then extend the

work of ME procedures SA 620 use
auditors expert

If auditor finds that, work of mngt. Expert is not appropriate then based upon further
Audit procedures performed and results of further AP, Request mngt. to adjust fin st.
if mngt does – enjoy
If not – Qualified/Adverse report SA 705

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 Auditing - The Ultimate Shot

SA – 501 Audit Evidences Special consideration for selected items

Inventory Litigations and claims Segment Information

1. Inventory Imp

• When inventory is Material then

• Auditor shall obtain Sufficient and Appropriate Evidences.
• Wrt existence and conditions of inventory.

For the purpose Auditor shall

By attendance at physical
• Evaluate Internal Controls
inventory count
• Observe mngt count procedures
• Inspect inventory
By Examining entity’s final inventory
• Perform test count
records and comparing them with
actual count results

Inventory count done Unable to attend inventory Attendance at inventory

on a date other than count due to unforeseen count was
balance sheet date circumstances impracticable

Perform additional • Count on alternative date • Perform alternative proce.

procedures wrt changes in
inventory between count
date and balance sheet date
simple na beech vali
transaction of sale purchase
ko add less karle
• Perform procedures on
intervening transactions.
(Transactions between two
dates)
Kisi or din kar and beech
vali transaction of sale
purchase ko add less karle
• If not possible then modify Audit
Report (Qualifies/Adverse)
SA 705
Koi or tareeka laga,
nahi laga to report
modify karde

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 Auditing - The Ultimate Shot

Inventory Perform following to obtain evidences

under • Request confirmation from third party SA 505
third • Obtain SO’s Auditors report wrt adequacy of procedures of 3rd party SA 402
party • Attend physical count at 3rd party either himself or arrange another auditor
control • Inspect documents

2. Litigation and claims

Client may hide pending cases & their impact on F.St. adtr shall perform procedures to identify
litigations and claims by

Review minutes of meetings of TCWG and Board

Inquire mngt
Correspondences with legal council
and others

Also request WR from mngt. And TCWG that

Review legal
expense A/C all known litigations & claims affecting F.st.

Are disclosed Accounted for

to auditor appropriately

If risk identified

Seek communication with entity’s external legal council

If mngt. Doesn't permit to Legal council refuses to

communicate with legal council respond

& auditor Unable to obtain SAAE then Qualified/Disclaimer

SA 705

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 Auditing - The Ultimate Shot

3. Segment information AS – 17, Ind AS - 108

• Obtain SAAE wrt presentation and disclosure of seg. Info. As per applicable FRF

• Understand methods used by mngt. & evaluate their consistency as per applicable FRF

• Perform analytical procedures (SA-520) appropriate in circumstances

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