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“SUMMARY CHARTS”
CA FINAL ““AUDIT
AUDIT”
AUDIT”
63.75% REGULAR &
FAST TRACK
Results BATCHES
“NOV 18” Test Series
69 in
Law
76 in
Audit
AUDIT SAGA by
by
CA SANIDHYA
40 & 42
SARAF
Rank
www. APNAMENTOR.com
(Old Course - MAY 19
19))
For Revisionary Voice Clips & Pendrive Classes: - Contact Author at 7838061193
__”ONE STOP SOLUTION” FOR CA FINAL AUDIT
AUDIT REVISION”__
CA FINAL – AUDIT
AUDIT (www.APNAMENTOR.com
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www.APNAMENTOR.com May 19 (Old Course)
APNA MENTOR
☻ Colorful, Handy, Exam oriented portrait layout charts one of its Type
☻ One Stop Solution for CA Final Audit Quick Revision & Go through
☻ Student Friendly Presentation for better learning
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CA FINAL – AUDIT
AUDIT (www.APNAMENTOR.com
www.APNAMENTOR.com))
www.APNAMENTOR.com May 19 (Old Course)
“A
“A WORD FROM AUTHOR
AUTHOR””
The Summary Charts is thoroughly designed keeping in view Examination time learning
requirements & pressure on last day for CA Final Students wherein emphasis is given to Quick
last minute Revision by Quick Pictorial chart form reference to all Relevant Topics points to
facilitate a better score.
These charts are presented in Simpler Version in form of Bullet Points & Tables with Chart
form in Portrait mode rather than usual Landscape mode ffor or a new change. This is expected to
facilitate students to grasp the concepts in a better way. Author is obliged to have any
suggestions on any value additions required to be done in the material for which you can write
to me on sanidhyasaraf@gmail.com
I would like to extend a warm heartedly thanks to my parents for their continuous love ttoo me in
my every step of life.
Special Thanks to Mr. AMIT GUPTA (9650557427) for Valuable Contribution to design &
format gr
graphics
aphics of these Charts and to all students who have contributed towards this by doing
proof reading and there encouragement without which this would never have been a reality.
Also for Detailed Analysis & understanding Students may refer to below by Autho
Author:
r: -
* Question Bank * PENDRIVE Class
* Main Book * Free Voice Revision Clippings
* 4 - 5 Day Crash Course * Revision Classes
Warm Regards
CA SANIDHYA SARAF (WIRC) AUDIT SAGA
(AUTHOR)
www. APNAMENTOR.com
All rights reserved. No part of these Notes may be reproduced, stored in retrieval system or transmitted
in any form or by any means, Electronic, Mechanical, Photocopying, Recording, or Otherwise without
prior permission from the Publisher.
Although author and publisher have made every effort to ensure that information in these Charts was
correct at press time, author and publisher do not assume and hereby disclaim any liability to any party
for any loss, damage, or disruption caused by errors or omissions, whether such errors or omissions
result from negligence, accident, or any other cause
result
CA FINAL – AUDIT (www.APNAMENTOR.com
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www.APNAMENTOR.com May 19 (Old Course)
CA FINAL – AUDIT (www.APNAMENTOR.com) May 19 (Old Course)
“INDEX”
S.N. TOPICS COVERED Pg. No.
A. AUDITING STANDARDS (SA, SRE, SAE, SQC) 1 – 60
B. COMPANY AUDIT (Section 126 – 148 of Co. Act 2013) 61 – 71
C. PROFESSIONAL CODE OF ETHICS (PE) 72 – 79
D. COST AUDIT 80 – 82
E. OTHER TOPICS 83 – 141
1 Audit under GST Laws 83 – 85
2 Peer Review 86 – 87
3 Investigation 88 – 89
4 Due Diligence (DD) 89 – 91
5 Audit Strategy, Planning & Programming 92 – 93
6 Audit under CIS Environment 93 – 95
7 Risk Assessment & Internal Controls 96 – 97
8 SARBANES OXLEY ACT, 2002 (SOX) 98
9 Audit Report & CARO 2016 99 – 100
10 Audit Committee & Corporate Governance 101 – 105
11 Audit of Consolidated Financial Statements (CFS) 106 – 107
12 Audit of Banks 107 – 110
13 Audit of General Insurance Companies (GIC) 111 – 114
14 Audit of Co- Operative Societies 115 – 116
15 Audit of Non- Banking Finance Companies (NBFC) 117 – 119
16 Special Audit Assignments 120 – 127
17 Audit of Public Sector Undertakings (PSUs) 127 – 130
18 Internal Audit, Mgt & Operational Audit 131 – 135
19 Audit of Dividend 136 – 139
20 Liabilities of Auditor 139 – 141
21 Audit under Fiscal Laws (Tax Audit) 141 – 145
Compiled by CA SANIDHYA SARAF “APNA MENTOR” 976-040-0350
CA FINAL – AUDIT (www.APNAMENTOR.com) May 19 (Old Course)
SQC 1: - Quality Control for Firms that Perform Audits & Review of
Historical Financial Info & other Assurance & Related Service Engagements
System of -Firm to establish System of Quality Control to provide Reasonable Assurance that: -
Quality * Firm & personnel comply to Professional Standards, Regulatory & Legal Requirements AND
Control * Reports issued by Firm or Engagement Partners are appropriate in circumstances.
* Firm's CEO or Managing Partner to assume ultimate responsibility for Quality Control.
Responsibility
* Importance of Quality Oriented Work Culture emphasized by all Levels of Firm's mgt to
Leadership
Acceptance &
Relationship
of Client
factors to consider: -
• Clients Integrity tested through various sources
• Compliance with Ethical Requirements • Availability of Time & Resources
• Competence to perform Engagement like Industry knowledge in regard to Engagement
Firm should assign Responsibility for each engagement to Engagement Partner & ensure: -
• Identity & Role of engagement partner are communicated
• Engagement partner has Competence & Authorities
Human • Responsibilities are clearly defined & communicated to that partner.
Resources An Effective System of Quality Control in firm should consider following: -
•Recruitment process to select Individual of Integrity
•Firm's performance evaluation, compensation & promotion procedures
• Development of Capabilities, Competence by Professional Education & Training
• Career development & estimation of personnel needs
or error enabling Auditor to express an opinion on whether FS are prepared in all material
Responsibility
of Independent
Audit)
Apply relevant Training, knowledge & experience in particular regarding decisions about: -
* Materiality and audit risk.
* NTE of audit procedures used to meet requirements of SAs & gather audit evidence
Professional
* Evaluating whether SAAE has been obtained & whether more needs to be done to achieve
Judgment objectives of SAs & thereby overall objectives of Auditor.
* Evaluation of mgt judgments in applying Entity’s Applicable FRF
* Drawing of conclusions based on Audit evidence i.e. assessing reasonableness of Estimates
made by mgt in preparing FS
Obtain * Auditor to obtain SAAE as per AS 500 & Reasonable Assurance (High but not Absolute
SAAE Level of Assurance) to decrease Audit Risk to Acceptable Low Level
Sufficient & * SAAE are interrelated i.e. Sufficiency = Measure of Quantity of Audit Evidence &
Appropriate Appropriateness = Measure of Quality of Audit Evidence i.e. its relevance & reliability to
Audit support conclusions on which auditor’s opinion is based.
Evidence * If Auditor fails to obtain SAAE = give disclaimer
Compliance * SA 200 & Section 143(9) of Co Act 2013 states that Auditor to comply with SAs
with SAs * Fail to comply & fail to depart attention to Departure = Guilty of professional misconduct
Nature of * Preparation of FS is responsibility of mgmt. involving Judgment & decision making by mgt.
Financial
Reporting * There are range of issues involving different interpretation &judgment.
INHERENT LIMITATIONS OF AUSIT
* Audit procedures used to gather audit evidence may be ineffective against fraud detection.
Nature of * Audit is not an official investigation into alleged wrong doings
Audit * Possibility that Mgmt. may not provide complete Info intentionally or unintentionally.
Procedure * Internal control systems may be planned & framed by mgmt. to manipulate & override it.
* Frauds may involve sophisticated & carefully organized schemes.
* Nature of audit procedures = Audit evidences obtained persuasive rather than conclusive
Timeliness * Difficulty, time, or cost is not valid basis to omit Audit procedure for no alternative
& Cost * Pressure to finish audit quickly, in least possible time
Benefit * Because of limited audit fees there is budget & cost constraint.
Audit assistants informed of Nature of business & possible accounting or auditing problems &
Engagement Partner to take Responsibility of: -
There should be an Engagement Partner (EP) appointed to each Audit Engagement undertaken by firm to take
responsibility for engagement on firm's behalf (As per SQC 1 = for listed entity EP to be rotated every 7 years)
* Auditor may include abstracts or copies of the entity’s records like significant & specific contracts &
agreements) as part of Audit Documentation.
* Not a substitute for entity’s accounting records.
* Oral explanations by Auditor not represent adequate support for work auditor performed or conclusions
NATURE auditor reached, but may be used to explain or clarify info contained in Audit Documentation.
* Auditor need not include in Audit documentation: -
- Superseded drafts of working papers & FS
- Notes that reflect incomplete or preliminary thinking,
- Previous copies of docs corrected for typographical or other errors & duplicates of documents.
Assembly of * Auditor to assemble Audit documentation in Audit File in 60 days of Completion of Audit
Audit File as * Auditor to Retain Audit file for 7 yrs. (No working paper deleted/ discarded up to 7 yrs. From
per SQC 1 Audit Report.
Make • Who performed Audit work & date such work was completed
Documentation • Who reviewed Audit work performed & Date & Extent of such review
Sufficient to • Significant matters arising in audit, conclusions reached & professional judgments made to
Understand reach conclusions.
* To comply with the SAs & Applicable legal and regulatory requirements.
NTE of Audit
* In documenting NTE of Audit procedures performed, Auditor to record & identify
Procedures
Characteristics of Specific items or matters tested
FORM, CONTENTS & EXTENT OF AUDIT PROCEDURE
Intentional act by 1 or more Individual among Mgt, TCWG, Employees, or 3rd Parties to Deceive,
FRAUD
Mislead/ Conceal Truth or to obtain Unjust/ Illegal Advantage
• Obtain Reasonable Assurance that FS taken as whole are free from MM due to fraud or error
• Due to inherent limitations of Audit = there is an unavoidable risk that some MM of FS not
Risk Associated be detected even though auditor is properly planned & performed in accordance with SA's
for Non • Risk of Not Detecting MM resulting Management fraud is > than Employee fraud, because
Detection of mgt can easily manipulate accounting records as management in unique position to penetrate
MM fraud & manipulate accounting records & prepare FS by overriding controls.
• Risk of Not detecting MM from Fraud is > fraud from Error as Fraud is designed to Conceal
Fraudulent FR Possible Source/ Ways of Fraudulent FR: - i.e. Recording Fictitious Assets/ Entries: -
• Engage in Complex transactions to misrepresent Financial Position
• Inappropriate Adjust Assumptions
•Omit, Advance, Delay Recognition
• Conceal or not disclose facts affecting FS
• Alter Records & terms related to Significant Transactions
• Embezzling Receipts
Misappropriation • Stealing Physical Assets/ Intellectual Property
of Assets • Using Entity's assets for Personal use.
• Causing Entity to Pay for Goods & Services (G& S) not actually received.
* Personal Financial Obligation may put pressure on employees or mgt having access of
Characteristics of Fraud/ Fraud Risk Factors
Incentive or
* Adverse Relationship in Company & Employees due to: -
Pressure to
- Pressure to achieve Unrealistic target.
Commit Fraud
- Anticipated/ Known lay off in Future
- Recent Unfavorable Changes in Promotion & Benefit Plan
* Individuals possess Attitude, Character or Set of ethical values that allow them knowingly
Rationalization & intentionally to commit a dishonest act.
OR Attitude to * Disregard need of Check on Assets Misappropriation
do so * Disregard check on Internal Control System Deficiency & timely remedial actions
* Behavior or Unjust Treatment with Employees
• Unless all of TCWG are involved in mgt of entity = Auditor to communicate with TCWG
To TCWG (Those Charged
matters involving non-compliance with laws & regulations that come to Auditor’s attention during
Reporting Responsibility on Non-Compliance of Law & Regulation
course of audit
with Governance)
• If Auditor suspects that mgt or TCWG are involved in non-compliance = auditor to communicate
to Next higher level of authority at entity (Audit Committee or Supervisory board)
• Where no higher authority exists or if auditor believes communication may not be acted upon or is
unsure as to person to whom to report = auditor shall consider need to obtain legal advice.
i.e. not reflecting True & fair view {Required in SA 200 & Sec 143(2)} = Modify as per SA 705
Report
* If Auditor precluded (restricted) by Mgt/ TCWG from obtaining SAAE to evaluate non
compliance that may be material to FS or is likely occurred = Auditor to express Qualified
opinion or Disclaim an opinion
If Auditor identified or suspects non-compliance with laws & regulations = Auditor to determine
To
whether auditor has responsibility to report identified or suspected non-compliance to 3rd Parties
•Auditor not responsible to prevent/ detect non compliances = only consider use of Law & Regulation in Audit.
• To Disclose whether co. has made provisions fines & litigations due to non compliance.
• Remain Alert to possibility suspected non-compliance with laws & regulation
Responsibilities of Auditor
• Obtain WR & SAAE that all actual/ suspected non- compliances disclosed to him. Also Obtain SAAE that: -
- In relation to laws directly effecting determination of amount & disclosure in FS
- That whether misstatements found is due to fraud or error.
• Perform Audit procedures to help identify instances of non- compliance having material effect on FS by: -
- Inquiring of mgt
- Inspect correspondence with relevant licensing or regulatory authorities
* Ensure entity’s operations are conducted as per provisions of laws & regulations that determine
reported amounts & disclosures in an entity’s FS
* Examples of Policies & Procedures entity may implement to Prevent & detect non compliance: -
Mgt
- Monitoring legal requirements & ensure procedures designed to meet these requirements.
Responsibility
- Instituting & Operating appropriate Internal Control systems
for
- Developing, Publicising & Following a Code of conduct.
Compliance
- Ensuring Employees Proper Training& Understanding of Code of conduct.
with Laws &
- Monitoring compliance with code & Discipline employees who fail to comply it.
Regulations
- Engaging Legal Advisors to assist in monitoring legal requirements.
- Maintaining Register of significant laws & regulations which entity to comply in its
particular industry & a record of complaints.
Personnel who supervise performance of Mgt & responsible for approving FS like Audit Committee
They are Personnel having Two responsibilities: -
TCWG
- Overseeing Strategic Directions of Entity &
- Obligations related to Accountability of Entity.)
Documentation • Oral Communication Matters = When, To Whom & What + Minutes Copy
• Written Communication Matters = Copy retained of documents
Planned NTE Auditor to communicate Overview of Planned Scope & NTE timing of Audit which includes
& Audit Scope communicating about significant risks identified by Auditor.
Audit • Auditor view on Qualitative aspects of Entity A/c practices, policies, estimates & disclosures
Findings • Significant matters from Audit that were discussed or subject to correspondence with mgt
* Engagement partner & key members of engagement team from each of joint auditors to be
involved in planning audit.
Requirements
* Joint auditors to jointly establish overall audit strategy that sets Scope, Time & direction of audit.
of SA 299
* Development of Audit Plan {Principles of SA 300 will be applicable}.
* Identification of RMM (Risk of Material Misstatements) * Allocation of work.
• Where Joint Auditors appointed = By mutual discussion divide Audit work in themselves
• Division of work = on basis or in terms of Audit of Identifiable Units or Specified areas like
Division of
Components of FS i.e. Assets & Liabilities/ Income/ Expense or reference to Period of time.
Work
• Certain Important Areas which can’t be divided is covered by both.
• Division adequately documented & Communicated to entity.
Coordination Matters Requiring Disclosure or Discussion or Application of Judgment & deserves attention
to be communicated to all Auditors in writing by concerned Joint Auditor
RELATIONSHIP OF JOINT AUDITORS
Rights of Joint To assume that other joint auditors have carried out work as per Generally Accepted Auditing
Auditor’s Procedures so not necessary for 1Joint Auditor to view work of Other Joint Auditor.
Since Planning is Not a Discrete Phase it begins shortly after previous audit completion & end
Planning
on current Audit = Planning include considering prior to Auditor’s identification & assessment of
=
RMM misstatement matters: - • Analytical Procedure
Continuous
• Perform Risk Assessment Procedures • Determine Materiality
Process
• Obtain Good Understanding of Legal & Regulatory framework • Involve Experts
Along with Senior Partner, • E = Evaluating compliance with ethical requirements, including Establish Overall
Engagement Team leader of Independence, as required by SA 220 Audit Strategy
Audit Engagement Team • T = Understanding of Terms of Engagements as required by SA 210 +
with his Key members •C = Perform procedures in SA 220 regarding continuance of client Development of
relationship & specific audit engagement Audit Plan
Identify Characteristics of Ascertain Reporting Objectives, Timing Significant Factors while Considering Preliminary
Engagement of Audit & Nature of Communication Engagement Activities results
Audit Strategy = Backbone of “Audit Planning” process/ Steps Involved in formulation of Audit Strategy
• Obtaining knowledge of business as per SA 315 & SA 330. • Evaluating Inherent Risk.
• Performing Analytical Procedures. • Evaluating Internal Control.
General Factors to be considered in formulating Audit Specific Factors for Online Shopping
Strategy of Company
assertion
Assessment of
• Risks at FS level may derive in particular form deficient control environment i.e.
RMM at FS
deficiencies such as mgt lack of competence may have a more pervasive effect on FS
level
• Auditors understanding of Internal Control may raise doubt over audit ability of FS i.e.: -
- Concerns about Integrity of Entity’s Mgt
- Concerns about condition & reliability of Entity’s Records
Assessment of
• RMM at Assertion level for classes of Transactions, A/ Balances & disclosures needs to be
RMM at
considered as assists in determining NTE of Further audit procedures to obtain SAAE.
Assertion Level
• Identify & assess RMM due to Fraud or Error at FS & Assertion Levels
Auditors • Understand entity & its environment
Responsibility • Understand entity Internal control
• Design & implement responses to assesses RMM
ASSERTIONS EVALUATED
Transactions occurred during yr A/c Balances at period end Presentation & Disclosure
* Occurrence = actually occurred in *Existence = A & L shown in B/S * Occurrence, Rights & Obligations =
yr actually exists Transactions occurred, A & L belong to
* Completeness = recorded completely * Right & obligations = Rights of entity
* Accuracy = recorded precisely Entity shown as Assets & * Completeness = Disclosures in FS completely
* Cut off = recorded in correct obligations as Liability * Classification & Understandability = FS
Accounting Period * Completeness = record complete presented & disclosures appropriately
* Classification = Transactions properly * Valuation & Allocation = A & L * Accuracy & Valuation = Financial & other
classified to Capital & Revenue in FS at appropriate Amt. info amt disclosed fairly
Process Designed, Implemented & Maintained by Mgt & TCWG to Provide Reasonable
Assurance about achievement of entity’s objective of: -
Meaning
• Reliability of financial reporting. • Effectiveness & Efficiency of operation.
• Safeguarding of Assets. • Compliance with laws and regulation.
•Mgt's consideration that Cost of Internal control not > Expected benefits to be derived
• Most Internal controls not tend to be directed at transactions of unusual nature.
* Human error by carelessness, distraction, mistakes of judgment & misunderstand instructions
Limitations
INTERNAL CONTROL
• Circumvention of Internal controls by collusion with employees or with parties outside entity.
• Person responsible to exercise Internal control abuse responsibility
• Manipulations by Mgt (Mgt Overriding of Controls)
Monitoring of Controls (SA-220) = To assess the quality of internal control performance over time.
Control Activities Auditor to obtain understanding of control activities relevant to audit like: -
Relevant to Auditor * Authorization * Segregation of duties * Safeguarding & Asset accountability
Components of Internal Control
Understanding Control environment, whether mgt, with TCWG has created & maintained
Culture of honesty & ethical behavior. Control environment encompasses below elements:
- Communication and enforcement of integrity and ethical values.
Control
- Commitment to Competence& Skills to accomplish tasks defining individual’s job.
Environment
- Management’s philosophy and operating style - Participation by TCWG
- Assignment of authority and responsibility - Organizational structure
- Human resource policies and practices
Entity Risk Assessment Audit Procedures performed to understand Entity & its environment & internal
Procedure & Process Controls to identify & assess RMM due to Fraud/ Error at FS & Assertion Levels.
Components of Risk Assessment Risks that require Special Audit Consideration Risk Assessment Process
Procedures
Auditors Assessment of Materiality = To Consider Aggregate of all Uncorrected Misstatements & Estimates
• In forming opinion on (a) Specific Misstatements identified by Auditor • If Aggregate of uncorrected misstatements that
financial info, Auditor including net effect of uncorrected auditor identified approaches materiality level
to consider all material misstatements identified during audit of or if auditor determines aggregate of
aspects important for previous periods & uncorrected misstatements causes financial
True & fair view of FS. (b) Auditor’s best estimate of other misstatements info to be materially misstated = Consider
• To consider if Effect of which cannot be specifically identified i.e. Requesting Mgt to adjust financial info or
Aggregate uncorrected Projected errors. extending his audit procedures.
misstatements on = Analytical procedures employed by Auditor may • Mgt may Adjust Financial Info for known
Financial Info is give him some indication about existence of misstatements.
material. misstatements, which can be further • If Mgt refuses to adjust Financial info &
• Qualitative substantiated by him through estimates process. results of extended audit procedures do not
considerations also = When Auditor uses audit sampling to test an enable auditor to conclude Uncorrected
influence Auditor to account balance or class of transactions, he misstatements is not material = Auditor to
reach conclusion projects amt of known misstatements identified express a Qualified or Adverse opinion
whether misstatements by him in his sample = Projected misstatement
are material.
Performance
= Amount set by the auditor at less than materiality level for the financial statement as a whole.
Materiality
= To ensure aggregate of uncorrected & undetected misstatements < Materiality for FS as a whole.
= To reduce risk to an appropriately low level.
Example: - Materiality level of ₹5 Lakh decided says 40% = ₹2 Lakh decided as performance materiality.
(If 3 mistakes of ₹2 Lakh each identified & detected, then aggregately main materiality level is exceeded)
Factors
• Elements of the financial statements (Example: A & L, Equity, Revenue, Expenses)
affecting
• Whether there are items on which attention of users of particular entity’s FS tends to be focused
Identification
(Example: for evaluating financial performance users may focus on profit, revenue or net assets)
of Benchmark
• Nature of entity, Life cycle and industry & economic environment in which entity operates
in
• Entity’s Ownership Structure & way it is financed (Example: if entity is financed solely by debt
Determining
rather than equity, users may put emphasis on Assets & claims on them rather entity’s earnings)
Materiality for
• Relative volatility of benchmark.
FS as a Whole
Test of
from items contained in FS amount & obtaining relevant Audit Evidence
Details
* Tests of Details related to completeness assertion may involve selecting from items that are
expected to be included in relevant FS amt &investigating whether they are included
* In designing Tests of Details, extent of testing is ordinarily thought of in terms of sample size.
Auditor * User Auditor Determine whether sufficient understanding of Nature & Significance of services
Considerations provided by service organization & their effect on user entity’s internal control relevant to audit
(Procedure if has been obtained to provide a basis for identification &assessment of RMM.
User Auditor * User Auditor Evaluate design & implementation of relevant controls of user entity that relate to
can’t obtain services provided by service organization.
Sufficient * If User Auditor is unable to obtain Sufficient understanding from User entity, user auditor: -
Understanding - Obtaining Type 1 or Type 2 report (if available)
from user - Contacting Service Organization, through user entity to obtain specific info
Entity) - Use other auditor to perform procedures to get info on relevant control at service org.
- Visiting Service organization & performing procedures for the same
Obtain • Nature of services provided by Service Organization & significance of those services to
Understanding/ User Entity including effect thereof on User Entity’s Internal Control
Assessment of • Nature & Materiality of Transactions processed or A/c or FR processes affected by
services provided Service organization
by Outsourcing • Degree of interaction in activities of Service organization & those of User Entity
PRECAUTIONS/ CHECKS FOR AUDIT UNDER SA 402
Agency/ Service • Nature of Relationship in User entity & Service organization including Relevant
organization Contractual terms for activities undertaken by Service Organization.
Determine sufficiency& appropriateness of Audit Evidence provided by a Type 1 or Type 2
report satisfied as to: -
Determine • Service auditor’s professional competence
SAAE Use • Adequacy of standards under which Type 1 or Type 2 report was issued i.e. if it was prepare
as per SAE 3402.
• If Auditor of user org. not able to obtain Info = Give Qualified or Disclaimer.
Type 1 Report: -
Obtain - Report on description & design of controls designed & implemented at service org.
Type 1 - Report by Service auditor that comprises of service org. system, control objectives
& & related controls that have been designed & implemented at a particular date.
Type2 Type 2 Report: -
Report - More comprehensive & includes Type 1 report & additionally it includes Description of
Test of Controls performed to arrive at the opinion
(These 2 methods are also known as Inclusive methods &Carve out method)
* If Service org. uses sub- service org, service auditor’s report may either include or exclude
subservice org. relevant control objectives & related controls in service org. description of its
Obtain Info system & in scope of service auditor's engagement.
on Controls * These 2methods of reporting are known as Inclusive & Carve-out method respectively.
at Sub- * If Type 1 or Type 2 report excludes control at Sub service organization & services provided
Service by sub- service organization are relevant to audit of user entity’s FS, User auditor is required
Organization to apply requirements of SA 402 for sub- service org.
* NTE of work performed by User auditor of services provided by sub-service organization
depend on nature & significance of services to user entity & relevance of services to audit.
* Designed to check if internal control system designed & operating effectively * Designed to detect MMs at assertion level
* Evaluate operating effectiveness of internal controls at assertion level * Compromise Test of details &Substantive
* Auditor performs Audit procedures so that he can obtain Audit Evidence analytical procedures (SA- 520)
regarding adequacy of internal controls in Enterprise. * Substantive Tests conducted in areas not
* After performing Test of Controls, if auditor finds controls are Inadequate/ subject to internal controls & are hence
absent = communicate same to TCWG as per SA-265. judgmental in nature.
Assessing • Original documents are more reliable than mere photocopies& Written docs more reliable then Oral
Reliability • Evidences obtained from outside entity (Independent Sources) more reliable than obtained in entity.
of Audit • Evidences are more reliable when internal control system is sound.
Evidence • Evidences obtained directly by auditor are more reliable than obtained indirectly.
* Seeking info of knowledgeable persons financial & non- financial in or outside entity.
Inquiry * Used extensively throughout audit in addition to other audit procedures.
(IN) * May range from formal written inquiries to informal oral inquiries.
* Evaluating responses to inquiries is an integral part of Inquiry process.
METHODS TO OBTAIN AUDIT EVIDENCE
* Examine records or doc (Internal or External) in Paper or E form or other media/ physical examine Asset
* Inspection of Records & docs provides Audit Evidence of varying degrees of reliability depending on
Nature & Source & Effectiveness of controls over their production.
Inspection (IN)
* Example of Inspection used as a Test of Controls is Inspection of records for evidence of authorization.
* Some docs represent direct audit evidence of existence of Asset like a document constituting financial
instrument such as a Stock or Bond.
* Inspection of such documents may not necessarily provide audit evidence about ownership or value
* Inspecting executed contract may provide audit evidence relevant to entity’s application of a/c policies,
such as revenue recognition.
* Inspection of Tangible assets may provide reliable audit evidence with respect to their existence not
necessarily about entity’s Rights & Obligations or Valuation of Assets.
* Inspection of Individual Inventory items to accompany observation of inventory count.
Recalculation (R) * Recalculation consists of checking the arithmetical accuracy of documents or records.
* Recalculation may be performed manually or electronically.
* Looking at Process or Procedure being performed by others like auditor’s observation of inventory
counting by entity’s personnel or of performance of control activities.
(O)
* Provides Audit evidence about performance of process or procedure, but limited to point of time at
which observation takes place
* It may affect how process or procedure is performed.
Obtain Aspects of mgt expert’s field relevant to auditor’s understanding may include what
Understanding of assumptions & methods are used by mgt expert & whether they are generally accepted in
Work of Expert that expert’s field & appropriate for FR purposes.
• Evaluate mgt instructions & procedures for recording & controlling results of
entity’s physical counting
Attending
• Inspect Inventory
Physical Count
• Observe performance of mgt count procedures
Special Consideration To Inventory
Audit Procedures * To Determine if they accurately reflect actual inventory count results
on Final * Inspecting inventory when attending physical inventory counting assists auditor in
Inventory ascertaining existence of Inventory (though not necessarily its ownership) &
Records identifying obsolete, damaged or ageing inventory.
• Due to factors such as Nature & Location of Inventory like Inventory held in location
that may pose threats to safety of Auditor.
Attending
• If Attendance Impracticable = Alternative audit procedures like Inspection
Physical Count
of documentation of subsequent sale of specific inventory items acquired or
Not Practicable/
purchased prior to physical inventory count provides SAAE to existence & condition
Impracticable
• In some cases though it may not be possible to obtain SAAE regarding existence &
condition of Inventory by performing alternative audit procedures. In such cases, SA
705 requires Auditor to modify opinion in Auditor’s report due to Scope limitation.
Mgt refusal • Evaluate implications of mgt refusal on Auditor’s assessment of relevant RMM including risk of
to allow fraud & on NTE of other audit procedures
Auditor to
send • Ask mgt to submit its request in written form giving in details reason for such request.
Confirmation
Request • If auditor agrees to mgt request, document reasons for acceding to mgt request.
• Perform alternative audit procedures designed to obtain relevant & reliable audit evidence.
(If auditor Concludes Mgt refusal is unreasonable/ can’t obtain SAAE = auditor to communicate
with TCWG & determine its implication for audit & his opinion)
REPORTING REQUIREMENTS
Audit Procedure for Sufficiency & Appropriateness of Opening Balances & ensure it’s free from Misstatement
• If prior period’s FS are audited by Predecessor Auditor, • Auditor to perform auditing procedures to obtain SAAE.
auditor may be able to obtain SAAE regarding opening • Since opening balances represent effect of transaction & events
balances by perusing copies of FS including other of preceding period & accounting policies applied in preceding
relevant docs relating to prior period FS such as period, auditor need to obtain evidence having regard to nature
supporting schedules to audited FS. of opening balances & materiality of opening balances
• Current Auditor can place reliance on closing balances • Since it will not be possible for auditor to perform certain
in FS for preceding period, except when performing of procedures, e.g., observing physical verification of inventories,
audit procedures for current period possibility of etc. auditor may obtain confirmation, etc. & perform suitable
misstatements in opening balances is indicated. procedures in respect of fixed assets, investments, etc.
• Auditor can obtain Mgt WR for Opening balances
• Refers to comparisons & ratio analysis (i.e. analysis of significant ratios & trends.
Purpose: -
- To assist auditor in planning NTE of other audit procedures.
- Investigating unusual fluctuations.
- Analysis of significant ratios & trends.
- Used as substantive procedures more effectively than test of details in reducing detection risk
• To obtain relevant & reliable audit evidence when using substantive audit procedure.
Auditor's • To design & perform SAP near end of audit.
Objective • If there is unusual fluctuations, then make enquiry of mgt & perform extended procedures (further
investigation, obtain more explanations, more evidence)
FACTORS CONSIDERED WHILE PERFORMING Determine suitability of particular substantive Analytical Review Procedure for given assertion
Suitability taking a/c of assessed RMM & Tests of details if any for these assertions.
(Example: - In case of predictable relationships, analytical procedures is more suitable.)
ANALYTICAL PROCEDURES:
Evaluate Reliability of data from which auditor’s expectation of recorded amt or ratios is
developed, taking to a/c: - - Controls over Preparation of Info
Reliability
- Nature of data/ Info - Source of Info
- Relevance of Info - Comparability of Info
Expectations To develop an expectation of recorded amount & evaluate whether expectation is sufficiently
precise to identify misstatement
Difference of recorded amt from expected values i.e. acceptable without further investigation
& if analytical procedures performed as per SA, identify fluctuations or relationships
inconsistent with other relevant info or that differ from expected values by significant amt,
Difference
Auditor to Investigate such differences as result of Analytical Procedures by: -
- Inquiring mgt & obtaining SAAE relevant to mgt responses.
- Performing other audit procedures as necessary in circumstances.
Risk factors Kept in mind to apply Sampling Techniques Auditor concerned with this type
Sampling risk can lead to two types of erroneous conclusions: - of erroneous conclusion as it
affects audit effectiveness & is
If Test of Controls If Test of Details
more likely to lead to
Inappropriate Audit Opinion
That controls are more effective That material misstatement
than they actually are or in case of not exist when in fact it does This type of Erroneous
Test of Details
conclusion affects audit
That material misstatement not efficiency as it leads to
That controls are less effective than exist when in fact it does not additional work to establish that
they actually are or in case of Test initial conclusions were incorrect
of Details
* Sample size selected on professional judgment, personal experience & knowledge of auditor.
* Every item would have equal chances of selection or de-selection.
Random * Commonly used for many years due to its simplicity in operation.
selection/ * Auditor on basis of his personal experience will determine size of sample & express it in terms
Non – that no. of pages or personal accounts in purchases or sales ledger to be checked.
Statistical * Example: - March, June & September may be selected in yr one &different months would be
selected in next yr. Attempt would be made to avoid establishing pattern of selection yr after
METHODS OF SELECTION OF SAMPLE SIZE
* Sample size select on basis of Permutations & Combinations, Simulation models & Probability.
* More scientific than testing only on auditor’s own judgment as it involves use of math laws.
Systematic
* Reasonably wide application where population tested consists of large no. of similar items.
Selection/
Statistical * Helpful in transactions involving compliance testing, trade receivables’ confirmation, payroll
checking, vouching of invoices and petty cash vouchers.
Monetary
Value-weighted selection in which sample size, selection &evaluation results in conclusion in
Unit
monetary amt
Sampling
Adopted by auditor in cases where sample does not follow a structured sampling.
Haphazard
- Haphazard selection is not appropriate when using statistical sampling.
Selection
- All items in a population should get a chance of being selected.
Misstatement
* Tolerable error is amount of error that is acceptable to auditor in making a sample choice.
Tolerable
* While designing Sample, auditor determines tolerable misstatement to address risk that MMs may cause FSs
to be materially misstated to provide a margin for possible undetected misstatements.
* Tolerable misstatement is application of performance materiality, to a particular sampling procedure.
* Tolerable misstatement may be same amt or an amt lower than performance materiality.
Sample
* While designing, consider purpose of audit procedure & characteristics of population.
Design, Size
* Sample size sufficient to reduce sampling risk to Acceptably low level.
AUDITOR RESPONSIBILITY
& Selection
* Selection in way that each sampling unit in population has equal chance of selection.
of items
Evaluation
of results of To determine whether use of audit sampling has provided reasonable basis for conclusions about
Audit population that has been tested.
Sampling
A/c estimates with Low Estimation Uncertainty/ RMM A/c Estimates with High Estimation Uncertainty
• A/c estimates in business activities that aren’t complex • A/c Estimates highly dependent on Judgment
• A/c estimates frequently made & updated as routine nature (Outcome of pending litigation)
• A/c estimates derived from data i.e. readily available such • A/c Estimates not calculated using recognized
as published interest rate data or share exchange-traded
measurement techniques.
prices
• Fair value A/c estimate where method of measurement • A/c Estimates where Auditor’s review of similar A/c
prescribed by Applicable FRF is simple & applied easily estimates made in prior period FS indicate substantial
• Fair value A/c estimates where model used to measure A/c differ in original A/c estimates & actual outcome.
estimate is well-known or generally accepted provided that • Fair value A/c estimates for which a highly
assumptions or inputs to model are observable. specialized entity developed model is used.
Estimates where current transaction cost basis is used or based on condition prevailing in market.
Situations/ Examples where Fair Value Accounting Estimates required: -
• Property or equipment held for disposal • Share-based payments
Fair Value
• Complex financial instruments, which are not traded in an active and open market
Accounting
Estimates • Assets or Liabilities acquired in business combination including goodwill & intangible assets.
• Exchange of assets or liabilities between independent parties without monetary consideration.
(Ex: non-monetary exchange of plant facilities in different lines of business)
Auditor should obtain sufficient & appropriate accounting estimate that all estimates by mgt used in
Duties of preparation & presentation of FS are: -
Auditor - Reasonable &
- Disclosed properly as per FRF.
Obtain understanding for identification & assessment of Estimation making process adopted by mgt includes: -
RMM for accounting estimates by: -
• Requirements of applicable FRF relevant to A/c • Method where applicable model used in making A/c estimates.
Estimates, including related disclosures. • Relevant controls.
• How Mgt identifies those transactions, events & • Whether management has used an expert?
conditions that may give rise to need for A/c estimates to • Assumption underlying the accounting estimates.
be recognized or disclosed in FS. • Whether change from prior period in methods for making
• Make Inquiries of mgt about changes in circumstances accounting estimates & if so why?
giving rise to new or revision of existing a/c estimates. • How mgt assessed effect of estimation uncertainty
• Authorize & approve significant transactions & arrangements outside normal business.
• When Auditor draws Audit plan = Check Subsequent Events irrespective of level of test checks employed
Auditor's Responsibility regarding
• Perform audit procedures designed to obtain SAAE that all events occurring between Date of FS & date of
auditor’s report that require adjustment of or disclosure in FS = have been identified.
Audit Procedures on Subsequent Events
• If auditor identifies events that require adjustment of or disclosure in FS =auditor shall determine whether each
such event is appropriately reflected in those FS.
• Request mgt to provide WR that all events occurring subsequent to Date of FS requiring adjustments or
disclosures have been adjusted or disclosed.
• As per SA 560, if auditor is aware of any of matter after date of audit report & auditor is of opinion that, if
Matters Arising After Date of
matter had been known to him at date of auditor's report it may have caused auditor to amend his report,
auditor to perform additional procedures.
Auditor's Report
• If in exceptional circumstances, auditor performs new or additional audit procedures or draws new
conclusions after date of auditor’s report, auditor shall document: -
- Circumstances encountered
- New/ Additional Audit Procedures performed, SAAE obtained & conclusions reached & their effect
on Auditor’s report
- When & by whom resulting changes to audit documentation were made & reviewed.
Whether: -
• New commitments, borrowings or guarantees have been entered into.
• Sales or acquisitions of assets have occurred or are planned.
Matters • Increases in capital or issuance of debt instruments, such as issue of new shares or debentures,
where or an agreement to merge or liquidate has been made or is planned.
Specific • Any Assets have been appropriated by government or destroyed, for example, by fire or flood.
Inquiry
from • There have been any developments regarding contingencies.
Mgt • Any Unusual accounting adjustments have been made or are contemplated.
• Events have occurred or are likely to occur, questioning appropriateness of A/c policies used in FS
• Any Events have occurred calling into question Validity of Going Concern assumption.
• Any events have occurred that are relevant to measurement of estimates or provisions made in FS.
• Any events have occurred that are relevant to Recoverability of Assets.
• Consider events, conditions that may cast significant doubt on going concern.
• Determine whether Mgt has performed assessment of entity available to consider as Going Concern.
• Maintain Professional Skepticism.
AUDITOR RESPONSIBILITY
• Review latest interim FS, Subsequent Events after B/S Date, Review BODs minutes &Budgeted Cash flow
• Communicate to TCWG events/conditions that may cast significant doubt on entity's ability on Going Concern.
• If Material Uncertainty exists &Mitigating Factors present = Auditor may include matter in EOM Para +
Unmodified Report & as per Revised SA 570 also include matter in “Material Uncertainty Relating to Going
Concern Basis of Accounting” (MURGA).
• Obtain SAAE & conclude on Appropriateness of mgt use of Going Concern basis of in preparation of FS
• Conclude based on SAAE, whether material uncertainty exists about ability to continue as Going Concern.
• These responsibilities exist even if FRF used in Preparation of FS does not include Explicit requirement for
mgt to make Specific assessment of Entity’s ability to continue as Going concern.
• Absence of any reference to material uncertainty about Entity’s ability to continue as Going concern in auditor’s
report cannot be viewed as Guarantee as to Entity’s ability to continue as Going concern.
• Net liability or net current liability position. • Adverse key financial ratios.
Financial Indicators
• It is management responsibility to assess Entity’s ability to continue as Going concern even if FRF not
Continue as Going
Entity’s Ability to
Responsibility for
• Mgt assessment of entity’s ability to continue as Going Concern involves making a judgment, at
Concern
particular Point of Time about inherently uncertain future outcomes of events or conditions.
• Following factors are relevant to that judgment: -
- Degree of uncertainty associated with the outcome of Event or Condition.
- Size, complexity, nature & condition of business & degree to which it’s affected by external factors
Management’s
= Analyzing &discussing cash flow, profit & other relevant forecasts with mgt by: -
Flow
- Evaluating Reliability of underlying data generated to prepare forecast
Forecast
- Determine whether adequate support for assumptions underlying forecast.
maintain financial support with related &third parties & assessing financial ability of
such parties to provide additional funds.
= Requesting WR from Mgt& TCWG regarding their plans for future actions &
feasibility of these plans.
= Read minutes of meetings of shareholders, TCWG & committees for financing difficulties.
= Inquire of entity’s legal counsel on existence of litigation & claims& reasonableness of
mgt assessments of their outcome & estimate of their financial implications.
= Evaluate entity’s plans to deal with unfilled customer orders.
Govt. department ordered closure of Plant (Pending outcome of law suit) (Inability to continue as Going Concern)
Material Uncertainty exists & When auditor concludes that use of Going Concern assumption is appropriate in
circumstances but a material uncertainty exists, Auditor shall determine whether FS: -
• Adequately describe principal events or conditions that may cast significant doubt on Going Concern
• Include Mgt plans to deal with these events or conditions
• Disclose clearly that there is a material uncertainty that may cast significant doubt Going concern & so that it may be
unable to realize its assets & discharge its liabilities in normal course of business.
= Para 10 of AS 1- Going concern + SA 570 Reporting Responsibility + Auditor Responsibility
If mgt fails in adequate disclosure in FS about it as asked by Auditor = Modify opinion & include in report
If In-appropriate assumption used in FS is material & pervasive as to make FS misleading = Adverse opinion
If adequate disclosure is made FS = Unmodified opinion & include matter in EOM Para & also as “Material
Uncertainty Relating to Going Concern Basis of Accounting” (MURGA) as new heading in Auditor’s Report to: -
- Highlight existence of material uncertainty relating to event or condition casting doubt on Going Concern
- Draw attention to note in FS that discloses matters
A written statement by mgt provided to auditor to confirm certain matters or to support other audit evidence.
(FS, Supporting books records & assertions do not constitute WR)
MEANING
• As per Section 143 of Co. Act 2013, Auditors are required to report as to whether they have obtained Info &
explanation as may be necessary for purpose of audit evidence. (WR is one of ways of obtaining such Info)
• WR not relieve Auditor of Reporting Responsibility as still Auditor will have to perform Substantive
Procedures irrespective of fact that WR has been received.
• If Auditor has concerns about Competence, Integrity, Ethical values or Diligence of mgt or about it
commitment, auditor shall determine effect that such concerns may have on Reliability of
representations (Oral or Written) & Audit Evidence in general.
• If WR is inconsistent with other audit evidences obtained = Perform additional audit procedures to
Extent of resolve it.
Reliance - If matter remains unsolved, reconsider reliability of WR.
on WR - Example: - Mgt provides WR that no frauds in organization but other evidences indicate
by existence of it.
Auditor
• If Auditor concludes that WR are not reliable: -
- Re-Evaluate Integrity of mgt &Evaluate its Potential effect.
- If doubt about mgt integrity or WR not provided =Take appropriate possible actions.
- Also consider effect on auditor’s opinion in Audit report.
* A Written statement provided to Auditor to confirm certain matter or to support other audit evidence.
Mgt Representation
Basic Elements of
Another Auditor: - Person other than principal auditor of company. (Example: - Branch Auditor or Auditor of Subsidiary)
{In case Other auditor may happen to be Person other than a professionally qualified auditor like where component is
situated in a foreign country & applicable laws permit a person other than a professionally qualified auditor to audit FS of
such component. In such circumstances, procedures outlined above assume added importance}
• Before Use of work of other auditor = Principal Auditor to evaluate competence of another auditor.
(Principal auditor is not required to evaluate professional competence if another auditor is a member of ICAI)
Considerations by Principal Auditor
• Principal auditor normally entitled to rely on work of such auditor unless special circumstances make it essential
to visit component and/ or to examine BOA & other records of said component.
• Advice/ May give directions in writing to other auditor regarding specific procedures/ observations to be done.
• Obtain SAAE regarding fact whether work of other auditor is sufficient for his purpose.
• Review Written Summary of other Auditors audit procedure & ask another Auditor to furnish questionnaire &
perform supplementary test.
• Consider significant findings of other auditor.
• May discuss with other auditor & mgt of component, Audit findings or other matters affecting financial info
• If there is modification in another auditor's report then = Principal auditor to consider whether modification in
his report is required.
• Obtain representation from other auditor that accounting, auditing &reporting requirements complied.
• If Principal auditor uses work of another auditor, Principal auditor to determine how work of other auditor will
affect Audit (SA-705 = Principal auditor to modify report if he can't use work of other auditor or perform
sufficient additional procedures
Principal auditor to properly another auditor as below: - Other Auditor to coordinate as below: -
Role of Other Auditor (Auditor of Subsidiary Company) Role of Principal Auditor (Auditor of Parent Company)
• On knowing context in which his work is to be used by • Necessary to issue Written Communication(s) as Principal
Principal Auditor = should co-ordinate with principal auditor auditor to Other auditor.
• Ensure compliance with relevant statutory requirements. • Principal auditor may require other auditor to answer
• Respond timely to Questionnaire sent by Principal Auditor. Detailed Questionnaire regarding matters on which
principal auditor requires Info to discharge his duties
• Principal auditor not have right to access to audit working papers of Branch auditor's
Auditor of Holding Co.
Access to Subsidiary’s
• SA 230 & SQC 1 = Audit documentation property of Auditor & may at his discretion, make it available
• SA 230-working paper is property of auditor.
• Clause 1 of Part 1 of Second Schedule & SA 200 i.e. Confidentiality requirement.
• ICAI clarification: - Auditor not required providing client or other auditor access to working papers.
• SA 600 = Auditor can rely on work of other auditor without right of access to working papers if due
diligence exercised.
Holding Co. Auditor can’t access Working Papers of Subsidiary Co. but can ask Questions & seek
clarifications
Principal auditor to express Qualified opinion or Disclaimer of opinion due to Limitation on Scope
of audit if: -
• Principal auditor concludes based on his procedures that work of Other auditor cannot be used &
• Principal Auditor not able to perform Sufficient Additional procedures regarding financial info of
Reporting component audited by Other auditor
Considerations = If other auditor issues or intends to issue modified auditor's report, Principal Auditor should
consider whether subject of modification is of such nature & significance in relation to Financial
info of Entity on which Principal auditor is reporting that it requires modification of Principal
auditor's report.
• Principal auditor is not responsible for work carried out by other auditor unless there are circumstances,
which should have aroused suspicion about Reliability of work performed by other auditor.
Responsibility
• When Principal Auditor has to base his opinion on Financial info of Entity as whole relying on Statements &
Division of
Reports of Other auditors = His report should state clearly Division of Responsibility for Financial info of
entity
• It should indicate extent to which financial info of components audited by the other auditors have
been included in financial info of Entity
Example: - Number of Divisions/ Branches/ Subsidiaries or other components audited by Other Auditors.
• SA not deal when Individual Internal Auditors provide Direct Assistance to External Auditor in carrying Audit
• If entity has Internal audit function, requirements of SA relating to using work of that function do not apply if: -
- Responsibilities & activities of function are not relevant to audit
- Based on auditor’s preliminary understanding of function obtained as result of procedures performed
under SA 315, External auditor not expect to use work of function in obtaining audit evidence.
• Requirements in SA relating to direct assistance not apply if External auditor not plans to use internal auditors
to provide direct assistance.
Internal Audit A function of Entity that performs Assurance & Consulting Activities designed to evaluate &
Function improve effectiveness of entity’s governance, risk mgt & internal control processes
External Solely responsible for opinion expressed & responsibility not reduced by use of Internal Audit work or
Auditor Direct assistance. (SA 200 = Internal Audit Function & Internal auditors are both independent of entity)
External Auditor shall discuss planned use of Internal Auditor work with function as a basis for
Discussion
coordinating their respective activities.
External Auditor shall read reports & findings of Internal Audit function relating to work of
Internal Audit
Reports function that External Auditor plans to use, to understand NTE of audit procedures performed
USING WORK OF INTERNAL AUDIT FUNCTION
• Work was properly supervised, reviewed and documented i.e. due professional care has been take
• Adequate audit evidence obtained to enable the internal auditors to draw reasonable conclusions
• Conclusions reached are appropriate in circumstances & any reports prepared by Internal Auditors
are consistent with results of work performed
• Exceptions/ unusual matters disclosed by Internal Auditors are properly resolved.
= External Auditor to Test Check few items & observe procedures performed by Internal Auditors.
= If satisfied about Appropriateness of work = can rely on report but if he finds that it’s not in order =
decide otherwise.
= Final responsibility to express opinion on FS remains with Statutory/ External Auditor.
External Auditor shall evaluate whether his conclusions regarding Internal Audit function &
Evaluation determination of NTE of use of work of Internal Audit function remain appropriate.
Internal audit function may assess governance process in its accomplishment of objectives
Activities Relating
on ethics & values, performance mgt & accountability, communicating risk to appropriate
to Governance
areas of organization.
SCOPE OF INTERNAL AUDIT FUNCTION
Internal audit function may assist entity by identifying & evaluating significant exposures
Activities Relating
to risk & contributing to improvement of risk mgt & internal control (including
to Risk Mgt
effectiveness of FR process).
Evaluation of internal control: - Internal Audit function may be assigned specific responsibility for
reviewing controls, evaluating their operation & recommending improvements thereto.
Activities Relating to Internal
Examination of financial and operating information: - Internal audit function may be assigned to review
means used to identify, recognize, measure, classify & report financial & operating info & to make specific
inquiry into individual items, including detailed testing of transactions, balances & procedures.
Control
Review of operating activities: - Internal audit function may be assigned to review economy, efficiency &
effectiveness of operating activities, including non- financial activities of an entity.
• Review of compliance with laws & regulations: - Internal Audit function may be assigned to review
compliance with laws, regulations & other external requirements & with mgt policies & directives and
other internal requirements.
DIRECT ASSISTANCE
• Use of Internal Auditors to perform audit procedures under direction, supervision &review of external auditor.
• External auditor may be prohibited by law or regulation from obtaining direct assistance from internal auditors.
Statutory Auditor will determine NTE on which direct Direct assistance is not advisable on following: -
assistance can be taken. Statuary auditor has to determine • Matters involving Significant Judgments in Audit i.e.
whether direct assistance can be used i.e. to use work of - Assessing RMM
internal auditor under his direction, supervision & review. - Evaluate Sufficiency of Tests performed & A/c estimates
It is allowed when: - - Evaluate Appropriateness of mgt use of GC assumption
• It is not prohibition by law or regulation - Evaluating Adequacy of disclosures in FS & other
• There should be no significant threats to objectivity of matters affecting auditor’s report.
Internal Auditor • Matters on which RMM is high.
• Internal auditor should be competent & capable. • Matters in which Internal Auditor is already involved.
• When internal auditor not objective, competent & capable.
• This SA deals with Auditor’s Responsibilities regarding use of Individual or org. work in field of expertise other
than accounting or auditing, when that work is used to assist auditor in obtaining SAAE
• This SA does not deal with: -
SCOPE
- Situations where engagement team includes member with expertise in specialized accounting or auditing
- Auditor’s use of work of Individual or org possessing expertise in field other than accounting or auditing,
whose work in that field is used by entity to assist entity in preparing FS (Mgt Expert)
• Auditor has sole responsibility for audit opinion expressed & that responsibility is not reduced by Auditor’s use
of work of Auditor’s expert.
• Individual or organization possessing expertise in field other than accounting or auditing, whose work
Auditor's in that field is used by auditor to assist auditor in obtaining SAAE.
Expert • An auditor’s expert may be either an auditor’s internal expert (who is a partner or staff, including
temporary staff, of the auditor’s firm or a network firm) or an auditor’s external expert.
Need for
* Auditor’s expert will have access to sensitive or confidential entity Info.
detailed &
* Respective roles or responsibility of auditor & auditor’s expert are different from those normally
written
expected
agreement
* Multi-jurisdictional legal or regulatory requirements apply
in Auditor
* Matter to which auditor’s expert’s work relates is highly complex
& Auditor’s
* Auditor has not previously used work performed by that expert
expert.
* Greater extent of auditor’s expert’s work, & its significance in context of audit
(Factors)
AREAS OF • Valuation of complex financial instruments, land & building, plant & machinery, Jewellery, works
USE/ of art, antiques, intangible assets, impaired assets & liabilities.
MATTERS • Actuarial calculation of liabilities associated with insurance contracts or employee benefit plans
OF • Estimation of oil & gas reserves.
EXPERTISE • Valuation of environmental liabilities & site Cleanup costs.
OF EXPERT • Interpretation of contracts, laws & regulations.
WORK • Analysis of complex or unusual tax compliance issues.
Evaluating
Relevance, • Expert’s Findings or Conclusions & their consistency with other audit evidence
Adequacy & • Assumptions & methods used by Expert in his work
Reasonableness • Significant Source Data & its use to expert’s work.
(RAR) i.e. = If auditor determines that work of auditor’s expert is not adequate for auditor’s
Appropriateness purposes, auditor shall: -
/ Extent of - Agree with that expert on NTE of further work to be performed by that expert OR
reliance on - Perform further audit procedures appropriate to the circumstances.
Expert Work
Evaluate CCO of that Expert
Obtaining Understanding To enable Auditor to determine Nature, scope and objectives of that expert’s
of Field of Expertise of work for auditor’s purposes = Evaluate adequacy of that work for auditor’s
Auditor’s Expert purposes
Auditor shall agree, in writing when appropriate, on following matters with auditor’s expert: -
• Nature, scope and objectives of that expert’s work
Agreement
• Roles and responsibilities of the auditor and that expert
with
Auditor’s • NTE of communication in auditor & that expert, including form of any report to be provided
Expert by that expert
• Need for the auditor’s expert to observe confidentiality requirements.
Scope
SA 70
7000 : - Forming Opinion & Reporting on FS
* SA 700 is in context of general purpose FS only as FS under special purpose framework dealt by SA 800 & 805
* Not deals with audit of particular FS out of complete set or any particular component of FS
= Auditor to form an opinion on whether FS are prepared in all material respects as per applicable FRF.
= Auditor
uditor needs to conclu
conclude
de whether he obtained reasonable assurance FS as whole are free from MM
Auditors Responsibility
= Auditor to conclude that reasonable assurance has been obtained, auditor to consider: -
• If SAAE has been obtained.
• Whether uncorrected misstatements are material, individually or in aggregate & appropriate steps taken.
• Results of evaluation where auditor required to evaluate if FS prepared as per applicable FRF by evaluat
evaluating:
ing: -
- Significant policies Selected & Applied are adequately disclosed.
- Accounting policies so selected & applied are consistent with framework requirements.
- Mgt's estimates are reasonable.
- FS fulfill Qualitative requirements i.e. Relevance, Relia
Reliability,
bility, Understandability & Comparability, etc.
- Adequate disclosures has been made.
- Terminology used, including Title of FS is Appropriate.
KAM
SA 701: - Communicating KAM in Independent Auditor’s Report
• Matters that in auditor’s professional judgment were of most significance in Audit of FS of current period.
• Key Audit Matters (KAM) selected from matters communicated with TCWG.
Communicating KAM = not a substitute for modified opinion or for reporting as per SA 570
Auditor not to communicate matter in KAM when already required to modify opinion in SA705 as a result of matter
Factors/ * Areas of higher assessed RMM or significant risks identified in accordance with SA315.
Considerations while * Highly uncertain management estimates.
Determining KAM * Effect of the audit of significant events or transactions that occurred during the period.
Purpose of
• To enhance communicative value of audit report by providing greater transparency about audit performed
KAM
Matters not to • A matter giving rise to modified opinion as per SA 705 (Revised)
be reported as • A material uncertainty related to events or conditions that may cast significant doubt on entity’s
KAM ability to continue as a going concern in accordance with SA 570.
Circumstances Auditor to describe each Key Audit Matter in Auditor’s Report unless: -
where KAM • Law or Regulation precludes (already includes) Public Disclosure about matter
not required in • Auditor determines that disclosure of such matter in Audit Report will have adverse
Auditor’s consequences as would outweigh Public Interest benefits of such communication.
Report • Entity has already disclosed info about such KAM.
• Before drafting Qualified/ Disclaimer Para = Auditor must prepare Basis for Qualified/ Disclaimer
opinion drawing intention of users of FS towards reason of giving Qualification/ Disclaimer.
POINTS
• Most of time auditor is not able to obtain SAAE due to: -
TO
- Limitations imposed by circumstances. - Limitations imposed by mgt.
NOTE
• FRF v/s Law-conflict = Discuss conflict with mgt
(If additional requirement can't be met even by additional disclosure, modify audit report as per SA 705)
Auditor Obtained SAAE + Concludes misstatements individually or in aggregate are both Material &
e
pervasive to FS.
• Auditor unable to Obtain SAAE to base opinion + Concludes possible effects on FS of undetected
Opinion
Auditor concludes based on SAAE obtained that FS as whole are not free from MM due to: -
Circumstance - Inappropriate Accounting Policies
s requiring - Inappropriate Selection of Accounting Policies
Modifications - Inappropriate or Inadequate Disclosures in FS OR
in Audit Auditor unable to Obtain SAAE to conclude that FS as a whole are free from MM due to: -
Report - Limitation Imposed by Mgt
- Circumstances beyond Entity Control (Example: Records destroyed by Fire)
- Circumstances relating to NTE of Auditor’s Work
PHYSICAL STOCK & FA VERIFICATION CAN’T BE CARRIED & SAAE CAN’T BE OBTAINED
Reporting Responsibility
* SA 501 = if attend physical count impracticable, Auditor to perform alternative audit procedures to obtain SAAE
(If it is not possible to do so = modify opinion in auditor’s report as per SA 705)
* Issue DISCLAIMER of opinion because auditor is unable to obtain SAAE that FS are free from MM & matter is
MATERIAL AND PERVASIVE.
Factors are to be considered in auditor’s reporting responsibility: -
• Inventories & Fixed Assets are material and PERVASIVE to FS
• Auditor unable to attend physical verification of inventories & FA as impracticable
• Auditor failed to obtain SAAE even by alternative audit procedures.
AUDITORS RESPONSIBILITY PARA: - Our Responsibility is to express opinion on these FS based on our audit as per
SA issued by ICAI. Because of matters described in Basis for Disclaimer of Opinion paragraph, however we were not able
to Obtain SAAE to provide a basis for Audit Opinion.
Basis for Disclaimer of Opinion PARA: - We were appointed as auditors of Company & we report that we could not
observe counting of Physical Stock & Physical verification of FA due to civil & political unrest in foreign country where
the company has significant operation. We were unable to satisfy ourselves by alternative means concerning inventory
quantities and fixed assets of company held at March31st 20XX, which are stated in B/S at ₹XXX & ₹XXX respectively.
Disclaimer of Opinion: - Because of significant matters described in Basis for Disclaimer of Opinion paragraph, we have
not been able to Obtain SAAE to provide a basis for audit opinion. Accordingly, we do not express Opinion on FS.
Report on Other Legal and Regulatory Requirements: -As u/s 143 (3) of Co Act, 2013, we report that: -
As described in the Basis for Disclaimer of Opinion paragraph, we were unable to obtain all info & explanations which to
best of our knowledge and belief were necessary for purpose of our audit.
“Without qualifying our opinion, we draw attention to Note X of Schedule ………. to FS.”
EMPHASIS OF MATTER PARAGRAPH (EOM Para)
The Entity is defendant in lawsuit & filed counter action & Ultimate outcome of matter cannot
Drafting presently be determined & no provision made in FS for it.
of EOM Addition of paragraph, emphasizing Going Concern problem or significant uncertainty is
Para ordinarily adequate to meet auditor's reporting responsibilities regarding such matters. If multiple
uncertainties that are significant to FS, Auditor may consider it appropriate to express Disclaimer
of opinion instead of adding EOM Para.
include EOM
Auditor may
* Significant subsequent event that occurs between Date of FS & Date of Auditor’s report.
* Early application (where permitted) of a new AS that has Material effect on FS
* Major Catastrophe had or continues to have significant effect on Entity’s financial position.
MEANINIG EXAMPLE
• If auditor considers necessary to draw user’s If auditor of CFS = Report includes an OM Para in respect of
attention to matter other than those presented or auditor's responsibility in respect of subsidiaries not audited by
disclosed in FS that in auditor’s judgment is him but which form part of consolidated FS under report.
fundamental to user’s understanding of FS = Auditor
“We didn’t audit FS of 1 subsidiary, whose FS reflect Total Assets
to include OM Para
• OM Para only if not prohibited by law & matter not (net) of ₹XXX as at March 31, 2016, total revenues of ₹XXX &
being KAM. net cash outflows amounting to ₹XXX for yr then ended. These
• If auditor to include EOM/ OM Para = communicate FS audited by other auditors M/s B& Co. CAs whose reports
with TCWG regarding this & wording of Para furnished to us by Mgt & our opinion is based solely on reports of
other auditors. Our opinion is not qualified in respect of this matter.”
As per SA 610& 710, when auditor’s report on prior period as previously issued: -
• Included Qualified opinion, Disclaimer of opinion, or Adverse opinion &
Audit
• Matter giving rise to modification resolved & properly accounted/ disclosed in FS as per FRF
Report
Auditor to: -
for
* Modify opinion on Current period’s FS in Basis for Modification Para in Auditor report.
Earlier yr
* Refer to both current period’s figures & corresponding figures in Description of matter giving
is
rise to modification when effects of matter on Current period’s figures are material.
Qualified
* In other cases, explain audit opinion modified because of effects or possible effects of
unresolved matter on comparability of current period’s figures & corresponding figures.
• When Comparative FS presented = Auditor’s opinion shall refer to each period for which FS are
presented & on which audit opinion is expressed.
FS
• When Reporting on prior period FS in connection with current period’s audit, if auditor’s opinion on
such prior period FS differs from Opinion auditor previously expressed = Auditor shall disclose
substantive reasons for different opinion in Other Matter paragraph as per SA 706.
Other information refers to Financial or non-financial information (other than F.S and the auditor’s report
thereon) included in the entity’s annual report.
Include
• SA 720 deals with auditor’s responsibilities relating to other information relating to other info that is
included in entity’s annual report.
• These responsibilities do not require auditor to give assurance on other info.
Include separate section with heading “Other Info” when the auditor has obtained some or all of other info.
(It will be placed after heading Key Audit Matters).
Other information section shall include:
Reporting of Other Info
• Obtaining other info from Mgt by making appropriate arrangements to obtain such docs which
ROLE
• Auditor to Read Other Info to identify material inconsistency between other info & FS.
Material misstatement exists Respond appropriately in accordance with other Standards. Example-SA
in FS 450, SA 315, 330, SA 705.
In case of Special Purpose FS, financial info needs of Intended users are key factor in determining
Considerations
acceptability of FRF applied in preparation of FS. So auditor shall obtain Understanding of: - PIA
When
Accepting • Purpose for which FS is prepared • Intended user
Engagement • Acceptance of FRF (SA 210) {Mgt steps to determine applicable FRF acceptable in that case)
• SA-700 • PIA {Purpose FS is prepared + Intended user + Acceptance of FRF (SA 210)}
Form & Content
• Include in EOM Para to alert users that FS prepared as per Special Purpose framework.
of Audit Report
MEANINIG EXAMPLE
* FRF designed to meet • Cash Receipts & Disbursements basis of A/c for Cash Flow that entity prepares for
financial creditor
info needs of specific users. • Financial Reporting provisions established by Regulator to meet requirements of regulator
* FRF may be a fair presentation
• FR provisions of Contract (Bond Indenture, Loan agreement or Project grant)
or a compliance framework.
• SA deals with special considerations in application of SAs to Audit of Single FS (Example: - Cash flow
Applicability
statement) or Specific element, a/c or item of FS (Example: - Cash & Bank Balances) including related notes.
• This SA not apply to Report of Component Auditor issued as a result of work performed on financial info
of a component at request of group engagement team for purposes of Audit of Group FS.
(Related notes = Summary of significant accounting policies &explanatory info relevant to FS or to element)
PERFORMING AUDIT
WHEN PLANNING &
CONSIDERATIONS
• SA 200 = SAs are written in context of Audit of FS i.e. to be adapted necessarily in circumstances
UNDER SA 805
when applied to audits of other historical financial info.
• In planning & performing Audit of a Single FS or of a specific element of a FS, auditor shall adapt all
SAs relevant to audit as necessary in circumstances of engagement.
• SA 200 = Comply all SAs relevant to audit irrespective auditor also to audit entity’s Complete set of FS.
• If auditor unable to comply with SAs relevant for his audit purpose (SA 240/ 550/ 570 i.e. Risk of
Fraud/ Related Parties/ Going concern) = he shall not accept engagement.
• Include in EOM Para to alert users it is audit of single purpose FS/ Specific item & not of entire FS.
Assure of PIA (Purpose for which FS is prepared + Intended users + Acceptance of FRF (SA 210)}
CONSIDERATIONS WHEN ACCEPTING
Application SA 200 requires auditor to comply with all SAs relevant to audit irrespective of whether
of SAs auditor is also engaged to audit entity’s complete set of FS or not
• SA 210 requires agreed terms of audit engagement include expected form of reports to be
issued by auditor.
Form of
Opinion • In case of Audit of Single FS or of Specific element of FS, auditor shall consider whether
expected form of opinion is appropriate in circumstances.
• If auditor concludes that it is necessary to express Adverse opinion or Disclaim opinion on entity’s complete
Forming Opinion &
set of FS as whole, SA 705 does not permit auditor to include in same auditor’s report Unmodified opinion
on Single FS or specific element that forms part of those FS.
• He can give an unmodified opinion in such a situation only when he is not prohibited by law & both reports
are not published together & specific element does not constitute major part of entity’s complete set of FS.
• If also engaged to Report on Full FS, express Separate opinion on each Engagement.
• If Audited Single FS published with Entity Audited Full FS = Present Single FS clearly differentiated from
Full FS & auditor not to issue Audit Report on Single FS unless satisfied with the differentiation.
• Evaluate whether Summary FS adequately disclose their summarized nature & identify Audited FS.
Engagement to Report on Summary FS
• When Summary FS are not accompanied by Audited FS, Evaluate whether they describe clearly: -
- From whom or where Audited FS are available OR
- Law or regulation specifies that Audited FS need not be made available to intended users of Summary
FS & establishes criteria for Preparation of Summary FS.
• Evaluate whether summary FS adequately disclose applied criteria.
• Evaluate whether summary FSs are prepared in accordance with applied criteria.
• Evaluate whether audited FS are available to intended users of summary FS without undue difficulty, unless
law or regulation provides that they need not be made available.
• Evaluate in view of purpose of summary FS whether summary FS contain Info necessary &are at an
appropriate level of aggregation so as not to be misleading in circumstances.
• Compare Summary FS with related Info in audited FS to determine whether summary FS agree with or can
be re- calculated from related Info in audited FS.
MODIFICATIONS TO OPINION/ EOM PARA/ OM PARA IN
When
Auditor’s • But auditor is satisfied that Summary FS are: -
report - Consistent in all material respects or
contains - Are a fair summary of audited FS as per applied criteria
AUDITOR’S REPORT ON AUDITED FS
When
Auditor’s Auditor’s report on Summary FS shall: -
report • State Auditor’s report on audited FS contains Adverse opinion or Disclaimer of opinion
contains • Describe basis for that Adverse opinion or Disclaimer of opinion
Adverse / • State as result of Adverse/ Disclaimer of opinion, it’s inappropriate to express Opinion
Disclaimer of
opinion
• If Summary FS not consistent in all material respects or not fair summary of audited FS
Modified
as per applied criteria &
Opinion on
Summary FS • Mgt does not agree to make necessary changes.
•Assure of PIA (Purpose FS is prepared + Intended users + Acceptance of FRF (SA 210)}
BEFORE • Whether applied criteria is acceptable & properly disclosed.
ACCEPTING
(If auditor concludes that applied criteria is not acceptable = he should not accept assignment)
ASSIGNMENT/
AUDIT • Ensure that available FS are available to intended users without undue difficulty.
PROCEDURE • This assignment may be accepted only by Auditor who conducted audit of Annual FS.
Unless required by law or regulation, the practitioner shall not accept a review engagement if: -
Factors Affecting Acceptance
• Practitioner has reason to believe that ethical requirements including independence will not be satisfied
• Practitioner’s preliminary understanding of engagement circumstances indicates info needed to
perform review engagement is likely to be unavailable or unreliable.
• Practitioner doubts mgt integrity such that it is likely to affect proper performance of review.
• Mgt/ TCWG put Limitation on Scope of practitioner’s work in terms of proposed review engagement
such that Practitioner believes Limitation will result in Practitioner disclaiming conclusion on FS.
Pre—Conditions Response
* Determine whether FRF applied in preparation of FS is acceptable * Practitioner to discuss matter with Mgt or TCWG if
including Special purpose FS not satisfied to any matter given in preconditions
* Obtain understanding of purpose FS prepared & of intended users. * If changes cannot be made to satisfy practitioner as
* Obtain agreement of mgt that it acknowledges & understands its
to those matters = practitioner not accept proposed
responsibilities: -
(a) For preparation of FS in accordance with applicable FRF engagement unless required by Law or regulation
including where relevant their fair presentation. * If it is discovered after engagement accepted that
(b) For such Internal control as mgt determines is necessary to Practitioner is not satisfied as to preconditions =
enable preparation of FS that are free from MM Discuss matter with Mgt or TCWG & determine: -
(c) To provide Practitioner with: - - If Matter can be resolved
- Access to all info relevant to Preparation of FS such as - If Appropriate to continue with
records, documentation & other matters.
Engagement
- Additional info that Practitioner request from mgt for review.
- Unrestricted access to persons in entity from whom - If & How to communicate matter in
Practitioner determines necessary to obtain evidence. Practitioner’s Report.
• Obtain Understanding of entity's business & system for recording financial Info
ORDINARY TO • Discuss Terms of engagement with client & engagement team.
PROCEDURES/
• How mgt makes significant accounting estimates required under applicable FRF
Practitioner shall • Identification of RP & RP transactions & purpose of it
design & perform • Whether Significant, Unusual or complex transactions affecting entity’s F.S., including:
Inquiry & analytical - Significant changes in entity’s business activities
procedures: - - Significant changes to the terms of contracts
- Significant journal entries or other adjustments
• To address all - Significant transactions occurring near the end of the reporting period
material items - Uncorrected misstatements identified.
in FS including - Effects or possible implications of transactions or relationships with related parties
disclosures • Existence of any actual, suspected or alleged: -
- Fraud or illegal acts affecting the entity.
• To focus on - Non-compliance with laws and regulations
addressing areas • Whether Mgt. identified events occurring between date of F.S. & date of practitioner’s
in FS where MM is report that require adjustment or disclosure.
likely to arise. • Basis for Mgt assessment of entity’s ability to continue as a going concern.
• Events/ conditions appear to cast doubt on entity’s ability to continue as a going concern
• Material commitments, contractual obligations or contingencies.
• Material non-monetary transactions or transactions for no consideration.
• Title which shall clearly indicate that it is report of Independent Practitioner for Review engagement
Practitioner’s Report for FS Review Engagement
Scope Deals with auditor responsibilities when engaged to perform review of IFI of entity.
Objectives of To express a conclusion whether on basis of review, anything come to his attention that causes him
Auditor to believe that IFI is not prepared in all material respects in accordance with applicable FRF.
• Read documentation, to extent necessary, of Preceding year’s audit & reviews of prior interim period (s)
of current year & corresponding interim period(s) of prior year, to enable Auditor to identify matters that
Understand Entity, Environment &
• Consider materiality with reference to applicable FRF as it relates to IFI to assist in determining NTE of
procedures to be performed and evaluating effect of misstatements.
• Consider Nature of corrected MM & identified uncorrected immaterial misstatements in prior year’s FS.
• Consider financial& reporting matters of significance like material weaknesses in Internal Control
• Consider results of Audit procedures performed for current year’s FS.
• Consider results of Internal audit performed & subsequent actions taken by mgt
• Inquiring of mgt about: -
- Results of mgt assessment of Risk that IFI may be materially misstated due to fraud.
- Effect of changes in the entity’s business activities.
- Significant changes in internal control and potential effect of such changes on preparation of IFI
- Process by which IFI prepared & reliability of A/c records to which IFI agreed or reconciled.
PROCEDURES FOR REVIEW
- Communicate in Writing to Appropriate Level of Mgt & to TCWG with reasons of non completion
- Consider need & appropriateness to issue a Report.
• Do not Accept Review Engagements: -
- If preliminary knowledge indicates inability to complete review due to limitation on Scope by Mgt
• If After accepting engagement, limitation is imposed by Mgt: -
- Request Removal of Limitation
- If Mgt refuse, communicate with TCWG & Mgt in writing why Engagement can’t be completed.
- Consider legal & regulatory responsibilities
• Compare IFI with the IFI information of the immediately preceding interim period.
performed in review of IFI
procedures that may be
Examples of Analytical
• Forecast = PFI prepared on basis of assumptions as to future events which management expects to take place.
Types of
• Projection = PFI prepared on basis of hypothetical assumptions about future events which are not necessarily
expected to take place or a mixture of Best Estimate & hypothetical assumptions.
Management Mgt is responsible for preparation of PFI including: - • Identification and disclosure of PFI
Responsibility • Basis of forecast • Underlying assumptions
• Related to events & actions that have not yet occurred & might not occur.
Auditor’s • Examine and report on PFI. • Can provide only moderate assurance
Responsibility • Evidence future oriented and thus speculative.
• Auditor not in a position to express opinion as to whether results shown in PFI will be achieved.
Factors/ • Nature of assumptions i.e. whether they are best-estimates or hypothetical assumptions
Things • Whether Info will be for general or limited distribution • Intended use of Info
considered • Elements to be included in Info • Period covered by Info
before = Auditor not accept or to withdraw from engagement when assumptions are clearly unrealistic or
Acceptance of when auditor believes that Prospective financial info will be inappropriate for its intended use.
Engagement = SA 210 it is Necessary auditor & client to agree on terms of engagement.
* Assumptions adequately disclosed in notes to PFI * Date PFI was prepared is disclosed.
Consideration to
&Disclosure PFI
Assess, Present
* Presentation of PFI is informative & not misleading. * A/c policies clearly disclosed PFI notes
&Underlying
Assumption
Auditor Determine whether: - Obtain Agreement of SO that it acknowledges & understands its responsibility: -
• Has Capabilities & competence • For preparation of the description of its system
to perform Engagement. • To have reasonable basis for SO assertions accompanying the description of its system
• Criteria to be applied by SO to • For stating in the assertions, the criteria it used to prepare the description of its system
prepare description of its system • For stating in description of its system, control objectives & party who specified them
will be suitable & available to • For identifying risks that threaten achievement of control objectives & designing &
user entities & their auditors. implementing controls to provide reasonable assurance that those risks will not prevent
• Scope of engagement & SO achievement of control objectives.
description of its system will • To provide the service auditor with: -
not be so limited that they are - Access to all relevant info
unlikely to be useful to user - Additional info that service auditor may request from Service Organization (SO).
entities & their auditors. - Unrestricted access to persons in SO from whom necessary to obtain evidence.
Report on description, design & operating effectiveness of controls (Type 2 Report) includes: -
Elements Of Assurance Report (Type 2)
• Title that clearly indicates the report is an independent service auditor’s assurance report. • Addressee.
• Identify SO description of its system. • Identify criteria & party specifying control objectives.
• A statement that report is intended only for user entities & their auditors.
• A statement that SO is responsible for preparing the description of its system, including completeness, accuracy
& method of presentation of that description.
• A statement that the service auditor’s responsibility is to express an opinion on the SO description, design and
operating effectiveness of those controls.
• A statement that the engagement was performed in accordance with SAE 3402.
• Summary of procedures to obtain reasonable assurance. • A statement of the limitations of controls.
• Service auditor’s opinion, expressed in positive form in all material respects, based on suitable criteria: -
- Description fairly presents Service Org. system designed &implemented throughout the specified period.
- Controls related to control objectives stated in Service Organization description of its system were
suitably designed throughout the specified period.
- Controls tested, which were those necessary to provide reasonable assurance that control objectives stated|
in description were achieved, operated effectively throughout the specified period.
• Date of Service auditor’s assurance report. • Practitioner’s Sign. • Place of Sign.
* Clause (3) of Part I of II Schedule to CA Act, 1949, a CA in practice is deemed guilty of professional
Certification of Financial
misconduct if he permits his name or the name of his firm to be used in connection with an estimate of
earnings contingent on future transactions leading to belief that he vouches for accuracy of forecast.
* SAE 3400 provides that mgt is responsible for Preparation & presentation of PFI including Identification &
Forecast
• Such Reporting is required by securities law or regulation of securities exchange (“relevant law or regulation”)
jurisdiction in which prospectus is to be issued OR
• This Reporting is generally accepted practice in such jurisdiction.
Not applies: -
• With Circumstances where Pro forma financial Info provided for requirements of applicable FRF.
• To Non-assurance engagements in which practitioner is engaged by entity to compile its historical FS.
Applicable
Criteria
• Criteria used by responsible party when compiling pro forma financial Info
• Criteria may be established by authorized or recognized standard-setting organization or by law or regulation
• Where established criteria do not exist, they will be developed by responsible party.
• Adjustments to unadjusted financial Info that illustrate impact of a significant event or transaction if event had
occurred or transaction had been undertaken at an earlier date selected for purposes of illustration.
• Adjustments to unadjusted financial Info necessary for Pro forma financial Info to be compiled on a basis
consistent with applicable FRF of reporting entity & its accounting policies under that framework.
• Financial Info shown together with adjustments to illustrate impact of Event or transaction on unadjusted
financial Info as if event had occurred or transaction had been undertaken at earlier date
PFI
• In this SAE, it is presumed that PFI is presented in columnar format consisting of: -
- Unadjusted financial Info. - Pro forma adjustments - Resulting pro forma column.
Document issued pursuant to legal or regulatory requirements relating to entity’s securities on which it
Prospectus
is intended that a third party should make an investment decision
Published Financial Info Financial Info of Entity (or of ACQUIREE/ DIVESTEE) made available publicly
Unadjusted Financial Info Financial info of entity to which Pro Forma adjustments applied by responsible party
Purpose of
• Solely to illustrate the impact of a significant event or transaction on unadjusted financial info of entity
PFI
as if event had occurred or transaction had been undertaken at earlier date selected for Illustration.
included in
• This is achieved by applying pro forma adjustments to the unadjusted financial information
prospectus
• PFI not represent entity’s actual financial position, financial performance, or cash flows.
Involves responsible party gathering, classifying, summarizing &presenting financial info that illustrates impact
of a significant event or transaction on unadjusted financial info of Entity as if event had occurred or
Compilation of
• Identifying source of Unadjusted financial Info to be used in compiling PFI & extracting Unadjusted financial
info from that source.
• Making pro forma adjustments to Unadjusted financial info for which PFI is presented.
• Presenting resulting PFI with accompanying disclosures
Practitioner shall evaluate presentation of PFI. This shall include consideration of: -
Engagement
Acceptance
• Overall presentation & structure of PFI & if it is clearly labeled to distinguish from historical or other info.
• Whether PFI & related explanatory notes illustrate impact of event/ transaction in manner not misleading.
Of
• Whether appropriate disclosures are provided with PFI to enable users to understand info conveyed.
• Whether practitioner has become aware of any significant events subsequent to date of source from which
Unadjusted financial info has been extracted that may require reference to or disclosure in PFI.
• In Engagement performed under this SAE, Practitioner has no responsibility to compile Pro forma
Nature of
financial info for entity; such responsibility rests with Responsible party.
Practitioner’s
• Practitioner’s sole responsibility is to report on whether PFI compiled, in all material respects, by
Responsibility
Responsible party on basis of applicable criteria.
(Common for SRS 4400 & 4410 & SRE 2400) SRE 2410 – Review of Interim Financial Info
Contents of Audit Report: -
Auditor carries agreed procedures Accountant issues Compilation report Practitioner (CA other than CA
to report on factual findings. of Client) reviews FS
Procedure: -
Books or/ & Paper Books of A/c, Deeds, Vouchers, Writings, Documents, Minutes & Registers (in E or paper form)
Prepare & keep at Registered Office BOA & other relevant books & papers & Financial Statements (FS) giving True
& fair view of State of Affairs of co {also BOA, FS & docs of Branch office(s)}
Place of Books kept on Double Entry + Accruals Basis of Accounting (no cash basis BOA allowed)
BOA
All or any of BOA & papers if kept at other place in India as Board decide = in 7 days notice to be filed with ROC in
writing giving Full Address of that other place
Remain accessible in India to enable subsequent reference + Info in E records to be Complete & Unaltered
E-Form BOA, Rule 3
Retained completely in format Originally Generated, Sent or Received OR Format presenting accurately such Info
Info received from Br. Office not be altered & be kept in manner depicting it was Originally received from branches
Proper system for Storage, Retrieval, Display or Printout of E records (not to be disposed of or rendered unusable)
Backup of E mode BOA at place outside India = Also be kept in Servers physically located in India periodcally
Co. to intimate ROC on Annual Basis at time of Filing of FS = Name, IP Address & Location of Service Provider
Branch BOA for transactions effected at Br office = kept at that office (whether in or outside India) & summarized returns
BOA periodically sent by to RO or other place decided by BODs.
BOA, Books & Papers to be Open for Inspection by Director at RO or other place in India during business hrs
BOA Inspection, Rule 4 (Sec 206)
Inspection of subsidiary Books & papers to be done only by Person Authorized for it by Board Resolution
Members no right to Examine/ Inspect BOA unless Table F apply i.e. where no Articles of Association exist
Read with Regulation 89 (ii) = Members can inspect BOA if : - Conferred by Co or Authorize by GM/ BODs
Inspection by : - Directors, ROC, Govt. Officers by CG order, SEBI officers & Co. officers & employees = assist
Financial info maintained o/s India= its copies to be maintained & produced for Inspection by Director by Rule 4
Summarized returns of BOA o/s India to be sent to RO at Quarterly Intervals & open to Directors for inspection
Other o/s India financial info required by Director = To furnish Request to co + Full details, Period of info asked
Co to produce such financial info to Director in 15 days of Date of receipt of Written Request
Financial info above be sought for by Director self (not by his Power of Attorney Holder/ Agent/ Representative)
Maintenance BOA + Relevant Vouchers to be kept in order by co for min 8 FYs immediately preceding a FY
period of (If co exists for less than 8 years = maintain books in respect of All such preceding years)
BOA
If Investigation ordered on co = CG may direct BOA may be kept for such longer period as it deem fit
DEVIATION FROM AS To Disclose in FS: - Deviation from AS + Reason + Financial Effect of Deviation
Exemption may be granted either Central Govt. (CG) on own or on Application by Class of Co.
unconditionally or in relation to by notification exempt compliance to requirements of Sec 129
Exemption Terms & Conditions as in notification or Rules if consider necessary in Public Interest
Prepare CFS of own Co. with subsidiaries (Joint Venture & * It’s a wholly or partially owned subsidiary
Associates including) in same form & manner as that of its own of other co & all its members intimated in
writing = not objects Co. not present CFS
Attach with FS = Separate Statement of salient features of FS of * It’s a Co. whose securities not listed or
subsidiaries in AOC–1 not in listing process on Stock exchange
in or outside India
Rule 6 = CFS to be made as per S –III & applicable AS
* It’s ultimate or intermediate holding Co.
(If Co. not required to make CFS by AS = it is sufficient if Co
files CFS with ROC in compliance to AS
comply to S –III in relation to CFS )
A Company shall not re-open its BOA & not recast its FS unless application in this regard is made by:-
• CG • Income-tax authorities • SEBI
• Other statutory regulatory body or authority or other person concerned & order is made by Court of
competent jurisdiction or Tribunal to effect that: -
130(1) - Relevant earlier accounts were prepared in Fraudulent manner. OR
Sec. 130 Re Opening of FS
- Affairs of company were mismanaged during Relevant period, casting Doubt on Reliability of FS.
(Provided that court or Tribunal to give notice to CG, Income-tax authorities, SEBI or Other statutory
regulatory body or authority concerned & shall take into consideration Representations made by that Govt. or
authorities, SEBI or body or authority concerned before passing any order under this section.)
Revised accounts shall be final: - • Accounts so revised or re-cast under sub-section (1) shall be final.
• Re-opening of FS on application made by CG, Income tax authorities, SEBI, other statuary /regulatory
body or other person concerned.
130(2) • Tribunal may pass an order to the effect that: -
- Relevant earlier accounts were prepared in a fraudulent manner. OR
- Affairs of company were mismanaged during relevant period, casting a doubt on reliability of FS.
• If Tribunal issues above order, company will need to re-open its BOA & recast its FS
No order u/s 130(2) earlier than 8 FYs immediately preceding current FY (And where u/s 128(5) BOA
130(3)
ordered to be kept > 8 years then 130 to apply i.e. books to remain reopened for such period)
If appears to Directors that FS or Board Report: - Copy of order passed by Tribunal to be filed to ROC
Not comply to Sec 129 (FS) or Sec 134 (Board’s report)
;
= May prepare Revised FS or Report for any of 3 preceding FY
after obtaining approval of Tribunal on application by Co. Tribunal to: - Give notice to CG & Income Tax authorities
- Consider representations made by CG or
authoritiesbefore passing order u/s 131
CG may make rules w.r.t. revised FS or Director’s report
requiring Directors to take steps as be prescribed
* Such revised FS or report = not be prepared or filed more
than once in a Financial Year (FY)
If copies of previous FS or report sent already to members or
* Detailed reasons for revision = disclosed in Board’sreport
delivered to ROC or laid before Co. in GM = Revision must be
in relevant FY of revision
confined to Correction & necessary alternation being made
CG may prescribe AS as recommended by ICAI in consult Till the time NFRA is constituted, CG may prescribe AS as
recommended by the ICAI in consultation with & after
with & after examination of recommendations by National
examination of the recommendations made by National
Financial Reporting Authority (NFRA)
Advisory Committee on AS (NACAS)
SECTION - 134 (FINANCIAL STATEMENTS, BOARD REPORT, ETC)
Auditors report to be attached to every FS
Signed copy of every FS & CFS to be issued, circulated or published with copy each of: -
1. Any notes annexed to or forming part of such financial statement + 2. Auditor‘s report + 3. Board‘s report
NOTE: - Specified IFSC Pvt. Co. i.e. Private ltd. co licensed to operate by RBI/ SEBI/ IRDA from IFSC (International Financial Service
Center located in SEZ) = No need to include in Board Report info which is already included in FS.
FS & CFS to be approved by BODs before signed on behalf of Board at least by: -
In preparation of Annual A/c = applicable AS followed with Ds of Listed Co laid Internal Financial Controls to be followed
proper explanation w.r.t. material departures & such are = adequate & operating effectively
Directors took proper & sufficient care for maintenance of Directors selected A/c policies & applied them consistently &
Adequate A/c records to Safeguarding Assets of Co. & for made reasonable and prudent judgments & estimates = to give
preventing & detecting fraud & other irregularities True & Fair view of State of Affairs of Co. at end of FY & of P
Directors had prepared Annual A/c on Going Concern basis & L of company for that period
Directors had devised proper systems to ensure compliance with laws & such systems were adequate & operating effectively.
= Constitute CSR Committee & spend least 2 % of Average NP (PBT) for Immediately preceding 3 YRs on CSR
Sec 135= N/A to Specified IFSC (International Finance Service Centre) from 5 yrs of commence of business
Co. ceases to fulfill Criteria for 3 Consecutive FYs = no CSR Committee & no Sec 135 till meets such criteria
Where co. not required to appoint Independent Director u/s 149(4) = To have CSR committee of > 2Directors
Duty Committee to: - * Formulate & recommend to Board, a CSR Policy indicating activities to undertake &
* Recommend amt of Expenditure to incur on CSR activities & * Monitor CSR Policy of Co. from time to time
Unlisted public Co. or Private Co. = To have its CSR Committee without any IDA
Private Co. with only 2 directors = Constitute CSR Committee with 2 directors only
Foreign Co. = CSR Committee of 2 persons (1 be resident in India authorized on behalf of co)
Homes for Women, Orphan & Senior Citizen Eradicate hunger, poverty & malnutrition
Protect Natural Heritage, Art, & Culture Promote Healthcare, Education & Gender equality
Measures to reduce Inequalities faced by socially & economically backward groups
Contribute to PMs National Relief Fund/ other fund setup by CG for welfare of SC, ST, OBC & Minority
VII
Contribute to Technology Incubators in CG approved Academic Institutions & Rural development projects
Contribution to Clean Ganga fund or Swachh Bharat Kosh or Slum Area Development
Sustain Enviro, Ecological, Animal welfare Benefit Armed forces veterans, War widows & dependents
Training to promote rural, nationally recognized, Paralympics or Olympic Sports
Activities outside India Expenses due to Act or Statute or Regulations (MCA Circular)
CSR expense benefiting only Co. employees (But MCA = Salaries to Regular CSR Staff, volunteer is CSR Expense)
Co. fails to spend CSR amt = Reason be specified in Board Report as no penalty in Co Act 2013 for it
How to undertake
Through Registered Trust/ Society or Co. established (Trust to be established by Co or its Holding or Subsidiary or
CSR Activities?
Associate and if not then Trust to have Track Record of 3 yrs in undertaking similar programs or projects)
Co. may collaborate with other companies for undertaking CSR projects or programs
Co. may build CSR capacities of their own personnel & of implementing agencies through institutions with Track
Record of at least 3 FYs but such exp must not exceed 5 % of Total CSR exp of Co. in 1 FY
CSR expense undertaken by Co. to be in Project or Program mode (Events like Marathon, Awards, Charity
Circulars on CSR
Notification &
Sec 135 read as " Every co……." i.e. no specific exemption to Sec 8 Co. regarding its applicability & compliance
Contribution in Kind = can't be converted to monetary value to show as CSR expense as Sec 135 read as "…….shall
ensures that Co. spends…"(Hence no contribution in kind i.e. Co has to spend in monetary values)
Co with Small CSR funds take up CSR Activities/ Program/ Project can combine with other similar Co. by pooling
CSR resources in lieu of CSR Rules 2014
Co. to allow every member or trustee of debt holder to Inspect above docs at its RO in business hours
Provisions in Deemed complied with Sec 134 if = copies of docs available for Inspection at its Registered Office (RO) during
case of Listed working hrs for 21 days before Date of the meeting
Co. A Statement containing salient features of such docs in AOC-3 or Copies of docs is sent to Every Member of Co &
(Send to every Trustee for holders of any Debs issued by co. in not less than 21 days before Date of meeting unless
Abridged Shareholders ask for full FS
Accounts)
To place its FS & CFS & other docs on its website maintained by or on behalf of Co.
New
If copies of docs are sent < 21 days before meeting = deemed duly sent if it is so agreed by members: -
Insertion by
(a) Holding, if company has Share capital, majority in number entitled to vote and who represent not < 95% of such
Co
part of the paid-up share capital of company as gives a right to vote at the meeting OR
Amendment
(b) Having, if company has no share capital, not < 95% of Total voting power exercisable at meeting
Act 2017
Listed With > 1 Subsidiary = To Place Separate Audited a/c of each Subsidiary on its website
Company Listed company which has foreign subsidiary & where such foreign subsidiary: -
requirements * Is statutorily required to prepare CFS under any law of country of its incorporation = Requirement of
this proviso shall be met if CFS of such foreign subsidiary is placed on website of listed co
as per Co. * Is not required to get its FS audited under any law of country of its incorporation and which does not
(Amendment) get such FS audited = holding Indian listed company may place such unaudited FS on its website
Act 2017 (If such FS is not in English = translated copy of FS in English also be placed on website)
Rule 11 Listed & other Public Co having Net Worth of > Rs. 1 Cr & Turnover > Rs. 10 Cr may sent FS by: -
(Manner of
By E Mode = To members whose shareholding is dematerialized & Email ids registered with Co.
Circulation
in Certain By E Mode = To members not holding shares physically & given written consent to get FS by E Mode
Cases) By dispatch of Physical copies by Registered Post or Speed Post or Courier service.
Not to send FS to individual members in case of NIDHI companies if members not Individually or Jointly hold
Provisions shares of > Rs. 1000 in face value or more than 1 % of Total paid up share capital (whichever less)
for NIDHI
Co. Only intimation sent by public notice in newspaper circulated in district of RO of NIDHI stating Date, Time &
venue of AGM & FS with enclosures can be inspected at RO & too affixed in Notice Board
Financial To be filed to ROC in 30 days from Date of AGM or Date of Adoption in Adjourned AGM
Statements
Registrar to take note of Un-adopted FS on records as provisional till Audited & Adopted FS are filed
not adopted
at AGM Un-adopted FS & other docs if not filed in 30 days = filing may be done in 300 days with additional fee
AGM not held File in 30 days of Last Date before AGM due = FS & docs duly signed with reasons of AGM not held
ICAI View As per ICAI view expressed = Only Audited FS to be submitted to ROC
Internal Auditor to be: - CA (in practice or not) or CWA or Other professional decided by BODs
Points to
Remember Audit Committee of Co. or Board = in consultation with Internal Auditor, formulate scope, functioning,
methodology & periodicity for conduct of Internal Audit
Govt./ By CAG in 60 days of Registration of Co. CAG fail = BODs appoint Auditor in 30 days
Govt.
Owned or Members in 60 days at EGM appoint 1st Auditor If BODs fail = BODs to inform members
Controlled
{139(7)} Such Appointed Auditor hold office till Conclusion of 1st AGM
Appointment at 1st AGM = till conclusion of 6th AGM & thereafter till every 6th AGM under Rule 3
Non - Constitute if required u/s 177 an Audit Committee & if not then BODs = Consider Auditor's Eligibility
Govt. Co
{139(1)} Consider Qualification & Experience of Proposed Auditor match Size & Requirements of Co.
Also consider any Pending Proceeding/ Order of Professional Misconduct against Proposed Auditor
+ Audit Committee (AC) if constituted or BODs = May call for further Information (Info)
AC to recommend Name of Auditor to Board If No AC u/s 177 = BODs recommend to AGM
SUBSEQUENT AUDITOR
If BODs agrees = BODs recommend to AGM to If Not agree = Refer Back to AC for
members reconsideration citing reasons for disagree
{139(5)} By CAG for FY in 180 days of Commence of FY Auditor hold office till Next AGM Conclusion
N/A to: - Specified IFSC Co (International Financial Service Center), Small Co. & OPC Co. (One Person Co.)
Cooling Off Period = Individual Auditor OR Audit Firm = Not eligible for Reappointment as Auditor in
+ same company for 5 years after completing of Tenure
1st - 4th Apply to Statutory but not to Internal Auditor Reappointment in Subsidiary nowhere Restricted
Proviso
Audit Firm = Having Common partner with A Audit firm whose tenure has just expired as on date of
appointment = Not be appointed as Auditor of same company for a period of 5 years
Every Co. existing before commencement of this Act = Shall comply with 139(2) not later than Date of
1st AGM after 3 yrs from Date of commencement of this Act
Sec. 139(2) not prejudice Right = Of company to Remove Auditor OR Right of Auditor to Resign
139(4) Central Govt. (CG) by Rules = Prescribe Manner of Rotation u/s 139(2) i.e. Rule 6 prescribed
+ AC to recommend to Board Auditor who may replace existing Auditor after expiry of Term
Board may itself consider & recommend too to AGM such replacement
Incoming Auditor Not Eligible if = associated with Outgoing Auditor under same Network or Control
Rule 6 Audit In charge Partner certifying FS = Retires from A & join B firm = B firm become Ineligible for 5 yrs
Joint Auditors appointed by Co. = Both Jt. Auditors taken as Separately for Rotation provisions
Meaning Death, Resign or Dissolution of Auditor/ Firm of Auditors ( Ex: - 1 of Joint Auditors died)
Retiring Not disqualified under Law No notice of Unwillingness of Auditor got from Auditor
Reappoint
reappoint at
– 139(9) No Special Resolution (S/R) appointing other Auditor or Providing No Reappointment
AGM if: -
139(10) - No Auditor Appointed/ Reappointed at AGM OR AGM not held Existing Auditor to continue
Recommendation by Audit If Co. required to constitute Audit committee u/s 177 = All appointments including
Committee 139(11) filling of casual vacancies to be made only after taking into a/c recommendations of AC
SECTION 140 - (REMOVAL & RESIGNATION OF AUDITOR & GIVING SPECIAL NOTICE)
AMENDMENT: - Earlier, appointment of auditor to be ratified every yr at AGM but no such requirement now.
140(2), (3) Auditor who Resigned = To file in 30 days from Date of Resign in ADT- 3 to Co. & ROC
Filing of
File to CAG also in Govt. Co case indicating facts & reasons for Resign
Statement
of Resign If auditor not comply to Sec 140 = 50,000 to 5,00,000 OR Audit fees/ Renumeration (whichever lower)
Employment Elsewhere
managerial
personnel
Person who, directly or indirectly renders any service referred in Section 144 to (KMP) of Co.
company or its holding company or its subsidiary company.
Person or Firm who Directly or Indirectly has Business Relationship with Co. or Associate or Subsidiary or
Holding (CASH) except Professional services or Commercial Transactions in ordinary course of bus at Arm
Length Price by Telecom, Airline, Hospital, Hotels Co. or Similar Co.
141 (4) – If after appointment Auditor incurs any Disqualification u/s 141(3) = Vacate Office &
Vacation of Office such Vacation be treated as Casual Vacancy
Right to Obtain
Auditor
Right of Lien (Not Right of Lien for Non Payment of Dues of Work Done
specified in Act Auditor can exercise this on Clients Books & docs for Non- Payment of fee (But
2013) impracticable under Legal & professional ethics)
In Opinion of Loans & Advances properly secured & Terms not prejudicial to
Research Interest of Co. & Members
Committee of Shares, debentures & other securities = Sold at a Price <
Inquire into ICAI = Acquisition Cost in case of Non- Banking & Non Investment Co.
Propriety Reporting of Loans & Advances made are shown as Deposits
Matters - 143(1) Propriety matters
only if Auditors Personal Exp Charged to Revenue A/c
find Adverse Cash actually got on Shares Allotted for Cash & if not got =
answer to it Correct position shown in Books & Balance Sheet (B/S)
Reporting over That to the Best of Auditor info & knowledge = A/c & FS give True & Fair view of State of
A/c & FS 143(2) Affairs of Co. as at end of its FY & Profit & Loss & Cash Flow for FY
(Available to Pvt. Co which with reference to FS. No reporting needed for IFC effectiveness for: -
= Not Defaulted in Filing FS * Co with Aggregate Borrowings from Bank, PFI or Body corporate
u/s 137 OR Annual Return at any pt. of time in FY < 25 Cr & with Turnover < 50 Cr as per
u/s 92 with Registrar) latest Audited FS * OPC * Small Co.
B/S & P/L agree with BOA Br. Audit Report Received & manner of dealing with it
Ds disqualified u/s 164(2) Comments on Financial Transaction with Adverse Effect on Co.
Obtained Info for Audit Disclosure of Pending Litigations Impact on Financial Position
Co. provided Disclosures in FS of Holding & Dealing in Specified Bank Notes (SBN) during 8-11-16 to 30-12-
16 & whether these are as per BOA maintained by Co.
If Auditor conducted Physical Cash Counts on 8th Nov 2016 to 30th December 2016 or Closer Date
Audit Procedure in
before or after that date = Consider performing Roll Forward or Roll Back Procedures to confirm that
relation to SBN
CAG to Appoint & Direct Auditor manner in which A/c to be audited & Auditor to submit copy
143(5) Duties of of Audit Report to CAF including: -
Govt. Co.
Auditor
Directions by CAG Action taken thereon Its impact on A/c & FS
Supplementary In 60 days of Receipt of Audit Report = CAG has Right to order Supplementary Audit of F.S. by
Audit u/s 143(6) such persons as authorized by him
Test Audit Comptroller & Auditor General of India (CAG) may if considers necessary by an order cause
- Sec. 143(7) Test Audit of a/c of Govt. companies
By Co. Auditor or other person qualified for appointment as Co. Auditor of Co. as in Sec 139
Audit of Branch If Br. Office is situated o/s India = A/c of Br. Office audited by Co. Auditor or Accountant or
A/c- 143(8) other person duly qualified to act as Auditor of Br. As per laws of that Country
Br. Auditor Report to be sent to Auditor of Co. who to deal with it as necessary
Duties of Auditor
143(10) CG may prescribe SAs in consult with NFRA (National Financial Reporting Authority)
143(11) CG may direct Auditor Report to include Statement on matters in order issued (CARO 2016)
Fraud of Rs. 1 Cr or more by Officers or Employees = Statutory obligation to Report to CG (Rule 13)
143(12) Reporting of Fraud
143(13) Auditor not said to have contravened Reporting of Fraud u/s 143(12) if reporting Done in Good Faith
143(14) Sec 143 apply mutatis mutandis apply to = Cost Accountant in Practice & CS in practice
143(15) Auditor, CWA, CS in practice not comply with Sec 143(12) = Fine Rs. 1Lakh to Rs. 25Lakh
Notification Dt 23.2.18 = CG exempted companies in defence production to extent AS on segment reporting apply.
REMEMBER
POINTS TO
141(3) + Rule 10 of Co (Audit and Auditors) Rules, 2014 = Person who directly or indirectly renders any service referred
in 144 to company or its holding or its subsidiary = Not eligible for appointment as auditor of company.
MCA Notification Dt Feb 5, 2018 = Provision of deferred tax asset as per Ind AS 12 or AS 22 = N/A to Govt Company
which is PFI, NBFC registered with RBI in RBI Act, & engaged in business of infra finance leasing with not < 75% of its
Total Revenue from such business with Govt companies or other entities owned or controlled by Govt
Sec 145 Auditor to Sign Audit Report & Certify other documents
Sign Audit Qualifications, observations or comments on Financial Transactions or matters having Adverse effect on
Report functioning of Co. = Mention in Audit Report & read before GM & be open to inspection by members
All Notice & other communication of General Meetings shall be forwarded to Auditor
Sec 146
Unless exempted auditor to attend himself or through his authorized representative any General Meeting
Attend GM
Auditor shall have right to be heard at such meeting on part of business which concerns him as Auditor
Over the Co & Officer in default Company = Fine from Rs. 25,000 to Rs. 5 Lac
– 147(1) Officer in Default = Imprisonment to 1 yr
Sec 147 – Punishment
CG by order = Specify Class of Co. in Production of G & S (Goods & Services) & direct particulars of use of
items of Cost i.e. Raw Materials, Labor, etc = To be included in Books of Accounts of them
148 CG before order issue = To Consult with Regulatory Body concerned or established under Special Act
CG of opinion necessary by order to Direct Audit of Cost Records of Class of Co covered u/s 148(1) with Net
Worth or Turnover as prescribed in Rules
Cost Comply with Cost Standards ICWA issued with CG Approval & also & Report of Cost Accountant to BODs
Audit Cost Accountant (recommended by BODs & remuneration by Members) = To do Cost Audit
ordered Co. Auditor u/s139 not to be appointed as Cost Auditor
Co. in 30 days of CWA Report = Forward to CG with Report full info & explanations or any Qualification
by CG CG may further Call for Info & Explanation & Co. to furnish the same
Default = By Co. & Officer covered u/s 147(1) & if by Cost Accountant covered u/s 147(2)
Sec 132 - National Financial Reporting Authority (NFRA)
CG may by notification, constitute NFRA to provide for matters relating to AS & SA. Functions of NFRA: -
FUNCTION
* Make recommendations to CG on formulation & laying down of accounting & auditing policies & standards for
adoption by companies or class of companies or their auditors
* Monitor and enforce compliance with ensuring compliance with AS & SA in manner prescribed
* Oversee quality of service of professions associated with ensuring compliance with such standards & suggest
measures required for improvement in quality of service & other related matters as may be prescribed.
* Perform such other functions relating to above functions as may be prescribed.
* NFRA to consist of Chairman = person of eminence & Expertise in accountancy, auditing, finance or law to be
CONSTITUTION
appointed by CG & such other members not > 15 consisting of part-time & full time members prescribed
* Chairperson and members shall make a declaration to the CG in the prescribed form regarding no conflict of
interest or lack of independence in respect of their appointment.
* Chairpersons & members in full-time employment with NFRA = shall not be associated with any audit firm
(including related consultancy firms) during their appointment & 2 after ceasing to hold such appointment.
* Powers to investigate on own motion or on reference made to it by CG, matters of professional or other
misconduct committed by any member or firm of CA. * Powers of civil court.
* Power of NFRA to impose penalty on CA/CA firm for professional or other misconduct: -
POWERS
Verification, or Certification of Financial Accounting & related statements or holds himself to Public as Accountant
Renders Professional Services or Assistance in matters of Principle or detail relating to Accounting Procedure or
Recording, Presentation or Certification of Financial Facts or Data
Renders other services in Opinion of Council be rendered by CA in practice
Council passed Resolution permitting CA in practice to render = “Mgt Consultancy & other Services": -
Included & Permitted = Personnel Recruitment & Selection; Acting as Advisor or Consultant to issue including
Drafting prospectus & Listing Agreement & completing formalities with Stock Exchanges, ROC and SEBI,
Preparation of publicity budget, Advice regarding selection of agencies connected with issue
Not permitted = Broking, Underwriting & Portfolio mgt
In Practice even if not actually engaged but also Offer to Render i.e. Act of Setting up Establishment offering
Service of A/c to perform even though no Client being served (Example: New office Set up of CA)
ICAI Member who is Salaried employee of CA Firm or CA in Practice = Deemed in Practice for limited purpose
of Training Article Clerks
Member Deemed in Practice = if in Professional Capacity (not as Personally/ Salary + Full Time Employment)
Reg. 191
Acts as Liquidator, Trustee, Executor, Admin, Arbitrator, Receiver, Adviser or Representative w.r.t. Cost/ Finance/ Tax
Takes up appointment made by CG or SG or Court of law or Other Legal Authority Acts as Secretary
NO Member of ICAI entitled to Practice (in or out India) unless obtained Certificate of Practice (COP) from Council
Sec 6: COP
If member suspended from practice = Remains member of ICAI & Abide by provisions of CA Act & Regulations
= Can’t take any other capacity any practice separable from his capacity to practices as a member of institute
(Removed from Membership by misconduct or not = In such period not appear before Tax Authorities or other bodies)
Member not in Practice = Can’t accept any engagement for services prescribed for Practicing CA
COP
Reg. 10:
Surrendered
& Submitted Member not paid Annual COP fee till 30 September of year
to Secretary Council satisfied = COP on Incorrect, Misleading, False Info or Mistake after hearing CA
Sec 7: Use CA
All Members permitted to use word "CA" as prefix no matter in Practice or not
Designation
Member with 1 or > COP (like COP of Lawyer too) = Use CA Designation subject to permission
Name of CA
Sec 8:
Sec 20: Council Remove CA Order under CA Act to Remove from * By Deed * Request From Member
Name from Register Membership * Not Paid Fee * Sec 8 Disabilities
Sec 24: Penalty for False Is a Member but without COP is practicing
Not Member but uses CA Designation
Claim to be Member as CA in practice
1st Conviction = Rs. 1000 Fine & 2nd Conviction = Rs. 5000 Fine & /or 6 months Prison
No Co. incorporated in India or elsewhere = Practice as CAs(If Contravenes it = Every Director, Mgr,
Sec 25
Secretary or known = Punishable u/s 24 in same manner)
No person except ICAI Member = Sign docs on behalf of CA in Practice or Firm of CAs
Sec 26:Unqualified
not to Sign Doc: -
1st Conviction = Rs. 5000 - Rs. 1 Lakh & 2nd Conviction = Rs. 10000 - Rs. 2 Lakh &/ or 1 yr Prison
Place where Name Board fixed or Place in Letter Head or other documents as Place of Business
Office
Name Board Can be put at Residence of Member if = of Own Name not of CA Firm Name
Sec 27: Maintenance of Br. Offices
For < 3 Months in Winters Name Board in such 3 Month Regular office not Closed
2nd Office may be opened without Separate In charge if its Situated in: -
Same Premise of Main/ 1st Office or Same City or 50 Km from Municipal Limits of 1st Office City
Part IV = Other Misconduct in relation to Member of ICAI Generally Part III = Other Misconduct in relation to
(Clauses = 2) Member of ICAI Generally (Clauses = 1)
Accepts/ agrees to accept any part of profits of professional work of person not a member of ICAI.
Clause 3 However such restriction N/A for: - • Member of any other professional bodies
• With such other persons having prescribed qualifications (Reg. 53A)
Enters in partnership in/ outside India with any other person except: - • CA in practice.
Clause 4 • Member of any other professional bodies having prescribed qualifications. (Reg. 53B)
• A person, who but for his residence abroad would be entitled to be registered as member.
• A person whose qualifications are recognized by CG or Council for permitting such partnerships.
Secures any professional business: - • By means which are not open to a CA. OR
Clause 5 • Through services of a person who is not employee or not his partner
Solicits clients or professional work (directly or indirectly) by Circular, Advertisement, Personal
communication or Interview or by Any other means. (CA ki PIA). Solicitation relaxed if: -
• CA apply/ request/ invite/ secure professional work from other CA in practice OR
Clause 6 • Member Respond to tenders or enquiries issued by users of professional services or organizations
from time to time and secures professional work as a Consequence.
(Member in practice not respond to any tender unless minimum fee prescribed in tender document)
NOTE: - Photograph not allowed on visiting card, QR code allowed provided it not contain anything which is otherwise not
permissible in visiting cards. Also that Not intimating website address to ICAI does not amount to professional misconduct
GENERAL GUIDELINES on Advertisement: -
• Words like income-tax consultant, cost consultant or management consultant = not allowed.
• Persons eligible otherwise, subject to permission may practice as advocates but can’t use designation “CA” + “Advocate”
• A member may appear on T.V. and films and etc. and describe themselves as CA, but no reference, as to Name/ Address/
Services of firm should be made.
• Name, description and address of member (firm) may appear in any directory or list of members of a particular
body, (alphabetically). He may provide appropriate directorship held and reasonable personal details (outside
Interest) but not name of clients and services offered his firm.
• They should be no objection to the publication of photographs and brief particulars of member in magazines provided no
payment is made for such publication and there is no Advertisement or Professional attainment.
• Advertisement in press = Not Allowed
Exception: - Advertisement appearing in press in following circumstances provided that advertisement is not displayed
more prominently than is used for such advertisements or the member or of his firm with designation CA (s) appears in type
not bolder than substance of the advertisement used for: -
- Advertisement for recruiting staff in the members own office
- Advertisements on behalf of clients requiring staff or wishing to acquire or dispose of business or property
- Advertisement for the sale of a business or property by a member acting in a professional capacity as
Trustee, liquidator or receiver
• Success in exams may be given without any undesirable publicity for member / firm /clerk
• Use glow sign light/ large size board = Not Allowed as may have name board of self at residence but not of firm
• Inclusion of name of a member of the Institute in Prospectus/ Public announcements/ Public communication issued by
companies in which member in a director = Allowed, but it is necessary that members should take necessary steps to
ensure that such prospectus or public announcement or public communication do not advertise his professional attainments
• Use logo = Not Allowed as only common logo permitted by ICAI is allowed
Charges or offers to Charge, accepts or offers to accept in respect of any professional Employment,
Clause 10 fee which is based on a percentage of profits or which are contingent on finding or results of such
employment, except as permitted under regulations.
a) Fees will not be treated contingent if fixed by a court or other public authority.
b) Charging fee at % of Expected Relief = Professional Misconduct
c) Regulation 192 = Restriction on Fees (Exemption to Clause 10): -
In respect of below mentioned cases its permitted that fees may be fixed as specified below: - (CRV)
•For Receiver or liquidator = % of Realization or disbursement of assets.
•For Co-operative society = % of paid up or working capital or Gross/ Net income or profits.
•For VALUER for Direct taxes & duty = % of value of property valued.
•For Mgmt. Consultancy services = % contingent upon the findings, or results of such work.
•For Fund Raising services = % of fund raised.
•For Debt recovery services = % of debt recovered.
•For Services of Cost optimization = % of benefit derived.
•Any Other service or audit = as may be decided by Council.
Engages in Business or occupation other than profession of CA unless permitted by council for it
Clause 11 {Member may become director (not being M.D. or Whole time director) in company provided he or
any of his partners is not interested in such company as an auditor.}
Regulation 190A: - Members in practice generally permitted with NO Specific permission from Council in: -
- Employment under CAs in practice/ such CAs Firms - Private tutorship
- Holding of LIC Agency to only gets renewal commission. - Authorship of books & articles.
- Hold public elective offices such as M.P, M.L.A & M.L.C - Attend classes & appear for any exam.
- Honorary office leadership of charitable-educational - Part-time tutorship in ICAI
- Act as Notary Public, Justice, and Magistrate & like. - Editor of professional journals.
- Value papers, paper-setter, head-examiner or moderator for exam. - Surveyor & Loss Assessor
- Own agricultural land & carry agricultural activity. - Act as Recovery consultant in banks
He allows a person not being a member of institute in practice OR a member not being his
Clause 12 partner = To sign on his behalf or on behalf of his firm any B/S, P/ L, Report or FS.
(Read with Sec 26 of CA Act 1949 = No person except ICAI Member = Sign docs on behalf of CA in
Practice or Firm of CAs)
PART – II: - Professional Misconduct in relation to Member of Institute (other than Member in Practice)
Members in Service deemed Guilty of Professional Misconduct if: -
Clause 1 Pays or allows or agrees to pay (directly or indirectly) to any person = Any share in emoluments of
employment undertaken by him.
Accepts or agrees to accept any part of fees as commission or gratification profits or gains from: -
Clause 2 • A lawyer OR • Broker engaged by such company, firm, or person OR
• CA OR •Agent or customer of such company, firm or person
Clause 1 Not being a fellow of the Institute, but acts as a fellow of the Institute.
Does not supply the information called for, or does not comply with the requirements asked for by
Clause 2 Institute, Council or any of its committees, Director (Discipline), Board of Discipline,
Disciplinary Committee, Quality Review Board or the appellate authority.
While inviting professional work from another CA or while responding to tenders or enquiries or
Clause 3 while advertising through a write up or anything as provided for in Clauses 6 & 7 of Part I of this
Schedule, gives info knowing it to be false.
Clause 1 Is held guilty by any civil or criminal court for an offence which is punishable with imprisonment for
a term not exceeding 6 months.
Clause 2 In opinion of Council brings disrepute to the profession or Institute as a result of his action whether or
not related to his professional work.
Illustrative Cases of Other Misconduct: -
• Retain BOA & Docs of client without reasonable cause
• Misappropriation by office-bearer of Regional Council of funds for personal use
• Keep assessment records of income tax department belonging to Client at home
• Adopt coercive methods on bank for having loan sanctioned to him
Certifies or submits in his name or in name of his firm a report of an examination of FS unless
Clause 2 examination of such statements & related records has been made by: -
• Him OR • By a partner OR
• An employee in his firm OR • By another CA in practice.
Permits his name or name of firm used in connection with estimate of earnings contingent on
Clause 3
future transactions in manner which may lead to belief that he vouches for accuracy of forecast.
As per Guidance Note on Accountants Report on Profit Forecasts and/Financial Forecasts, A CA in practice can associate
his name with the forecasts. SAE 3400 = Member Can participate in preparation of profits or final forecasts & can review
them subject to conditions: -
- Indicates Source of info is mentioned - Indicates basis of forecasts is mentioned
- Gives in report assumptions in arriving at forecasts. - Not vouches for Accuracy of forecasts
Express his opinion on financial statements of any business or enterprise in which he, his firm
Clause 4 or a partner in his firm has a substantial interest (As per Council General Guidelines even
relative shouldn’t have substantial interest)
Fails to disclose a material fact, known to him, which is not disclosed in a financial statement
Clause 5 but disclosure of which is necessary, in making such financial statement not misleading where he
is concerned with that financial statement in a professional capacity.
Clause 6 Fails to report a Material Miss-statement known to him, to appear in a financial statement with
which he is concerned in a professional capacity.
Clause 7 Does not exercise due diligence or is grossly negligent of the conduct of his professional duties.
Clause 8 Fails to Obtain sufficient info which is necessary for expression of opinion or its exceptions are
sufficiently material to negate the expression of an opinion.
Clause 9 Fails to Invite attention to material departure from Generally accepted procedure of Audit.
Fails to keep money of client EXCPET fees or remuneration or money meant to be expended in
Clause 10 Separate bank a/c or to use such money for purpose which they are intended in a Reasonable time.
.
PART – II: - Professional Misconduct in relation to Member of ICAI Generally
Members whether in Practice or not deemed Guilty of Professional Misconduct if: -
Clause 1 Contravenes: - • Any of the provisions of this act OR
• Regulations made there under or any guidelines issued by the council.
Clause 2 Being an employee of any company, firm or person = discloses confidential info acquired in
course of his employment except as & when required by law or permitted by Employer.
Includes in any info Statement return or form to be submitted to the Institute, council or any of its
Clause 3 Committees, Director, board of discipline, disciplinary committee, review board or Appellate
authority, any particulars knowing them to be false.
* CA in Practice may be Equity Research Adviser (can’t publish report as its Other Business/ Occupation)
* CA being member of Trust can’t be Auditor of said trust.
* CA in Practice may engage himself as Registration Authority (RA) to obtain DSC for clients.
* CA can hold Credit Card of Bank when he is also Auditor of bank provided Outstanding Balance on
said Card does not > 10000 beyond prescribed credit period limit on credit card given to him.
* CA in Practice can act as Mediator in Court, since acting as “Mediator” = Deemed covered in meaning
of “Arbitrator’ which is permitted to Members in Practice as per Regulation 191.
RECENT DECISIONS OF ETHICAL STANDARDS BOARD
* CA in Practice not permitted to accept Audit Assignment of Bank he took loan on FD held by him there.
* Board in Meeting (Jan, 2017) = decided where law prohibits for instance in Income Tax Act & rules
framed there under, such prohibition on Statutory / Tax Auditor to be VALUER of Unquoted equity
shares of entity he is Auditor, will continue but where there is no specific restriction under any law. So,
permissible subject to compliance with provisions as in Code of Ethics relating to independence.
* Ethical Standards Board in 2011 decided = not permissible for Member who has been Director of
Company on resignation to be appointed as Auditor of said Company & Cooling period for same may
be 2 years. {Section 141(3) disqualification states that Officer of Company can’t be Auditor.
* CA in Practice can’t become Financial Advisors & Receive fees/ commission from Financial
Institutions such as Mutual Funds, Insurance Companies, NBFCs etc.
* CA can’t exercise lien over Client documents/ records for non - payment of his fees
* It is not permissible for CA Firm to print its Vision & Values behind Visiting cards as it would result in
solicitation & so it would be Violation of Provisions of Clause of Part-I of 1st Schedule to CA Act
* Not permissible for CAs in Practice to take Agencies of UTI, GIC or NSDL.
* Permissible for Member in Practice to be Settler of a Trust.
* Member in Practice can’t hold Customs Brokers License u/s 146 of Customs Act, 1962 read with
Customs Brokers Licensing Regulations, 2013 in terms of provisions of Code of Ethics.
* CA in service may appear as Tax Representative before Tax authorities on behalf of his Employer, but
not on behalf of other employees of Employer.
* CA who is Statutory Auditor of Bank cannot for same FY accept stock audit of same branch of bank or
any of branches of same bank or sister concern of bank, for same FY.
* CA Firm appointed as Internal Auditor of PF Trust by Govt. Co can’t be its Statutory Auditor.
* Concurrent Auditor of Bank ‘X’ can’t be Statutory Auditor of bank ‘Y’, which is sponsored by ‘X’.
* CA/ CA Firm can’t be Internal Auditor of Co. & Statutory auditor of its Employees PF Fund
* Ethical Standards Board while noting requirement for Director u/s 149(3) of Co Act to reside in India for
min182 days in previous calendar year, decided that such Director in scope of Director SIMPLICITOR
(permitted as per ICAI norms), if he is non-executive director required in Board Meetings only.
* Internal Auditor not to undertake GST Audit simultaneously.
Composition Functions
General Info: -
* Name of Client * Business Description * Copy of Last Audited Financial Statements * PAN
PAN// Aadhar Copy
Engagement Info: -
* Type of Engagement
Regulatory Info (If Client is Corporate Entity): - * Entity PAN No. * Director Name, Address & DIN * CIN
DISCIPLINARY PROCEDURE
PROCEDURE-- SECTION 21
Matter to be placed before Board of Discipline Matter to be placed before Disciplinary Committee.
If M
Member
ember is guil
guilty
ty of professional or other misconduct If a member is guilty of any professional or other misconduct
mentioned in First Sch
Schedule,
edule, Disciplinary Directorate mentioned in Second Schedule, Disciplinary Directorate shall
shall place matter between BODs. place matter between Disciplinary Committee.
Powers of BOD if CA found guilty of misconduct: - Powers of DD if CA found guilty of misconduct: -
• Reprimand the member • Reprimand member.
• Remove the name of member from Register for 3 months. • R Remove
emove name of member permanently or for period thinks fit
• Impose fine up to Rs. 1 lalakh.
kh. • Impose fine up to Rs. 5 lakh
* CA in Practice should always maintain Cash Book & Ledger irrespective of Turnover.
COUNCIL GENERAL
* Statutory Auditor shouldn’t accept Audit if Undisputed Audit fee of Previous Auditor not paid or
GUIDELINES OF
GUIDELINES
IMPORTANT
Regulated Sector = Telecom, Electricity, Petroleum, Sugar, Drugs, Pharmaceutical & Fertilizers
Non- Regulated Sector = Iron Steel, Rubber, Cement, etc.
With Turnover > 35 Cr during immediate Preceding Financial Year = include cost records in Books of A/c
Sec C.G. may be order direct for Audit of cost records of companies covered u/s 148(1) having
148(2) prescribed Net Worth or Turnover in manner specified in order
COST AUDIT (Requirement)
*Overall Annual Turnover from all Products & Services in immediate Preceding Financial
Year in case of: - Regulated Sector = > 50 Cr. & Non Regulated Sector = > 100 Cr. AND
Cost Audit
Exemption from Rule 4: - Requirement of Cost Audit shall not apply to a company: -
* Whose revenue from exports in Foreign exchange > 75% of its Total revenue OR
* Which is operating from SEZ OR
* Engaged in generation of electricity for captive consumption
Circumstances Cost Audit is ordered: - (Purposes Served or warranted by Introduction of Cost Audit?)
* Price Fixation = Methods of National Importance like Steel, Cement.
* Tax Assessment = Correct Cost of Production for Correct taxes
* Cost Variations within the industry = Industry where cost varies unit to unit
* Inefficient management = Inefficient units told about to Government
* Trade Disputes = For High Wages & Bonus.
* Reliable data * Ensures proper * Fix Prices of essential commodities. * Price fixation by correct
* Check on wastage maintenance * Identifying inefficient units. data.
* Inefficiency & corrective of records. * Protect Sick industries. * No price increase without
action * Economic & * Setle Trade disputes. justified
* Budgetary control & efficient * Generation of healthy competition. increase in cost.
Standard Costing operations. * Decision for sanctioning grants. * Helpful in cost reduction.
* Closing Stock Valuation * Fair valuation * Assessment of taxes based on * Proper use of resources
* Detection of Error & Fraud of Inventories production.
Functions
* Verification of Cost accounting Records = To ensure Accuracy of Cost Accounts, Cost reports,
of Cost
Audit
On behalf of customers: - Insisted in case of cost plus contract buyers insist on Cost Audit
* Abnormal wastage’s, losses & other unusual transactions being ignored in Determination of Cost.
* Application of costing system appropriate to product * Materiality
* Consistency in Application of Costing system & Cost accounting principles
* Maintenance of cost records & preparation of cost statements in prescribed form
* Determination of cost as per Generally Accepted Cost Accounting Principles
* Objective of financial audit is to express an opinion on True & Fair view of F.s. while objective of
Cost Audit is to ascertain true and fair view of Cost of Production.
* Cost audit is Tool in hands of mgt while financial audit is conducted on behalf of shareholders.
Cost auditor while framing his opinion is required to examine various info like: -
* Cost of raw materials consumed
(Q. Why Cost Auditor refers to Financial
* Cost of fuel
* Employee costs
Reference to Financial Record
Annexure to the cost audit reports (Form CRA-3) require reporting on followings: -
* Value addition & Distribution of Earnings
Data?)
* Reconciliation of profit
* Financial Position and Ratio analysis.
* Related Party Transactions.
* Reconciliation of Indirect Taxes.
(Such information is available only from financial records)
production, production as per excise records, capacity utilization, quantity available for sale, wastage
Cost
Part D of Annexure to CRA-3 requires Cost Auditor to incorporate Profit Reconciliation as below: -
Reconciliation of Cost
& Financial Accounts
Evaluation of Internal Control on GST would indicate area to be focused. This done by verifying: -
Best Practices to be adopted
• Statutory Audit report has specific disclosure needing maintenance of Record, Stock & fixed assets.
• Info System Audit report and the internal audit report.
for GST AUDIT
• RP must get accounts audited by CA/ Cost Accountant if Aggregate Turnover in FY > 2 Cr..
ACCOUNTS
AUDIT OF
• Such RP is required to furnish electronically on common portal with Annual Return a copy of: -
- Audited Annual Accounts
- A Reconciliation Statement to reconcile value of supplies declared in return furnished for
FY with Audited Annual FS & such other particulars as prescribed
RP can be directed to get his records including BOA = examined & audited by CA or Cost Accountant
in any stage of scrutiny, inquiry, investigation or other proceedings; depending on complexity of case.
TYPES OF GST AUDIT
Audit by Tax Authorities (likely a routine audit but not special audit) wherein Commissioner or any
u/s 65
officer authorised by him, can undertake audit of any registered person for such period, at such frequency
& in manner as may be prescribed.
Before starting his wok, GST Auditor shall conduct Preliminary Review to assess CIS controls &
Preliminary risks that could impact work by considering the following points: -
Review • Knowledge of the Business • Understanding thetechnologydeployed
• Understsnding Internal Control System • Risk assessmentand Materiality
Consequence
47(2) provides that if failure to submit annual return in specified time = Late fee leviable @100/day
of fail to
during which such failure continues subject to max of 0.25% of turnover in State/UT & Equal amount
Submit
of late fee under respective State/UT GST law.
Annual
No specific penalty in GST Law for not getting accounts audited by CA or Cost Accountan = Sec 125
Return &
of CGST Act subjected to penalty upto 25,000 = General penalty that gets attracted where any person,
not getting
who contravenes any of provisions this Act or rules for which no penalty is separately provided..
a/c audited
No prescribed or specified approaches for conducting audit under GST. GST Auditor not required to express his
opinion on truth and fairness of financials when it is audited by others. In any case, he is required to certify
correctness and completeness of certain reconciled data. Verification to be substantially more than opinion on truth
and fairness. Certain time-tested methods of conducting audit evolved into guidelines, which among others are: -
* Obtaining prior knowledge of business & comparing them with similar businesses
AUDIT APPROACH
The auditor to take into account AS followed at preparation of financial statements. There could be differences in
manner of accounting treatment of certain transactions as per AS in financial statementsvis-à-vis treatment in GST.
Some of differences are: -
* Supplies on behalf of principal are not reflected in financial statements of agent & only commission is shown as
AS Vs. GST
Revenue of agent. Under GST Law, such turnover treated as part of agent’s turnover.
* AS 19 = in finance lease, in books of lessor, cost of asset is recorded as receivable whereas in books of lessee, it
be recorded as asset purchased. Under GST, cost of asset recorded as a purchase & fair value not be recorded in
books of lessee as purchase.
* If lessor, only financial charges treated as revenue as per AS, whereas under GST, entire amount treated Revenue.
* As per AS in lessee = lease rentals bifurcated into interest charges and liability whereas under GST, entire
treated as expense.
Compliances under GST depend on technology because transactions are numerous. In GST regime, Info
GST Audit in Computerised
Systems become integral to enterprise day-today operation, such as Return filing, Payment of taxes,
Rectification of returns filed, Reconciliation of returns, e-Way Bill, GSTR 9 etc.
* Primary responsibilityof GST Auditor is to assess entire Computerized Info System (CIS) environment & get
Environment
GST.
• GSTR 9B:To be filed by e-commerce operators
• GSTR 9C:Should be by the taxpayers whose annual turnover exceeds ` 2 Croresduring the financial
year. All such taxpayers are also required to get their accountsaudited and file a
copyof audited annual accountsand reconciliation statementof tax alreadypaid and tax payable as per audited
accountsalongwith GSTR 9C.
* Annual return filed once in year by RP under GST including those registered under composition levy.
Annual Return
Filing, Format,
Eligibility &
* Consists details regarding supplies made & received in year under tax heads i.e. CGST, SGST &
GSTR 9 -
IGST.
Rules
* It consolidates the information furnished in the monthly/quarterly returns during the year.
* All Registered taxable persons in GST must file GSTR9 form. Below not required to file GSTR 9: -
• Casual Taxable Person • Input service distributors
• Non-residenttaxable persons • Persons paying TDS under section 51 of GST Act.
Date: -
To,
--------------------------------------------
GSTIN ………………………………
Name ………………………………
Address ………………………………
Information of Findings upon Special Audit: -
Your books of account and records for F.Y… been examined by (CA/ Cost Accountant) & this Audit Report is
prepared on basis of info available/ documents furnished by you & findings/discrepancies are: -
Short payment of Integrated tax Central tax State/UT tax Cess
Tax
Interest
Any other
amount
[Upload pdf file containing audit observation]
You are directed to discharge your statutory liabilities in this regard as per Act & rules failing which proceedings as
deemed fit may be initiated against you under provisions of Act.
Signature ......................................
Name ………………………………..
Designation ………………………....
PEER REVIEW
• "Peer" means a person of similar standing.
Meaning
• "Review" means conduct of re- examination or retrospective evaluation of the subject matter.
• "Peer review" = Review of work done by professional, by another professional of similar standing.
• A regulatory mechanism to monitor performances of professionals to maintain quality of service
expected of them for enhancing reliance placed by users of FS for economic decision-making.
• Comply to Technical, Professional & Ethical Standards as applicable including other regulatory requirements &
• Have in place proper systems including documentation for maintaining the quality of the assurance services.
• Objective of peer review is not to find out deficiencies but to improve quality of services rendered by members
• Provide guidance to members to improve their performance & adherence to statutory & regulatory requirement.
• It seeks to identify and address patterns of non-compliance with quality control standards.
Peer Review applies to all assurance services provided by Practice Unit. While carrying out review,
SCOPE/
FOCUS
reviewer examines assurance engagement records of Practicing Unit (PU) so as to cover following: -
• Comply to Technical, Professional & Ethical Standards. • Quality of reporting.
• Systems & procedures to carry assurance services. • Comply to directions or guidelines of Council
• Reviewer should examine that Policies & procedures for acceptance of audit complied & documented
APPROACH
EXPLAIN
• Reviewer may follow Compliance & Substantive Procedures in peer review process.
• Reviewer while evaluating records may consider the following: -
- Determine issues, matters, problems in engagement considered, resolved & documented.
- Determine adequate audit evidence for engagement is obtained to support conclusions drawn
- Determine significant decisions relating to engagement, use of professional judgment, resolution
of significant matters have been properly documented.
PEER REVIEW PROCESS = Select PU & Appointment of Reviewer + Planning + Execution + Reporting
REPORTING STAGE
Peer Review Report to address his report of compliance Peer Review Report of Reviewer
or otherwise on following areas of control
• Obtained prescribed training organised by Peer Review Board. • Not having any conflict of interest.
Reviewers
INVESTIGATION
Basis of Differ INVESTIGATION AUDIT
Objective Aims to establish a fact or happening or at assessing a To verify whether FS display True & fair view of
particular situation. State of affairs &working results.
Scope Scope of investigation may be governed by Statute or Scope of audit is wide & in case of statutory audit
it may be non- statutory. it is determined by relevant law.
Periodicity Work is not limited by rigid time frame& may cover Carried Quarterly, Half-yearly or Yearly.
several yrs, as outcome of it is not certain.
Nature Detailed study & examination of facts and figures.
Tests checking or sample technique to draw
evidences to form judgment &opinion.
Limitations No inherent limits due to nature of engagement. Audit suffers from inherent limitation.
Evidence It seeks Conclusive evidence. Prima- facie or Persuasive evidence.
Observance of It is analytical in nature and requires a thorough mind, Is governed by compliance with generally
Account capable of observing, collecting and evaluating facts. accepted accounting principles, audit procedures
Principles and disclosure requirements.
Reporting The outcome is reported to the person(s) on whose The outcome is reported to the owners of the
behalf investigation is carried out. business entity like Members of Co.
Sec. 212 = Investigation into affairs of company by SFIO (Serious Fraud Investigation Office): -
• CG may, by order assign investigation into affairs of a company to SFIO: -
- On receipt of a report of Registrar/Inspector u/s 208 OR
- On intimation of a Special resolution passed by company in this regard OR
- In public interest OR - On request from any Department of CG/SG.
• Director, SFIO may designate such number of inspectors as he considers necessary for investigation.
• SFIO conducts Investigation in prescribed manner& submits report to CG in period given in order.
• Report not to contain anything not relevant highlighting nature of investigation or final outcome
• Every Word or expression used = properly considered as interpretation differences minimized.
• Relevant facts and conclusions should be properly linked.
• Bases and assumptions made = explicitly stated.
Reporting of
• Report clearly tell nature &objective of assignment accepted its Scope and limitation.
Findings
• Report should be made in paragraph form with headings for the paragraphs.
• Any detailed data & figures supporting finding may be given in Annexure.
• State restrictions or limitations imposed on instructions given by the client.
• Opinion of investigator = appear in final paragraph of report.
* Officers, Employees & agents = produce all book & papers & provide assistance.
Production
(Sec 217) Procedures &
* With previous approval of CG, inspector may require info of any other body corporate.
Powers of Inspector
of Docs
* Inspector may detain the books for 180 days.
POWERS & REPORT OF INSPECTOR ON INVESTIGATION
Examine * Inspectors may examine Officers, employees & agents of co. or related co(s) on oath.
an Oath * Previous approval is required to examine any other person.
* Discovery & production of books & other documents at such place & time as specified
/Powers of
* Summoning and enforcing attendance of person and examine them on oath
Civil Court
* Inspection of any books, registers & other documents at any place
• Body corporate which is/ was subsidiary or holding or another subsidiary of same holding of
(Sec 219)
• Body corporate which is/ was managed by any person as MD or Manager who is MD or Mgr
of company under investigation. OR
• Body corporate whose BODs comprises nominees of Co. under investigation.
• MD, Manager or Employee of Co. under investigation.
• If Inspector has reasonable grounds that books & papers of Company / other body corporate/MD/
Seizure of
(Sec 220)
- Inspector may enter into places where these books are kept with required assistance. &
- Seize the books and papers after allowing the company to take copies of such books.
• Such books and papers kept by inspector for such period not later than conclusion of investigation.
Report
DUE DILIGENCE
• Comprehensive appraisal of a business undertaken by a prospective buyer/ investor, specifically to establish
Meaning
PURPOSE: -
• Assist purchaser/ investor in finding about business he is acquiring or investing (Success factors, strength & weakness)
• Expose potential problems in price negotiations or by dealing suitable clauses in contractual documentation
Commercial / Operational DD To evaluate whether proposed Merger would create Operational Synergies.
Financial Due Diligence To analyze BOA & other info pertaining to Financial matters of entity.
Tax Due Diligence To determine the tax effect of merger or acquisition.
Information System DD To ascertain whether info systems is providing reliable info timely.
Legal Due Diligence To review legal aspects on functions of entity & compliance with laws.
Environmental Due Diligence To study entity’s environment, its flexibility to acquirer entity.
Personal Due Diligence To ascertain entity’s personnel policies = appropriate & suit requirements of restructuring.
Diligence
• Initial price & other decisions are taken on basis of net worth & trend of profitability of target co
Due
• To look behind initial info by co & to assess benefits & costs of proposed acquisition/ merger by inquiring
in all relevant aspects of the past, present and future of the business to be acquired/merged with.
Increasing • Other Items Included in Sales (like freight, excise duty, sales-tax, etc)
Turnover but • High Administrative and Selling Expenses • Additions to Fixed Assets
declining Net • Competitive Price • Unfavourable Sales mix
Profit in 5 yrs • Negative Impact of Financial Leverage • Cost-Price Relationship
Enquiries on • Info systems & Important expense Categories • Research and Development
History of target’s • Nature of business (for ex manufacture, wholesaler) • Inventories (locations, quantities)
Products, Mkt., • Employment (by location, supply, wage levels etc) • Plant, warehouses, offices location
Supplier, • Product or services and markets (for example, major customers and contracts, profit margins)
Expenses, • History of business with important suppliers (Ex: LT contracts, imports, terms of payment)
operations
• Agreement to buy back shares sold at a stated price • Future lease liabilities.
• Environmental problems/ Claims/ 3rd party claims. • Long pending sales tax assessments.
Investigation)
Liabilities
(Areas of • Liability claims; warranty liabilities, product returns/ discounts; liquidated damages for late deliveries
Hidden
• Pending final assessments of customs duty where provisional assessment only has been completed.
• Unfunded gratuity/superannuation/leave salary liabilities; incorrect gratuity valuations.
• Huge labour claims under negotiation when the labour wage agreement has already expired.
• Tax liabilities under direct and indirect taxes.
• Group Company balances under reconciliation etc. • Litigated assets and property.
Investigation)
Executive Summary
Introduction
Background of Target
Objective of due diligence
Terms of reference and scope of verification
Brief history of the company
Share holding pattern
Observations on the review
Assessment of management structure, financial liabilities & Valuation of assets
Comments on properties, terms of leases, lien and encumbrances.
Assessment of operating results, net worth, taxation and statutory liabilities
Interlocking investments and financial obligations with group / associates companies, amounts receivables
subject to litigation, any other likely liability which is not provided for in the books of account.
Assessment of possible liabilities on account of litigation and legal proceedings against company.
SWOT Analysis
Comments on future projections
Status of charges, liens, mortgages, assets and properties of company
Suggestion on ways & means including affidavit, indemnities, to be executed to cover unforeseen & undetected
contingent liabilities& on various aspects to be taken care of before & after proposed merger/acquisition
• Identifying RMM through understanding of Entity and its environment as per SA 315
Statutory Audit
Techniques for
• Design Response to Assessed Risks as per SA 330 • Planning Audit (SA 300)
Auditing
• Obtain SAAE (SA 200 + SA 500) • Perform Substantive Procedures (SA 520)
• Perform compliance procedures to determine NTE of substantive procedures
• Test checking(SA 530) &Verification and Valuation of Assets & Liabilities.
• Obtain reports of Preventive Maintenance of machinery • Examine possibilities of theft, fire losses etc
• Procure list of RM • Examine Standard input output ratio
• Assess whether personnel employed trained & efficient. • Examine lab reports & inspection reports if RM purchased
• Obtain Standard consumption figures
of poor/ sub-standard quality
• See Quality Control techniques are consistent or changed.
• Examine inventory plans and procedures. • Machine breakdown & power failure may also result in loss
• Examine whether basis adopted for calculating waste is same of materials in process
for all months. • Examine inspection reports of inspections carried out
At Level of
Statements
• Susceptibility of FS to misstatement
At level of A/c
Expenditure
(Not Assets)
Revenue &
Cinemas
• Verify ICS on sale of online & offline tickets • Verify ICS on income from canteens
• Statuary requirements complied of wages & salaries • Object clause permitting this business
General Matters/
• General Economic factors = Government policies & Seasonal activities
Factors Auditor
• Conditions effecting business = Business risk & Mkt. & Competition
see in taking up
• Entity (Internal + External) = Owners, Mgt, Nature, Financial performance & Reporting
Engagement
• Procedure in which Auditor traces transaction from its initiation through company’s Info systems to point
Walk Through
when it is reflected in Financial Reports. (Origin to End)
• Auditor to perform 1 Walk through at minimum for each major class of transactions.
Tests
• Consider State of economy & its effects on Client’s business • Discussions with Client
• Previous year’s audit working papers • Other Relevant Files
• Visits to Client’s premises & Plant facilities to mgt. • Policy &procedures manual of Client
• Minutes of meetings of GM, BODS & important committees • Client’s annual Reports to shareholders
• Internal financial Mgt report for current & previous periods including budgets
• ICAI, other professional bodies & Industry Publications, Trade Journals, Magazines, Newspapers
• Procedure exist to ensure separation of transactions at end of 1 yr from those in commencement of next yr
Procedure
• Principal areas of application of cut-off procedures involve sales, purchases & stock.
Cut-off
• Auditor should satisfy himself by examination and test check that these procedures adequately ensure that: -
Goods purchased for which property has passed to client have in fact been included in Inventories &
that liability has been provided for.&Goods sold excluded from inventories and credit been taken for sales.
Steps: - Features: -
• Occurrence of transaction = Recorded in Source doc • Validation Check.
• Recorded in transaction file = Source docs t/f by Data entry operator to extract Info • Non-existence of audit Trail.
• Update Master file = After entry is done & processed, master files are updated • Unrestricted access to programmers.
• Generation of output = Report periodically generated after above. Advantages: -
Advantages: - • Immediate processing
• Simple& many Transaction processed • Existence of Audit Trail • Continuous Updates.
Limitations = Time gap in between occurrence & processing. Limitations = No Audit Trail.
To establish framework of overall control over CIS Activities & provide reasonable assurance that
Audit in CIS Enviro–ICS Mgt Perspective
Controls
General
overall objectives of I.C. are achieved.Types: - • Org. Structure & Mgt Controls.
CIS
Evaluates Controls which operate * Org. structure & control * Documentation Control * Access C * Input C
over Data OR Review process for * Processing Control (C) * Recording C * Storage C * Output C
Controls in CIS Environment
Consideration * Availability of CAATs & suitable computer facilities & data in suitable format
of Factors in * Availability of sufficient IT knowledge & expertise * No manual tests due to lack of evidence
Use of CAATs * Impact on effectiveness & efficiency in extracting data * Time constraints in certain data
Software
Audit
• Set of Hypothetical data entered in computer of org & result compared with pre determined results.
Test
• Used in “Integrated Test Facility (ITF)” where dummy unit is established
Data
• Auditor is required to ensure that test transactions are subsequently eliminated.
Tagging & • Involves tagging Client’s input data in way that relevant info is displayed at key points.
Tracing • Uses the actual data and hence no need of reversal.
Reasons for Changes in Collection of Evidences Reasons for Changes in Evaluation of Evidences
• Existence of diverse and complex range of I.C. technology • Increased complex computer system & control tech
• Rapid development in Hardware and Software technology • Update Multiple data by a single input transaction
• Cryptographic Controls to protect the privacy of data • Deterministic nature of errors
• No collection of audit evidence by manual means • Speed of errors occur, high cost & effort to correct
Audit Plan for Evaluating Reliability of
focuses * Detective controls = Identify errors and irregularities after they occur.
on * Corrective controls = Remove effects of errors & irregularities after they are identified.
* Ensure that authorized, correct and complete data is made available for processing.
In * Provide for timely detection and correction of errors.
Evaluating * Ensure interruption in work of CIS Enviro due to power, mechanical or processing failures
Reliability * Ensure that accuracy and completeness of output
of Controls, * Provide adequate data security against fire & other calamities & fraud
Auditor to * Prevent unauthorized amendments to the program.
* Provide for safe custody of source code of application software and data files.
* Authenticity Control = To verify identity of Individuals or process involved in system (Password & DSC)
of Control used in CIS to
Evaluate Major Clauses
enhance its Reliability * Accuracy Control = To ensure correctness of Data and processes in a system (Program validation check)
* Completeness Control = Ensures that no data is missing & all processing by proper conclusion.
* Privacy Control = Ensures the protection of data from inadvertent or unauthorized disclosure.
* Audit Trail Controls = Ensures Traceability of all events occurred in a system.
* Redundancy Control = Ensures that processing of data is done only once.
* Existence Control = Ensure the ongoing availability of all system resources.
* Asset safeguarding controls = Ensure Resources in system protected from destruction or corruption.
* Effectiveness Control = It attempts to ensure that the system achieves its goals.
* Efficiency Control = It attempts to ensure that a system uses minimum resources to achieve goals.
* I = Independent Controls i.e. No person with Independent control over Important aspect of business.
* D = Distribution of powers i.e. Financial and administrative powers should be subdivided.
Internal check
ICS for Entertainment * Printing of Tickets * Ticket Sales * Daily Cash Reconciliation * Daily Banking
Centres Collecting Cash * Entrance ticket * Advance booking * Discounts & free pass * Surprise checks
• Audit approach that analysis audit risks, sets materiality thresholds based on audit risk analysis & develops
Risk
audit program that allocate Larger portion of audit resources to high-risk areas.
Based
• Combined assessment of SA 315 & 330 = Risk Based Audit.
Audit
STEPS/ STAGES involved in Risk Based Audit
Understanding Client operations& Internal Determination of Residual Risk i.e. Identification & Assess RMM
Control System
Auditor to identify & prioritize risks that impact Response to & Manage Identified Residual Risk
audit of FS to understand client operations: -
- Environment in which entity operates Reporting to Client = Auditor to conclude on areas of risk by
- Framework of operations
- Operational performances obtaining
- Information process framework etc. SAAE & communicate to Client immediately his significant
observation
on Weakness & Deficiencies in design & operation of Internal Controls
Narrative Records Complete & exhaustive description of system as found in operation by auditor
• Graphic presentation of I.C. of various sections in form of a diagram full with lines & Symbols
• Flow chart is normally horizontal one in which docs & activities shown
• Provide most concise and comprehensive way to review I.C.
METHODS OF COLLECTING INFO TO REVIEW ICS
• Provide a neat visual picture of various activities involving flow of documents through various stages
Flow Chart
• Auditor be able to visually correlate functions & related controls & assess Adequacy & effectiveness by
- At what point a document is raised internally or received from external sources.
- Number of copies in which a document is raised or received.
- Intermediate stages set sequentially by which document & activity pass.
- Distribution of the documents to various sections, department or operations.
- Checking authorisation and matching at relevant stages.
- Filing of the documents.
- Final disposal by sending out or destruction.
Check List Series of instructions and/or questions which a member of auditing staff must follow.
Internal Control Questionnaire Set of Questions designed to provide a thorough view of state of ICS
SA 265 = Auditor includes in written communication i.e. Letter of weakness of deficiencies in ICS: -
• A description of the deficiencies and an explanation of their potential effects.
Letter of weakness
• Sufficient info to enable TCWG & Mgt to understand the context of communication.
• Auditor communicates material weaknesses in ICS as required by SA 260
• Lists down the area of weaknesses in ICS and recommends suggestions for improvement.
• Clearly indicate that this letter covers only weaknesses which have come to the attention of auditor
• Clearly indicate his examination of internal control not designed to determine Adequacy of ICS for mgt.
• Letter serves as means for mgt & governing body for improving system & its strict implementation.
• Letter may also serve to minimize legal ability on major loss resulting from weakness in ICS.
Surprise • Useful method to determine whether errors exist and where they exist
check • ICAI Recommendation = Surprise checks should form part of normal audit.
• Surprise check should be made at least once in the course of an audit.
Inherent
* Misstatement material
* No internal control = Risk of fraud or error for B/S & P/L = Inherent risk at Assertion level.
* Risk that Misstatement occur in Assertion OF Class of Transaction, A/c Balance/ Disclosure
TYPES
Control
Risk
* Misstatement material & not be prevented, or detected & corrected by entity's ICS
* Auditor feels that still misstatement there despite of controls
* SA 200 = Risk that Auditor procedures to reduce Audit Risk to acceptably low level not detects
Detection
AUDIT RISK
At Overall Level: - Auditor applies their professional judgment to determine extent of risk which he
LEVELS
Risk that Auditor expresses inappropriate Audit opinion if FS are materially misstated. Audit Risk is
Function of RMM & Detection Risk. i.e. (Audit Risk = Inherent Risk x Control Risk x Detection Risk)
Risk of Material Misstatement = Risk that FS are materially misstated prior to Audit
RMM = (Inherent Risk) x (Control Risk)
* Known as Public Company Accounting Reform & Investor Protection Act, 2002 (SOX or SARBOX)
* Due to number of major corporate & accounting scandals like Enron, Satyam, Tyco International &
World Com = there was a decline in public faith. So, as a result this Act was enacted.
(CCAR)
company's CEO or Chief Legal Counsel and to Audit Committee if no action is taken.
2002
• Design of controls-relevant assertions related to all significant accounts and disclosures in FS.
Requirements
standards of
of auditing
• Info about how significant transactions initiated, authorized, supported, processed and reported.
PCAOB
• Enough info about flow of transactions to identify where MM due to error or fraud could occur.
• Controls designed to prevent or detect fraud & who performs controls & segregation of duties.
• Controls over the period-end financial reporting process& Over safeguarding of assets.
• Results of management's testing and evaluation.
Implementation of Disclosure
Functions of Disclosure
* Backup Certifications
SOX Act 2002 OR
* Identification of Personnel
Committee
• 2(64) = Paid Up Capital = Aggregate amt credited as paid-up is equivalent to amt received as paid up in respect of
Shares issued. It also includes any amount credited as paid up in respect of shares.
• Guidance Notes: - Paid up s/c means that part of Subscribed Share Capital for which consideration in Cash or otherwise
received. This includes Bonus Shares allotted by Corporate Enterprises.
• In respect of co other than finance co, Revenue from operations consist of revenue from: -
(a) Sale of products (b) sale of services (c) other operating revenues, as reduced by excise duty
* Formal statement made after Enquiry, examination or review of specified matters including opinion.
* After issue report = responsible for ensuring that report is based on factual data
REPORT * Involves expression of opinion differing from one professional to another.
* No question of exactitude in report as info based on estimates & involves judgment too.
Issues Addressed/ * Disclosures on important issues regarding Related party Transaction, accounting treatment etc.
Involved in * Provisions on set up & role of Nomination and Remuneration Committee.
Corporate * Provisions on composition & function of Audit Committee (Reg. 18).
Governance – * BODs & its composition, Independent, non executive director etc.
Chapter IV of
* Obligations on Independent Ds & senior mgt.
SEBI LODR
(Listing * Code of Conduct & Vigil mechanism * CEO/CFO Certification.
Obligations * Provisions on set up & role of Stakeholder Relationship Committee * Mgt of Subsidiaries.
&Disclosure * Provisions on set up & role of Risk Mgt Committee. * Compliance Certificate
Requirements) * Disclosure of Mgt Discussion & Analysis. * Info to shareholders.
Regulations, 2015
COMPARISON = AUDIT COMMITTEE as per SEBI (LODR) REGULATIONS & Section 177
Comparison Basis Reg. 18 of SEBI (LODR) 2015 Section 177 of Companies Act, 2013
Every listed company & following public companies shall constitute AC: -
177(1) * All public co with paid up capital of > ₹10 Cr. * All public co with turnover of > ₹100 Cr.
Requirement * All public co with aggregate, outstanding loans/ borrowings/ debentures/ deposits > ₹50 Cr.
(All above limits = existing on date of last audited FS be taken into a/c for purposes of this rule)
Every Audit Committee to act as per terms of reference specified in writing by Board including: -
• Recommendation for appointment, remuneration and terms of appointment of auditors.
• Review & monitor auditor’s independence, performance & effectiveness of audit process.
• Examination of FS & auditors’ report thereon.
• Approval or subsequent modification of transactions of company with related parties.
• Scrutiny of inter-corporate loans & investments.
• Valuation of undertakings or assets of company, wherever it is necessary.
• Evaluation of Internal financial controls & Risk Mgt Systems.
177(4) Functions
• Monitoring end use of funds raised by public offers & related matters.
Proviso to Sec. 177(4) AC may make omnibus approval for related party transactions proposed to be entered
in by company subject to such conditions as prescribed.
SECTION 177 AUDIT COMMITTEE (AC)
If transactions other than transactions in sec188 of Co Act 2013 & where Audit Committee not approve
transaction = It shall make its recommendations to Board. Transaction not > Rupees 1 Crore is entered by a
directoror officer of company without approval of Audit Committee and it is not ratified by Audit Committee
in 3 months from date of Transaction, such transaction = voidable at theoption of Audit Committee and if the
transaction is with Related party to any director or is authorized byany other director, director concerned
shall indemnify company againstany loss incurred by it.
These provisions N/ A to a transaction, other than a transaction referred to in sec 188, between aholding
company and its wholly owned subsidiary company.
177(7) Auditor’s right to be Auditors & KMP right to be heard in meetings of AC when it considers
heard Auditor’s report but not to Vote.
177(8) Disclosures in Board’s report u/s 134(3) to disclose composition of AC & where Board not accepts
Board Report Recommendation of AC, same to be disclosed in report + reasons
(i) Every listed company & companies belonging to following class = shall establish Vigil mechanism
177(9) & 177(10) Vigil
for their directors & employees to report their genuine concerns or grievances: -
Mechanism
{NRC} [Regulation 19 and Part Board of every listed public company shall constitute it comprising least 3 directors, all of whom
shall be non-executive directors & least half independent. Chairperson independent director.
Remuneration Committee
ROLE of Nomination and
* Formulation of criteria for determining qualifications, positive attributes & independence of director
D of Schedule II]
* Recommend to BODs a policy, relating to remuneration of Directors, KMP & other employees
* Formulation of criteria for evaluation of independent directors and the Board of Directors
* Devising a policy on Board diversity
* Identifying persons who are qualified to become directors & who may be appointed in senior mgt as
per criteria laid down, and recommend to the Board their appointment and removal
* Whether to extend or continue term of appointment of Independent director, on basis of report of
performance evaluation of independent directors
Depending on the facts and circumstances, some situations may require an adverse or qualified statement or a
disclosure without necessarily making it a subject matter of qualification in the Auditors’ Certificate, in
Adverse or Qualified Statement
Circumstances/ Examples of
• AC should meet at least 4 times in a yr & not more than 120 days to lapse in 2 meetings.
Meetings
AUDIT COMMITTEE [REGULATION 18 OF SEBI (LODR)
• Quorum either 2 or 1/3 of members of AC (whichever greater) but min 2 Independent members to
of AC
be present.
Independent
• Least 1 member have a/c or related financial mgt expertise. • AC with min 3 Ds as members
• Chairperson to be Independent director & Chairperson to answer shareholder queries at AGM.
• AC at its discretion invite finance director or head of finance function, head of internal audit
REGULATIONS 2015]
Powers • Investigate activity in its terms of reference • Seek info from any employee
of AC • Obtain outside legal or professional advice • Secure attendance of relevant expertise outsiders
Reviewing with mgt, Annual FS before submission to Board, focusing primarily on: -
* Matters in Director’s Responsibility Statement & Board’s report u/s 134(3)(c).
* Changes in accounting policies & practices & reasons for same.
* Major accounting entries & estimates based on Exercise of Judgment by mgt.
Role of AC * Significant adjustments made in FS arising out of audit findings.
* Compliance with listing & other legal requirements of FS.
* Disclosure of any related party transactions.
* Qualifications in the draft audit report.
SEBI (LODR) Regulations, 2015, ID = Non-executive director other than Nominee director of listed entity: -
• In Opinion of Board = person of integrity and possesses relevant expertise and experience.
SEBI (LODR) Reg, 2015 = Independent Director
• Is/ was not Promoter of the listed entity or its holding, subsidiary or associate company.
• Who is not less than 21 years of age
• Is not related to promoters or directors in CASH.
• Apart from receiving director's remuneration, has or had no material pecuniary relationship with CASH or their
promoters, or directors in 2 immediately preceding FYs or in current FY.
• None of whose relatives has or had pecuniary relationship or transaction with CASH or their promoters, or
directors, amounting to 2% or more of its Gross turnover or Total income or ₹50 Lac or higher amount as
may be prescribed (whichever Lower) in 2 immediately preceding FYs or during current FY
• Who, neither himself nor any of his relatives: -
- Holds or has held the position of KMP or is or has been employee of CASH in any of 3 FYs immediately
preceding FY in which he is proposed to be appointed.
- Holds together with his relatives 2% or more of Total voting power of Listed Entity.
- Is CE or director by whatever name called of any NPO that receives 25% or more of its receipts from
listed entity, its promoters, directors or ASH or holds 2% or more of Total voting power of listed entity.
- Is material supplier, service provider or customer or a Lessor or lessee of the listed entity
- Is or has been Employee or Proprietor or Partner in any of 3 FYs immediately preceding FY in which he
is proposed to be appointed of: -
* A firm of auditors or CSs in practice or CWAs of CASH.
* Any legal or a consulting firm that has or had any transaction with CASH of 10% or more of Gross
Turnover of such firm.
• Members of AC financially literate & least1 member to have a/c or related financial mgt expertise.
(“Financially literate” = Ability to read & understand basic FS i.e. B/S, P/L & Stmt of cash flows)
• Chairperson of AC shall be Independent director.
2015
Mgt Discussion & Analysis report to form part of Annual Report on following matters in limits set: -
(i) Industry structure and developments (ii) Opportunities and Threats
DISCUSSION & ANALYSIS
DISCLOSURES - MGT
Auditor’s Role in AC
Role of Auditor & Certification Of Compliance of Corporate
• Ensure he communicates frequently with AC on key a/c or auditing issues giving rise to RMM of FS.
• Ensure that he addresses any questions or concerns voiced by AC.
• Assist & advise AC on improving corporate governance, oversight of FR process, implementation of
a/c policies & practices, compliance with AS, strengthening of ICS in regard to FR & reporting process.
• Assist mgt & AC to enable them to discharge their functions effectively
• Auditor role is not to drive corporate governance directly (Its Mgt Role)
• Auditor may play significant role in assisting Mgt to ensure Better Standards of corporate governance.
Governance
• In certifying compliance with Corporate governance responsibility relates to verification & certification of
Auditor’s Role
CEO/CFO or any other person heading the finance function shall certify to the Board that: -
Compliance Certificate [Part B
• They have reviewed FS & cash flow statement for yr & that to the best of their knowledge & belief.
- These statements do not contain any materially untrue statement or omit any material fact or contain
of Schedule II]
These regulations shall apply to Listed entity who has listed any of following designated securities on
LODR Regulations
[Regulation 3]
* Specified securities listed on main board or SME Exchange or institutional trading platform
* Non-convertible debt securities, non-convertible redeemable preference shares, perpetual debt instrument,
perpetual non- cumulative preference shares * Indian depository receipt
* Security receipts (added w.e.f. September 06,2018) * Securitised debt instruments
* Any other securities as may be specified by the Board * Units issued by mutual funds
• BODs shall constitute Risk Mgt Committee. • Majority of members = members of BODs
• Senior Executives of listed entity can be members too. • Chairperson = member of BODs
Risk Mgt
• BODs Defines Role & responsibility of RM Committee & may delegate monitoring & reviewing of
Committee
Risk mgt plan to committee and such other functions as it may deem fit.
[Reg. 21]
• This Reg. applies to top 100 listed entities, determined on basis of market capitalization, as at end
of Immediate Previous FY.
* Whether CFS give True & Fair view of state of affairs of Group as on B/S Date
Component
If Parent’s
Businesses
Auditor =
* Whether Consolidated P/L statement gives True & Fair view of results of consolidated P/L of
Group for period under audit.
* On True & Fair view of Cash flows presented by Consolidated cash flow statements.
Auditor of Parent to report whether principles & procedures for preparation and presentation of CFS
as laid in relevant AS(s) is followed. (Deviation = Auditor to disclose in Audit report to aware users)
AUDIT REPORT FOR A MULTI BUSINESS UNIT MNC
If Parent’s
Auditor not * Auditor of CFS to consider requirement of SA 600.
* If Parent‘s auditor decides that he will make reference to Audit of other auditors in Report, he
Auditor of all
should disclose clearly portion of FS audited by Other auditor(s).
its * Reference in Report of auditor of CFS not to be construed as a qualification of opinion but
Components rather as Indication of divided responsibility in Auditors of parent and its subsidiaries.
If Component(s) * Parent’s mgt performs conversion of components’ audited F.S. from framework used by
Auditor Reports component to framework under which CFS are prepared.
on FS under * Conversion adjustments are audited by Principal auditor to ensure financial info suitable
Accounting & appropriate for purposes of consolidation.
Framework differ * Alternatively, component may prepare FS on basis of Parent’s accounting policies.
than that of * Local component auditor can then audit & issue Audit report on components FS prepared
Parent as per “Group accounting policies”.
If Component(s) * Audits of F.S., including CFS are performed under AS generally accepted in India.
Auditor Reports * To maintain consistency of Auditing framework and to enable parent auditor to rely &
under Auditing refer to other auditor’s Audit report in their audit report on CFS, components’ FS be
Framework Different audited under framework that corresponds to Ind.- AS
than that of Parent
Responsibility Auditor of the CFS is responsible for expressing opinion on whether CFS are prepared in all material
for CFS respects, as per FRF under which Parent prepares CFS. Therefore, Auditor's objectives in Audit of CFS are: -
Auditor
• Satisfy himself that CFS been prepared as per requirements of applicable FRF.
• Enable himself to express opinion on True and fair view presented by CFS.
• Enquire in matters as specified in section 143(1) of Co Act, 2013.
• Report on matters in Clauses (a) to (i) of 143(3) of Co Act, 2013 & 143(3) (j) + Rule 11
AUDIT OF BANKS
PRINCIPAL ENACTMENTS GOVERNING BANK AUDIT
• Banking Regulation Act, 1949 • RBI Act, 1934 &SBI Act, 1955.
• Banking Co (Acquisition & Transfer of Undertakings) Act, 1970. • SBI (Subsidiary Banks) Act, 1959.
• Prevention of Money Laundering Act, 2002. • Regional Rural Banks Act, 1976.
• Payment & Settlement systems Act, 2007. • Cooperative Societies Act, 1912.
• Credit Information Companies Regulation Act, 2005. • Companies Act, 2013.
• Info Technology Act, 2000. • SARFAESI Act, 2002.
• Verify that all documents of title are properly assigned to the bank.
Verify Bills • Sufficient margin should be kept while purchasing or discounting of a bill.
Purchased • Irregular outstanding accounts should be periodically reported to the head office.
• Proportionate income should be recognized between the periods
Involvement of Risk Mgt policies to be approved by TCWG on bank’s business Objectives & Strategies,
TCWG Capital strength, Mgt Expertise, Regulatory requirements & types of risks.
Identify, Measure Risks that may significantly affect the achievement of bank’s goals and objectives should be
& Monitor Risks identified, measured and monitored.
Banks must have controls including following: -
Control Activities - Verification and approval of transactions - Effective segregation of duties.
- Reporting and approval of exception. - Setting of limits.
Monitoring Risk mgt models, methodologies and assumptions used to measure and manage risk need to be
Activities evaluated by Independent risk mgt unit
Reliable Info Must exist so as to provide adequate financial, operational and compliance info on a timely &
System consistent basis to management and TCWG.
Internal control evaluation • To ensure they are in accordance with RBI Guidelines.
• Investment policy must confirm to RBI Guidelines.
Separation of Investment Fn. • Own investment account need to be separated from PMS client accounts.
Examination of Documents • To ensure Investments made in authority & supported by documentation.
• Should be carried out on balance Sheet date,
Physical verification • Carry out physical verification as near B/S date as possible in some cases
Examination of Valuation • Method of accounting including yearend valuation is appropriate.
• If inappropriate, consider effect of adoption of such policy on FS
Securities deal on Others behalf • Income from such activities to be recorded fairly.
Examination of Classification and Shifting & Examination of Reconciliation
Sanction = Examine Sanction Letter, Letter of hypothecation & note important T & C
Verify Advances
Stock statements = Verify quantity & value of goods & Test check warehouse Register
against Good
Inspection = Ascertain if premises of borrowers periodically visited by bank officials to verify qty
Stock Audit = See whether bank has got a system of Obtaining stock & receivables audit report
Hypothecation/ Pledge = Examine letter of hypothecation & Certificate of Registration of charge
Insurance = Examine Insurance policies for their validity, adequacy etc. & see policies in favour of bank.
Documents of Title = Inspect docs of Title to goods like Bill of lading, Dock warrant
3rd Party Certificate = Where hypothecated goods are in Possession of 3rd parties
Meaning
• It attempts to shorten Interval in a transaction & its examination by an independent person not involved in
its documentation.
• Emphasize substantive checking rather than test checking.
* Branches whose total credit aggregate to not less than 50% of total credit of bank
Coverage
* Branches whose aggregate deposits cover not less than 50% of aggregate deposits of Bank.
* Exceptionally large, very large and large branches
AUDIT
* Special branches handling foreign exchange business * Branches rated as poor/very poor
* Head Office dept. dealing with treasury/ funds mgt & handling investment portfolio
* Daily cash transactions with reference to abnormal receipts & payments * Revenue leakage.
* Verify of procedure & docs to open new current, savings, term deposit accounts, etc.
* Verify advances, OD, CC, term loans, bills purchase, LC etc. Procedure for sanction & docs to be verified.
Scope
* Verification of ledgers, inter branch reconciliation & verification of interest, discount, commission.
* Procedure for safe custody of security forms with branch. * Verification of high value transactions.
* Ensure adequacy of procedures for TDS. * Verification of Foreign exchange transactions.
* Verification of returns, statements, calculation of CAR & compliance with RBI Guidelines.
* Study of RBI and Internal Inspection reports, statutory auditor’s report and compliance thereto.
• LFAR to be furnished by Auditor of bank in addition to the audit report as per statutory requirement
• Matters which banks require their auditor to deal with in form of LFAR been specified by RBI.
• LFAR is to be submitted before 30th June every yr.
Audit • To ensure timely submission of LFAR, proper planning for completion of LFAR is required.
Procedures • While format of LFAR not require Executive summary to be given, members may consider
on Long providing same to bring out key observations from Whole document.
Form Audit • Advances against LFAR be done to examine following points: -
Report - Loan applications are complete and in prescribed form.
(LFAR)
- Procedural instructions ON Grant/ Renewal/ Enhancement of facilities complied with.
- Sanctions are within delegated authority and disbursements are as per terms of the sanction.
- Documentation complete & supervision is timely, effective & as per prescribed guidelines.
• Claims against the bank not acknowledged as debts. • Liability for partly paid investments.
VERIFICATION OF CONTINGENT LIABILITIES
• Ascertain existence of Adequate ICS to ensure Contingent Liabilities executed only by authorised person
Verification
• Ascertain if accounting system of bank provides for maintenance of adequate records on obligations.
Aspects
• Perform substantive audit tests to establish the completeness of the recorded obligations.
• Obtain representation from the management that all contingent liabilities have been disclosed.
• Ensure Compliance of AS 29, “Provisions, contingent liabilities and contingent assets”.
• Examine relevant evidence like correspondence with lawyers, claimants, workers/officers etc.
Claims against
• Review Minutes of meeting of BODs, contracts, agreements, pending legal cases &
the bank not
correspondence relating to Taxes etc., to identify claims against the bank.
acknowledged
• Ascertain from mgt Status of claims outstanding as at the end of previous yr.
as debt
• Review subsequent events to obtain evidence about completeness and valuation of claims.
Letters of credit: -
* Evaluate adequacy of ICS over LC Forms e.g. custody, records, reconciliation etc.
Acceptances, * Verify the balance of LC from the Register maintained by the bank.
endorsements * Examine the guarantees of the customers, copies of the LC issued & security obtained.
& other Other acceptances & endorsements: -
obligations * Examine arrangements made by bank with customers.
* Test check amounts of bills with the register.
* Verify whether bills are marked off in register on payment at maturity.
Those investments where Interest/ principal is due & remains unpaid for > 90 days and includes: -
Non • Preference Shares where dividend is not paid
Performing • Unquoted equity shares value @1.
Investments • Securities issued by a person who has been given credit facility which is a NPA.
• Equity, debentures etc. received as a result of conversion of NPA.
1 Held to Maturity (HTM) • Securities acquired by bank with the intention to hold till maturity.
2 Held for Trading (HFT) • Securities acquired by bank for trading, i.e. to be sold in 90 days.
3 Available for Sale (AFS) • Securities which do not qualify for being classified as HTM or HFT.
Category of investment decided at time of acquisition and recorded on investment proposal.
* Interest &/ or installment of principal remained Overdue or out of order for specified time
NPA if
* No credits continuously for 90 days as on B/S date or credits not enough to cover Interest
debited in period.
- Overdue: - Amount not paid on the due date fixed by Bank.
- Out of Order: - O/s balance continuously in excess of sanctioned limit/ drawing power.
* Account regularized near B/S date = Classify as NPA if account has inherent weaknesses.
Classification
in Special
* Account classify borrower wise = All facilities granted to same borrower treated as NPA
NPA CLASSIFICATION
Cases
Exceptions to * Temporary Deficiencies = Non submission of stock statement, non renewal of limits.
NPA General * Natural Calamities = ST Agricultural loan converted to ST loans treated current dues.
VERIFICATION OF ADVANCES
Classification * Facilities backed by CG Guarantee = Overdue A/c classified as NPA only when CG
Norms repudiates its guarantee.
NPA
* Advanced against LIC/ KVP/ NSC/ FDs = Accrual basis provided adequate margin is available.
* Fees/ Commission on Rescheduled advance = Accrual basis over period covered by rescheduled
extended credit period.
* Govt. Guaranteed advances = If overdue, income to be realized on cash basis.
Reversal * First Time NPAs = Interest credited but not realized to be reversed.
of Income * NPAs Commission/ Other Income = Recognized on accrual basis & not received yet to reverse
* Finance Charge of Leased Asset = Recognize Income on accrual but not yet realize be reversed
for purposes of their audit & whether they have found them satisfactory.
• Whether proper BOA maintained by insurer as appears from examination of those books.
• Whether proper returns, audited or unaudited, from branches and other offices have been received &
whether they were adequate for the purpose of their audit.
• Whether B/S, Revenue Accounts & P/L dealt with by report & Receipt & Payments Account are in
AUDITORS’REPORT
• Whether Revenue Account gives a true and fair view of the surplus or the deficit for the FY/ period.
• Whether Profit and Loss Account gives a true and fair view of the profit or loss for the FY/ period.
• Whether Receipts and Payments Account gives a true and fair view of receipts & payments for FY/ period.
• FS are prepared as per requirements of Insurance Act, 1938, IRDA Act, 1999 & Co Act, 2013.
• Investments have been valued in accordance with the provisions of the Act and the Regulations.
• Accounting Policies selected by the insurer are appropriate and are in compliance with applicable AS
• Principles as prescribed in these Regulations or any order or direction issued by the Authority in this behalf
Certify • They Reviewed Mgt report & that there is no apparent mistake or material inconsistencies with FS
that • Insurer has complied with the terms and conditions of the registration stipulated by the Authority.
A certificate signed by the auditors (which are in addition to any other certificate or report which is required by
law to be given with respect to the balance sheet) certifying that: -
Certificate
• Verified cash balances & securities relating to the insurer’s loans, reversions & life interests
• Extent to which they verified Investments & transactions w.r.t. trusts undertaken by insurer as trustee.
• No part of the assets of the policyholders’ funds has been directly or indirectly applied in contravention of
provisions of the Insurance Act, 1938 relating to the application and investments of the policyholders’ funds.”
• Claims Intimation Register • Claims Paid Register • Claims Disbursement Bank Book
Registers &
Records
• Claim intimation, claim form, particulars of policy, survey report, police report
AUDIT PROCEDURES TO VERIFY CLAIMS
• Provision made for only such claims for which co legally liable, considering particularly: -
Claim Outstanding
- That risk was covered by policy - Claims arose during currency of policy
at Year End
- That claim not arose during period company wasn’t supposed to cover risk.
• Provision made is normally not in excess of the amount insured
• In Determining amount of provision, events after B/S date been considered
• In determining amount of provision, ‘Average clause’ applied if under-insurance by parties.
• No contingent liability carried in respect of any claim intimated for policies issued.
• Claims are provided for net of estimated salvage, wherever applicable.
• In co-insurance arrangements, claims paid booked only for company’s share & balance debited to
other insurance co.
Claims Paid
• If claims paid on basis of advices from other insurance companies & if share of premium received
• Claims communicated after yr-end for losses which occurred prior to yr-end must be accounted for
in year of audit.
• Claims payments duly sanctioned by Authority concerned
• Salvage recovered duly accounted by company & letter of subrogation obtained as per procedure.
• Payment made against claims partially settled is duly vouched & sanctioning authority is same
• Scrutinize and review control account debit balances and their nature should be enquired into.
Agents’ Balances
Outstanding
• Examine inoperative balances and treatment given for old balances with reference to co rules.
Premium &
• Enquire into the reasons for retaining the old balances.
• Verify old debit balances requiring provision or adjustment.
• Check age-wise, sector-wise analysis of outstanding premium.
• Verify whether outstanding premiums have since been collected.
• Check availability of adequate bank guarantee or premium deposit for outstanding premium.
ITEMS RELATING TO BALANCE SHEET
• Auditor’s objective in audit of investments is to satisfy himself as to their existence & valuation.
• Verify investment Scrip physically at the close of business on Balance sheet date.
Investments
• Where physical verification on B/S date not possible = auditor to do it on near date to it as possible
• Take into consideration any adjustments for subsequent transactions of purchase, sale, etc.
• Investments should not normally be held by any other person.
• Examine appropriateness of accounting policies followed by insurance company.
• Examine whether income from investments is properly accounted for.
• See if a proper system for recording & maintenance of TDS certificates received by Insurance Co.
• Physically verify cash balance collection & chest for meeting day to day expenditures.
• Obtain a certificate from mgt for the above mentioned balances as at the balance sheet date.
Cash & Bank
• Assess past trend of Income Tax Dpt., decision of High & Supreme Court for computation made.
• See whether deductions under Chapter VIA of the Income Tax Act, 1961 is properly taken into a/c
• Seen whether exemption provision relating to TDS from certain income as exempted properly availed.
• Check grossing up of TDS relating to Income properly done for computation of Taxable income.
• Check liability under VAT & whether provision for adequate amt made in books or not.
• Verify adequate provision made for additional liability for earlier yrs for which demands received now
* Auditor should look in ICS & compliance as laid for collection & recording of premiums.
* Ascertain Proper cover notes relating to the risks assumed have been serially numbered.
PREMIUM
* Ascertain there is an adequate internal check on the issue of cover notes, policy documents, stamps, etc.
* Ascertain whether advance of last year is accounted this year as income.
* Ensure & Check Premium recorded originally at Gross figure without providing for unexpired risks
* Ensure & Check whether agency commission paid on such premium has been recovered.
* Ensure & Check whether service tax charged from insured at Rates in force, on the total premium
• Vouch disbursement entries &disbursement vouchers with copies of commission bills
• Check whether vouchers are authorized & TDS deducted as applicable
Commission
• Test check correctness of amounts of commission allowed
to Agent
• Scrutinize agents’ ledger & balances examine accounts with Dr. balances & obtain info on same
• Check whether commission outgo for period under audit been duly accounted
IRDA (General insurance-Claim Reserving) Regulations, 2013 requires creation of a minimum amt of
Unexpired Risks
Unexpired Risks reserve at a specified percentage of Net Premium as Not all risk expire as on B/S date.
Reserve For
Risk will be there in succeeding year for premium received in this year, thus provide for: -
• For marine hull insurance = 100% of Net Premium
• For fire, marine cargo and miscellaneous business = 50% of Net Premium.
Sec. 64V of Insurance Act, 1938 also specifies these percentages.
( Provision of Income Tax Act 1961 & Income Tax Rules 1962 permit deduction of above reserves)
* Requirement of solvency margin = Every insurer and re-insurer shall at all times maintain an excess of value
of assets over the amount of liabilities of, not less than 50% of the amount of minimum capital.
Type of Insurance Business Minimum paid up share capital Sufficiency of Assets/Solvency
Regulatory Requirements of Insurance Act 1938
* Non-compliance of solvency margin = Insurer or re-insurer, who does not comply with requirement of
solvency margin deemed to be insolvent & may be wound-up by court on application made by IRDA.
* Submission of Financial Plan = If, at any time, insurer or re-insurer does not maintain required control level
of solvency margin, he shall, in accordance with directions issued by IRDA, submit a financial plan,
indicating a plan of action to correct the deficiency within a specified period not exceeding 6 months.
* Modifications to Financial Plan = If the authority considers the financial plan inadequate, it shall propose
modifications to the plan and shall give directions, including direction in regard to transacting any new
business, or, appointment of administrator or both.
* Non submission of financial plan = An Insurer or re-insurer who does not submit financial plan shall be
deemed to have made default in complying with the requirements of this section
* Real Estate (Investment property) = Historical cost (-) Acc. Dep. (-) Impairment loss (No Residual value)
* Debt Securities – as ‘held to maturity’ – Historical cost.
Valuation of
Investment
* Equity / Derivative Active Market(Listed Company) – F.V. at B/S date. Impairment as expenses. Changes in
F.V. in “Fair Value change A/c.”If debit balance, to be reduced from free reserves while declaring dividend
(Any credit balance will not be able for distribution as dividend)
* Unlisted and other – at Historical Cost. Provision shall be made for diminution in value. such provision may
be reversed but increased carrying amount not to exceed its historical cost.
* Large business risks are shared between more than one Insurer
* Leading insurer issues the documents, collects premiums and settles claims and renders statements of
Accountants to the co-insurers.
* Ex: - A Insurance Company receives a insurance business (100%) with high risk. Shares 50 % business with B
and 30 % with C. For B and C this is incoming coinsurance and for A it is outgoing coinsurance
Co-INSURANCE
AUDIT PROCEDURE
Incoming Coinsurance Outgoing Coinsurance(Leader)
* Auditor should check that premium a/c is credited * For outgoing co-insurance auditor should scrutinize
on basis of statements received from leading insurer. transactions relating to outgoing business; i.e. where
* If statement is not received, whether premium has company is leader.
been accounted on the basis of advices received. * Examine relevant documents.
* Obtain WR from the management that premium * At the time of settlement of claims, auditor will
received from the leader has been accounted for. ensure whether the leader has received the respective
* Verify provision for claims made & paid. share of claims from co-insurer.
* Ensure claim paid only for its share in co-insurance. * Jitna share of claim co-insurer ka bantahai,
correspondingly unkehisse main debit liyahaiyanai.
Reinsurance
• An agreement between a ‘ceding company’ and a ‘reinsurer’ whereby former agrees to ‘cede’ & latter agrees to
accept a certain specified share of Risk or liability upon terms as set out in agreement.
• A ‘ceding company’ is Original insurance company which has accepted Risk & agreed to ‘cede’ or pass on that
Risk to another insurance company or the reinsurance company.
• If loss, insured’s claim for full amt is against Original insurer only. Original insurer lodges claim with Reinsurer
Reinsurance agreement should be as per the norms and guidelines prescribed in the Insurance Act,
1938 IRDA Regulations as well as the company’s approved program
Inwards/Outward or
The auditor should verify the reinsurance transactions are as per the arrangements with re-insurers
Verification of
Reinsurance
The auditor should examine the accounting policy of the company in regard to reinsurance business
Ceded
* All sums of money received & expended by society & * Assets and liabilities. * Cost Accounting Records.
matters in respect of which Receipts & exp take place. Further different books can also be maintained by society like
* All sales & Purchases of goods by society. cash book, stock register, register of fixed assets.
• Overdue debts for a period from six months to five years and more than five years will have to be
Examination of overdue
• Auditor to ascertain if proper provisions for doubtful debts are made & whether same is satisfactory.
• Percentage of overdue debts to the working capital and loans advanced will have to be compared with
last year, so as to see whether the trend is increasing or decreasing.
• Examine whether due and proper actions for recovery are taken and the results thereof.
• Bad debts and irrecoverable losses before being written off against Bad Debts Funds, Reserve Fund
Certify
Bad
etc. should be certified as bad debts or irrecoverable losses by the auditor where the law so requires.
DUTIES OF AUDITOR OF CO-OPERATIVE SOCIETIES
• Where no such requirement exists, the managing committee of the society must authorize the write-off.
• Valuation of assets = AS & SA followed as no specific provisions or instructions under Act & Rules
of Assets &
Liabilities
Valuation
• Ascertain objects for which co-operative organization is set up is achieved in course of its working
Adherence to
Co-operative
Principles
• Assessment not necessarily in terms of profits/ extending benefits to members who formed society.
• See expense economically incurred & there is no wastage of funds.
• Principles of propriety audit to be followed.
• Point out Infringement with Co-operative Societies Act and Rules & bye-laws.
Observations of • Financial implications of such infringements assessed & reported.
Act & Rules • Some of State Acts contain restrictions on payment of dividends to be noted.
• Auditor notice some serious irregularities in working of society = may report special matters to Registrar
• Registrar on receipt of such a special report may take necessary action against the society.
Special Report to Registrar
• Right of access at all times to Books, accounts & vouchers whether kept at head office or elsewhere
Powers of
Auditor • Ask from officers or other employees = info & explanation as think necessary.
Restrictions
• According to sec 5 of Central Act, in case of a society where Liability of a member of society is limited, no
On Share
holdings
member of a society other than a registered society can hold such portion of the share capital of the society
as would exceed a maximum of 20 % of Total no. of shares or of Value of shareholding to ₹1,000/-.
• Auditor of a co-operative society concerned with this provision to watch any breach on holding of shares.
• Loans & advances made on basis of security = properly secured & terms not prejudicial to interests of
society or members.
Sec 73(2)
• Transactions represented merely by book entries are not prejudicial to interest of Co-operative Society.
Auditor
• Whether personal expenses charged to revenue account.
duty to
• Where it is stated in books and papers that shares allotted for cash, whether cash has actually been
make
received in respect of such allotment
Inquiries
• If no cash has actually been so received, whether position as stated in Books & B/S is correct, regular
& not misleading
Content
* Audit report has to be submitted in prescribed form specified by Registrar or as given in Related Rules.
* According to present prescribed form in some of States, Auditor has to state: -
AUDITOR’S REPORT
- Whether he obtained all necessary info & explanations which were necessary for audit.
- Whether in his opinion & to best of his info & as per explanations given to him = a/c give all info
Matters
required by Act.
* P/L of society gives a true and fair view of the Profit and Loss made by society.
* B/S gives a true and fair view of the state of affairs of the society as on given date.
* Proper BOA as required by Act, Rules & bye-laws of society properly maintained.
* B/S & P/L examined by him are in agreement with BOA & returns of society.
(Auditor to give qualifying observations = if any of answers to above matters are Negative)
* All transactions which appear to be contrary to provisions of Act, Rules and bye- laws of society
* All sums, which ought to have been, but have not been brought into account by the society.
Schedules
* Any material, or property belonging to society which appears to auditor to be bad or doubtful of recovery.
* Any material irregularity or impropriety in expenditure or in the realization or monies due to society.
* Any other matters specified by the Registrar in this behalf.
(In the case of Nil Report in any of the above matters, the auditor will have to give a Nil Report.)
• Section 72 of the Multi-State Co-operative Societies Act, 2002 states that a person who is a CA can only be
appointed as auditor of Multi-State co-operative society.
Qualification of Auditor
• However following persons are not eligible for appointed as auditors of a Multi -State co- operative society: -
(a) A body corporate
(b) An officer or employee of the Multi-State co-operative society
(c) A person who is a member or who is in employment, of officer/ employee of Multi-State co-operative society
(d) A person who is indebted to the Multi-State co-operative society or who has given any guarantee or provided
any security in connection with the indebtedness of any third person to the Multi-State co-operative society
for amount exceeding ₹1000
(If an auditor becomes subject, after his appointment, to any, of the disqualifications specified above, he shall be
deemed to have vacated his office as such)
AUDIT OF NBFC
Section 45 I(f) of RBI (Amendment) Act, 1997 defines NBFC as: -
• Financial institution which is a company.
Meaning
• Non banking institution also being a Co. with principal business of receiving of deposits or lending.
• Other non-banking institution or class of such institutions, as RBI with previous approval
of CG may specify by notification in Official Gazette.
NON BANKING & FINANCE COMPANIES (NBFC)
(RBI Directions on Acceptance of Public Deposits = state NBFC means only non-banking institution which is
a Loan co, Investment co, Hire purchase finance co, Equipment leasing co & Mutual benefit financial co)
* Verify that credit facilities extended & investments by concerned NBFC are as per prescribed ceiling.
* Verify whether the NBFC has not advanced any loans against the security of its own shares.
* Verify that Dividend income declared is duly received & interest due accounted for.
* Check if adequate provision for fall in Value
* Verify charges received or paid in respect of securities lent/borrowed.
* Obtain confirmation from Approved intermediary on securities deposited with/ borrowed from it as at yr end
* Credit Rating = Obtain a copy of the credit rating assigned to NBFC and check whether the public
Directions by NBFC
deposits accepted/held by it are in accordance with the level of credit rating assigned to it.
Public Deposits
Compliance of
* Interest and Brokerage Payments = Test checks interest calculations & interest not in excess of specified.
* Written Application = NBFC accepted or renewed PD only after a written application from depositor
* Deposit Register = Verify it & test check the particulars entered for depositors with supporting receipts
* Repayment of Deposits = NBFC is regularly paying its deposits on due dates.
* Filling of Annual Returns = Filed its annual return in specified time i.e. before 30th June.
* Board Resolution passed if non-acceptance of public deposits
In addition to Report made by Auditor u/s 143 of Co Act, 2013, auditor shall also make Separate report to BODs of Company on matters specified in Para 3 & 4 • Whether company is engaged in business of NBFC
• Examine whether company obtained Certificate of Registration (COR) from Bank
In case of All NBFCs (Para 3) (Activity without a Valid COR granted by Bank = offence under RBI Act, 1934)
• If company holding COR issued by Bank, whether company is entitled to continue to hold such
COR in terms of its Principal Business Criteria (Financial asset/ Income pattern) as on March 31
• Whether NBFC is meeting required Net owned fund requirement as laid in Non- Systemically
Important & Non Deposit taking Company (Reserve Bank) Directions, 2016 AND Systemically
Important Non-Deposit taking Company and Deposit taking Company (RBI) Directions, 2016.
(Every NBFC to submit Certificate from its Statutory Auditor that it is engaged in business of
NBFC requiring it to hold a COR u/s 45-IA of RBI Act and is eligible to hold it = for this a
Certificate from Statutory Auditor on position of company at 31st March FY end may be submitted to
Regional Office of Department of Non-Banking Supervision under whose jurisdiction NBFC is
registered in 1 month from Date of finalization of B/S & in any case not later than December 30th)
MATTERS TO BE INCLUDED IN AUDITORS REPORT IN CASE OF NBFC
• Whether public deposits accepted by NBFC & other borrowings are in limits admissible to co
as per provisions of NBFCs Acceptance of Public Deposits (Reserve Bank) Directions, 2016.
• Whether PD held by co in excess of such deposits permissible to it under NBFCs Accept of (PD)
Public Deposits (RBI) Directions, 2016 are regularised in manner given in it.
of NBFCs Auditor’s Report (Reserve Bank) Directions, 2016
• Whether NBFC is accepting "public deposit” without minimum Investment Grade Credit Rating
from Approved credit rating agency as per NBFC Acceptance of PD (RBI) Directions, 2016.
• Whether Capital Adequacy Ratio as disclosed in return submitted to Bank has been correctly
determined & whether such ratio is in compliance with Minimum CRAR prescribed therein.
• Whether company has defaulted in paying to its depositors Interest & /or principal amount of
deposits after such Interest and/ or principal became due.
• Whether company has complied with Prudential Norms on Income Recognition, AS, Asset
classification, provisioning for bad and doubtful debts, and concentration of Credit/ Investments.
• Whether co complied with Liquid Assets requirement as prescribed by Bank.
• Whether co furnished to Bank in Stipulated period the return on deposits.
• Whether co furnished to Bank in Stipulated period Quarterly return on Prudential Norms.
• Whether BODs has passed Resolution for Non- acceptance of any public deposits.
Accepting PD (Para 3)
• Whether company complied with Prudential norms relating to Income recognition, AS, Asset
classification & provisioning for bad and doubtful debts as applicable to it.
• Whether NBFC has been correctly classified as NBFC Micro Finance Institutions (MFI)
• For Systemically Important Non-deposit taking NBFCs: -
- Whether CAR as disclosed in return submitted to Bank has been correctly arrived at.
- Whether company has furnished to Bank, Annual Statement of Capital funds, Risk
assets/ Exposures & Risk asset ratio in stipulated period.
Reasons to • Where in Auditor’s report, Statement regarding any of the items referred to in Para 3
Unfavourable above is unfavourable or qualified, Auditor’s report shall also state reasons for such
or Qualified unfavourable or qualified statement.
statements • Where Auditor is unable to express any opinion on any of the items referred to in Para
(Para 4) 3 above, his report shall indicate such fact together with reasons therefore.
If a company in business of Apart from matters enumerated above where company has obtained a
Non-Banking Financial specific advice from Bank that it is not required to hold CoR from
Institution not required to hold Bank = auditor shall include statement that Company is complying
CoR wrt certain conditions with conditions stipulated as advised by Bank.
Difference in
* NBFCs allowed to present items of B/S in order of their liquidity which is not allowed to companies
Division II
required to follow Division II. Additionally, NBFCs required to classify itemsof the balance
(Ind- AS-
sheet in financial & non-financial whereas other companies to classify items in current/ non-current.
ther than
* NBFC to separately disclose by note any item of ‘other income’ or ‘other expenditure’ > 1 % of
NBFCs) &
Total income. Division II, on other hand, requires disclosure for anyitem of income or expenditure
Division III
which exceeds 1% of revenue from operationsor 10 lakhs, whichever is higher.
(Ind- AS-
* NBFCs to separately disclose under ‘receivables’, the debts due from any LLP in which its director
NBFCs) of
is a partner or member.
Sch III
MCA vide notification dated October 11, 2018 introduced Division III under Schedule
Format for preparation of
III of the Companies Act, 2013, wherein a format for preparation of financial
financial statements by
statements by NBFCs complying with Ind- AS has been prescribed = Every NBFC
NBFCs under Ind- AS
required to comply with Ind - AS shall prepare its financial statements as per it
= Where in case of NBFC, statement regarding any of the items referred to in Para 3 is Unfavourable or qualified,
or in the opinion of the auditor the company has not complied with: -
(a) Provisions of Chapter III B of RBI Act OR (b) NBFC Acceptance of Public Deposits (RBI) Directions, 2016 OR
(c) NBFC Non Systemically Important Non Deposit taking Company (Reserve Bank) Directions, 2016 AND
NBFC Systemically Important Non-Deposit taking Co. & Deposit taking Company (RBI) Directions, 2016.
= It shall be obligation of Auditor to make a report containing details of such unfavourable or qualified statements
and/ or about the non-compliance, as the case may be in respect of co to concerned Regional Office of Dept. of
Non- Banking Supervision of the Bank under whose jurisdiction the registered office of the co is located.
* Security = Obtained & agreements entered into with concerned parties for advances given.
LOAN COMPANIES
Norms * Provision for bad and doubtful debts. * Capital adequacy norm.
* Prohibition of granting loans against its own shares.
* Prohibition on loans and investments for failure to repay public deposits.
Demand Loans Policy Ensure Board NBFC frame policy for granting demand/call loans & implement it
Classification Verify the classification of advances and loans as standard/ substandard/doubtful/loss and that
of Advances proper provision has been made in accordance with the directions.
NPA Income Ensure unrealized income from non-performing assets has not been taken to P/ L Statement
Recovery in NPA Check all NPAs of the previous years to verify whether during the current year any
Accounts payments received or still they continue to be NPA during the current year also.
``
• Failure by intermediary to enter into an agreement with client, redress grievances of investors.
• Failure by person sponsoring or carrying on collective investment scheme, including mutual funds,
without obtaining Certificate of Registration.
• Failure by Stock broker to issue contract notes in form & manner specified by Stock Exchange
• Fail to deliver security or failure to make payment of amt due to Investor, charging excess brokerage
• Failure by person to disclose aggregate of his shareholding in Body Corporate before he acquires any
shares of that body corporate & failure to make public announcement to acquire shares at minimum
price in case of takeovers.
Volatility margin is imposed to curb excessive volatility in the market and to act as a
Meaning
VOLATILITY MARGIN
• Securities that attract volatility margin & applicable margin rates are announced on
last day of trading cycle & are applicable from 1st day of succeeding trading cycle.
Application
• Volatility margin is levied on net outstanding positions of member in each security
based on respective margin rates.
% of net cumulative outstanding position in each security that member to keep with exchange at all times.
Exposure
Margin
Gross
• MTM margin is notional loss, which a member or his client would incur, if net cumulative outstanding
Mark to Market
positions in all securities were closed out at closing price of relevant trading day, which is different from
Transaction Price.
Margins
• For each security, this is worked out by multiplying difference in closing price & price at which trade
was executed by cumulative buy & sell open position
• For buy position close price being lower than actual trade price & for sell position close price being
higher than actual trade price.
• Aggregate amount computed across all securities is MTM margin payable by a member.
Deposits made by members with Stock exchange authorities. Members are required to collect
Meaning
margin from their clients & deposit same with clearing house.
• Protect members by providing them with funds to cover anticipated fluctuations to prices of securities,
if client delays same or is unable to meet his commitments.
* NSDL & CDSL keep record of ownership of securities electronically in book entry form.
* Transfer of ownership of securities is done by simple account transfers. Advantages: -
Depositories & - Liquidity of scripts (immediate transfer & register) - Bonus & right directly credited to A/c
Dematerialization - Much lower risk of bad deliveries. - Saving of stamp duty.
- No physical certificate (no risk of it being misplaced) - Saving of courier charges.
- Reduction in brokerage. - Easy settlement with clearing house.
\
* (T + 3) rolling settlement was in operation in India up to 31st March, 2003, which was switched on to “T+2”
rolling settlement system from 1st April, 2003.
Settlement
* Trades o/s at end of day are to be settled with ‘X’ business days from the transaction date.
Rolling
* T+2, transaction on Monday pay in & pay out takes place on Wednesday.
* Trades on each single day settled separately from trades done earlier or on subsequent trade days.
* Netting of trades is done only for the day & not for multiple days (as earlier in settlement period).
* It adopts VAR (Value at Risk) based margining approach.
* If member fails to deliver shares sold, exchange conducts auction session to meet short fall due to non delivery
* Regular Lot Book = Contains only regular lot orders and order do not have any attributes attached to them.
* Special Term Book = All the orders, which some special attributes, are recorded in this book.
Books maintained in
- When the trigger price is reached or surpassed, the order is released in the regular lot book.
- The stop loss conditions are met under the following circumstances.
• Buy order – a buy order in the stop loss book gets triggered when the last traded price in the
normal market reaches or exceeds the trigger price of the order.
• Sell order – a sell order in a stop loss book gets triggered when the last traded prices in
regular market reaches or falls below the trigger price of the order.
* Odd Lot Book = The odd lot book contains all orders with lot size lesser than marketable lot.
v. Spot Book – The spot book contains all orders having different settlement periods only.
• Price bands that set Upper & lower limit in which a stock can fluctuate on particular day.
Circuit
• Price band for day is a function of previous trading day’s closing.
Filters or
• SEBI directed exchanges to apply circuit filters on Scrip traded in Rolling Settlement if their price
Circuit
fluctuating > 10% of closing price of Scrip on the previous day in any direction.
Breakers
• Price bands restrict extreme price movements & resist price manipulation.
(specified
• Protect investors from extreme fluctuations in a panic market created by rumours and short term fears.
by SEBI)
TYPES
Individual security wise Market wide
To curb excessive volatility. With effect from 02-07-2001.
May be 2%, 5%, 10% or 20% based on categories of shares 3 stages of index movement 10%, 15% and 20%.
Calculated by closing price of previous trading day. Brings about trading halt in mkt. nationwide (all mkt.)
Ex: - If on 13-06-15 closing rate of AFTEC INFOSYS is ` Calculated into absolute points of index variations on
100 price band in case of 20% circuit breaker is 80 (Lower quarterly basis, based on closing index of last day of
freeze) & 120 (upper freeze). trading in a quarter.
• All orders of regular lot size or multiples thereof are traded in normal market.
(NEAT) National Exchange Automated Trading
Normal • For shares traded in compulsory dematerialised mode market lot of these shares is one.
TYPES OF MARKET
Market • Normal market consists of various book types where orders segregated as regular lot orders,
special term orders, negotiated trade orders & stop loss orders, depending on their order attributes.
Odd • An order is called odd lot order if order size is less than regular lot size.
Lot • Such orders traded in odd-lot market & not have any special terms or attributes attached to them.
Market • In this mkt. Both price & quantity of both orders (buy & sell) to exact match for trade.
Spot • Spot orders similar to normal market orders except that spot orders has differ settlement periods
Market • These orders do not have any special terms or attributes attached to them.
Auction Market Initiated by Exchange on behalf of trading members for completing Settlement process.
• NEAT system is a fully computerized screen-based trading system enabling members from across the
Meaning
country to trade simultaneously with enormous ease and efficiency by keying the order into the system.
• Single consolidated order book for each stock displays, on a real time basis, buy and sell orders
originating from all over country. • Orders are executed only if the price-quantity conditions match.
• Register of Transactions (SAUDA Book) / Daily Transaction List • Margin statements copy downloaded from Exchange.
• Journals • Copies of Pool Account Statements.
• Clients Ledger • Bank Pass Book • Copies of Settlement along with all relevant sheets.
• Margin Deposit Book • General Ledger • Copy of RC of Sub-broker issued by SEBI.
• Register of accounts of sub-brokers • Cash Book • Details of Spot Delivery transactions entered into
• Counterfoils or duplicates of contract notes issued to clients • Client database & Broker Client Agreement.
• Written consent of clients on contracts entered into as principals • Copy of Power of Attorney/Board Resolution
• Docs Register /Inward-Outward Register + particulars of shares authorizing Directors/employees to sign Contract Note
& securities received & delivered
• Basic record, which each member is required to maintain regularly on day-to-day basis.
Daily Transactions
Book) / Register of
• Contains details of name of code of client on whose behalf deals done, rate & quantity of bought/ sold.
List (SAUDA
Transaction
• Details maintained date wise. This register contains all transactions, which may be of kind mentioned: -
- Member’s own business on the Exchange - Spot transactions, etc.
- Member’s business on Exchange on behalf of clients
- Member’s business with clients on principal- to- principal basis
- Member’s business with members of other Stock Exchanges
- Member’s business on behalf of his clients with members of other Stock Exchanges.
• Contract note is a document through which a contractual obligation is established between member & client.
• Every member of Stock-exchange to issue contract notes to his clients for trades executed on their behalf.
Meaning
SEBI • Member to stamp his order sheets/records & order time be reflected in Contract Note
• Contract note should bear SEBI Registration number of member.
CHECKLIST
• Pre-printed and issued within 24 hours of execution of the trades.
for Auditors • Preserve counter-foils or duplicates of copies of contract notes issued.
• To show brokerage separately.(Total brokerage to be in limits & not > specified value of trade)
• Signed either by the member himself or his constituted attorney.
• Contract notes have been serially numbered. • No serial number has been left blank.
• Format of the Cont0ract Note is as prescribed by the Regulations of the Exchange.
Audit Procedures
• At End of the each settlement, brokerage income is credited to brokerage account appearing in general ledger.
Brokerage
• Auditor verify whether brokerage is credited for each settlement or not, failing which reasons can be inquired.
A/c
• Brokerage amt be periodically reconciled with amt on which Service tax paid as disclosed in its return
• Main source of income for members of stock exchanges, so attention to revenue recognition aspect of it.
• Brokerage income is recognized as income on basis of principles in AS 9
• Member is required to maintain it where details of all margins deposited with Clearing House to be recorded
• Book verified to ascertain if member complied with all directives on margin issued by SEBI/Stock Exchange
Margin Deposit
• Margin payments by member cross-checked with daily margin statements downloaded from Stock Exchange
Book
• Auditor applies appropriate audit procedures to satisfy self that margins properly calculated, collected & paid
• Auditor examine that margin deposit lying with the Clearing House are supported by the confirmation.
• Auditor verifies if adjustment entries of Settlement & daily margin adjusted at settlement are correctly passed
• Auditor ensures that exemptions from payment of margins of Institutional Trades have been claimed correctly
Meaning
* Member of SE to maintain separate bank account for the client’s money and their own money.
* No payment for a transaction in which member has traded on his own account be made from clients account.
BANK BOOK
* Auditor should verify the bank reconciliation statement for all the bank accounts in the usual manner.
No money can be paid * Money held or received on account of clients.
INTO clients account * Money for replacement for sum which may by mistake/ accident drawn from a/c.
other than * A cheque or draft received from a client.
No money can be paid FROM * Money for payment to Clearing Corporation / House on behalf of clients.
client’s a/c other than * Money for replacement for sum by mistake or accident deposited in client a/c
* Activity that assesses energy use pattern of factory / energy consuming equipment & identify saving chances
* Energy mgt involves the following basis approaches: - - Reducing avoidable losses
- Improving the effectiveness of energy use - Increasing energy use efficiency
ENERGY AUDIT
• Correlate trends of production or activity to energy costs. • Quantify energy costs and quantities.
Energy Auditor Function
• Devise energy database formats to ensure they depict correct picture = by product, dept., consumer, etc.
• Advise and check the compliance of the organisation for policy and regulation aspects.
• Highlight areas that need attention for detailed investigations.
• Conduct preliminary and detailed energy audits including: - - Data collection & analysis.
- Measurements, mass & energy balances. - Review energy procure practices.
- Identification of energy efficiency projects and techno-economic evaluation.
- Establishing action plan including energy saving targets, staffing requirements, implementation time
requirements, procurement issues, details and cost estimates.
- Recommendations on goal setting for energy saving, record keeping, reporting and energy accounting,
organisation requirements, communications and public relations.
• Names of transferor, transferee & dates of transfer of securities • Register & index of beneficial owners.
following
maintain
Advantages • High liquidity of Scrip as immediate transfer & registration • Reduction in brokerage
of • Receive bonus and right as direct credit to the account • Much lower risk of bad deliveries
Depository • Saving Stamp duty worth 1% of transaction price • Saving Courier & Notary charges
Services • Saving Expenses on obtaining duplicate certificates
SEBI power to appoint 1 or > persons as Inspecting officer to undertake inspection of BOA,
Regulation 59 Records, docs & infra, systems and procedures or to investigate affairs of depository for: -
• Ensure BOA maintained in manners specified in these regulation
(Board's Right • Look in complaints received from depositories participants beneficial owners or other person.
to Inspect) • Ascertain whether provisions of the Act, bye-laws, regulations are being complied wit
• Ascertain whether systems, procedures & safeguards followed in interest & to secure mkt.
• Ensure affairs conducted in interest of investors or securities mkt.
Standard scope of Environmental Audit defined and adopted by standard companies, be as follows: -
“Mgt tool comprising systematic, documented, periodic & objective evaluation of how well environmental
Scope
organisation, mgt & equipment are performing with aim of helping to safeguard environment by: -
* Facilitating mgt control of environmental Process.
ENVIRONMENTAL AUDIT
* Assessing compliance with company policies, which would include meeting regulatory requirements
• Mgt tool = Part of ICSS & used to assess, evaluate & manage environmental performance of Co.
• Aim & Scope = Green audit may be conducted for many purposes like to comply with laws or CSR
• Differ from EIA = Purpose of Environmental audit is systematic scrutiny of environmental performance
Features
• Systematic = It is a systematic process that must be carefully planned, structured & organized.
• Documented = Like any other audit, base of it its findings are supported by docs & verifiable info.
• Periodic = Conducted at pre-defined intervals as It is a long- term process.
• Objective Evaluate = It is conducted using pre-decided policies, procedures & proper documented
system but still element of subjectivity in audit as required in ISO 14001.
• Enviro Performance = To find out how well Enviro organization, mgt & equipments performing.
* Consumption of water and other raw materials as input during current and previous year
* Pollution generated in air & water & output & types of pollutants and the deviation from standard.
* Generate hazardous waste in current yr & previous yr from processes or from pollution control facility.
* Quantity of solid waste generated during current year and previous year from processes from pollution
control facility and from recycling or reutilisation of waste, etc.
* Disposal practice for different type of waste. * Practice sorted for conservation of natural resources.
* Additional investment proposal for environmental protection including abatement of pollution.
I. Executive summary
Contents of Environmental
* Audit scope = Whether it is initial audit, audit of only one site, facility or process or audit of whole Co.
* Audit criteria = National law, International agreements, Applicable standards & Industry guidelines
* Audit Team * Audit Schedule * Audit Methodology
* Audit findings * Audit conclusions and recommendations
* Annexes: - - Environment policy and action plan of organization
- Checklists - List of applicable laws and regulations
* Signature of auditor with Date & Place
• Collect Background Info • Opening conference| • Final findings evaluation Verify actions
• Define Objectives & Scope • Identify areas of concern • Submit preliminary report taken on
• Select audit criteria • Site/facility inspection • Get approval of mgt audit findings
• Select audit team members • Records/ docs review • Hold exit conference or
• Develop audit plan or use protocol • Staff interviews • Submit final report recommend
• Inform - facility • Initial review of findings
• Review background info • Closing/ exit conference
Layout & Sketched in style which will allow adequate provisions for installing pollution control devices &
Design provision for up gradation of pollution control measures & meeting regulations framed by Govt.
MAIN AREAS COVERED BY AUDITOR IN ENVIRONMENT AUDIT OF INDUSTRIAL UNIT
Mgt of It includes air, water, land, energy, raw materials & human resources besides others. Use of all
Resources resources is Inter linked & best uses in synchronised manner results best output &minimum waste.
Pollution Effective system of pollution control to exist & Investigate, whether more measures are required,
Control keeping ill view the type of industry & it’s nature of working with respect to its grade of polluting
System environment.
Medical & Healthcare Facilities Health of the workers should be a big consideration for mgt.
Requirement for safeguarding against occupational health hazards should be available for
Occupational all workers. As occupational health hazards varies from industry to industry due to
Health difference in nature of working atmosphere & pollutants present in it, concerned industry
must pay proper weight age to those diseases which are prone to that particular industry.
Info Info system should be strengthened to generate and its reporting system should be proper,
Assimilation keeping in view, the authorities, responsibilities and subsequent delegations. A report of
& Reporting compliance of all statutory environmental laws along with other preventive & precautionary
System measures should be put to Board at regular intervals.
Environmental Impact Assessment (EIA) is usually pre- requisites to start Industry. This
is done considering known spheres of activities on the existing environmental conditions.
EIA But predictions necessarily deviate from actual happenings when industry starts working.
Methodology To accommodate deviation in system is also to be incorporated in EIA report, if it is noticed
that degradation to environment caused on establishment & running of industry is much
higher than what was predicted, mitigating measures suggested must also be furthered.
Persons directly working with the system, may be unaware of the latest developments and
Compliance to
requirements for the compliance of stipulations and standards prescribed by the various
Regulatory
regulatory authorities, they should be trained and instructed on regular basis, to avoid
Mechanism
making the Board/owner vulnerable to prosecution and penalty.
Concern for Society Audit to look how industry makes balance in own development & society’s concern
* Every Asset Mgt company for each scheme to keep & maintain Proper BOA, records & docs, for each scheme.
Proper BOA
* To explain its transactions & disclose at any point of time financial position of each scheme.
* Give true & fair view of State of affairs of fund
* Intimate to Board place where BOA, records and documents are maintained.
* Every Asset Mgt Co. to maintain and preserve for a period of 8 years its BOA, records and docs.
* Asset Mgt Co. to follow accounting policies & standards as in 9th Schedule so as to provide appropriate detail
of scheme wise disposition of assets of the fund at relevant accounting date & performance in that period.
REPORT OF MUTUAL FUND
Give opinion - B/S gives True and fair view of Scheme wise state of affairs as at B/S date &
CONTENTS OF AUDIT
whether - Revenue A/c give True & fair view of scheme wise surplus/ deficit
11th Sch. on Annual • All mutual funds required to get their a/c audited to that effect in their trust deeds.
Report & abridged • Auditor‘s Report shall form a part of the Annual Report.
summary as per • To Accompany the Abridged Balance Sheet & Revenue Account.
SEBI MF Reg. 1996 • Report to Board of Trustees and not to the unit holders.
SEBI may appoint one or more persons as inspecting officer for following purposes: -
Inspection
* Books of accounts maintained by Mutual Funds * Provision of Act complied with.
and Audit
* System procedures are adequate * Provision of Act or rules violated
* Investigate into complaints * Affairs are in interest of investors
• Dividend / Bonus recognized on share quote date on Ex-div / Ex-Bonus basis on S/E. & not on declaration date
• For interest bearing investments, interest income must be accrued on a day-to-day basis.
(Mutual funds)
Inclusions in Limit = While Computing above Limit, Term borrowing will include borrowing of: -
* Packing credit * Cash credit facilities * Loans-secured & unsecured * Overdraft * Deferred payment
* Performance & Financial guarantees: -
- Bill Discounting Facilities - Other Cr. facilities (except loans, guarantee, LC, etc.)
• If No ICS = not advisable to do audit by test checks • Consider materiality aspects while auditing.
Audit Procedure
• Obtain info, explanations & access to BOA & records. • Report to Lending Bank as Special Purpose Report.
• Express opinion if FS give True & fair view of State of affairs.
• Non-corporate entity is free to choose any practising CA to conduct this audit.
• If Entity refuses to produce record/ info or explanation = Report same & qualify his report.
• Obtain letter of engagement and list of BOA & other records before taking audit assignment.
• Check compliance with terms of documents, deeds & agreements if relate to accounts & audits.
• Primary responsibility for maintenance of BOA & records & preparation of FS = of non-corporate entity.
• Tax assessments & payments made in quarter. • Actual disbursement of capital exp in quarter.
& Bills of Exports)
• Cash losses in last 2 yrs stated on basis of annual a/c. If such a/c not audited this fact stated.
• Outstanding contracts on capital a/c at end of quarter giving details of names of parties & amt
• Balances at end of each month of quarter for major categories of stock, receivables & B/R
• Investment in quarter & income from such investments including profit on sale of investments.
• Contingent liability which may or may not materialize in FY succeeding relevant quarter.
• Loans raised in quarter from banks & from others. (Separate figures given)
* If auditor finds Funds obtained from lending banks diverted for purposes other than for which they
were given by bank = auditor to give details of diversion for such other purposes
Funds
* Lending bank to ascertain correct financial position & health of entity as auditor give info of: -
From
• Current ratio • Acid test ratio • RM-turnover ratio • FG-turnover ratio
Bank
• Receivables-Turnover ratio • Interest cover ratio • Net margin ratio • Debt equity rat
• Capital turnover ratio • Operating cash flow. • ROI
-
• A lending bank may, in special cases, require the non-corporate entity to obtain special report from auditor.
Meaning
• Such report can be called by lending bank if it finds it is necessary to have more info about working of Co
• In such a case the report will have to be given by the auditor on a quarterly basis.
• Special audit report which is to be given on a quarterly basis in the specified form is in addition to normal
audit report which is to be given by the auditor on a yearly basis.
AUDIT OF PSUs
COMPREHENSIVE AUDIT OF PSU
Audit of PSUs in India covers financial and compliance audit Plus 3 E's- Economy, Efficiency and Effectiveness.
Subject matter,
Three parties criteria & Types of
subject matter engagement
Info
Direct
Auditor Responsible Intended Attestation
party users Engagements Reporting
Engagement
• Auditor = Role of auditor fulfilled by Supreme Audit Institution, India & its personnel delegated
Responsible Party &
3 parties = Auditor,
to conduct audits.
Intended users
• Responsible party
- The relevant responsibilities are determined by constitutional or legislative arrangement.
- Auditable entities & TCWG of auditable entities be responsible parties.
ELEMENTS OF PSU AUDIT
- Responsible for subject matter info, to manage subject matter/ address recommendations.
• Intended users = Individuals, org or classes thereof for whom the auditor prepares audit report.
Subject • Subject Matter = Info, condition/ activity measured/ evaluated against certain criteria
PSU AUDIT
Matter,
• Criteria = Benchmarks used to evaluate the subject matter.
Criteria &
Subject • Subject Matter Info = Outcome of evaluating or measuring subject matter against criteria.
Matter Info
• Attestation Engagements = Responsible party measures subject matter against criteria & presents
Engagement
subject matter info, on which auditor then gathers sufficient and appropriate audit evidence to
Types of
Public Sector auditing augments confidence of intended users by providing relevant info & independent &
objective assessments concerning deviations from accepted Standards or Principles of Good Governance.
Financial audit is primarily Compliance audit is Independent assessment of whether a given subject matter is
concerned to: - in compliance with applicable authorities identified in criteria.
• Express Audit opinion on FS Compliance audit is concerned with: -
• Enhance Degree of confidence of • Regularity = adherence to laws, regulations & agreements applicable to entity.
intended users in FS. • Propriety = observations of General principles governing sound financial mgt
& ethical conduct of public officials.
C&AG to express opinion whether Perspective of compliance audit: -Compliance Auditing is conducted either: -
FS prepared , in all material • In relation with audit of financial statements OR
respects as per applicable FRF. • Separately as individual compliance audits OR
• In combination with performance auditing.
• Verify transactions on the test of public interest, commonly accepted customs & standards of conduct.
Meaning
* Expense is not prima facie more than the occasion demands and same degree of vigilance is exercised
“Propriety
audit’ of
* Authority exercises power to sanction expenses to pass order which not accrue to its own advantage.
* Funds not utilized for benefit of a particular person/ group.
* Apart from agreed remuneration, no other avenue to benefit mgt personnel, employees & others
• Fiscal Accountability = Includes audit of provision of funds, sanctions, compliances & propriety.
Objectives • Managerial Accountability = Includes audit of efficiency, economy and effectiveness.
& Scope of = Also to help the Government & enterprise mgt improve their efficiency and effectiveness.
PSU Audit = Bringing out financial & operational deficiencies, inadequacies or ineffectiveness of systems, shortfalls
in performance, etc. and by analyzing the causes of shortfall from acceptable standards of performance.
Systematic examination for independent assessment of performance of Govt. org program or activity
Meaning so as to improve public accountability (Includes economy & efficiency of program audits)
• Identify criteria needed to evaluate matters subject to audit. • Consider mgt controls.
• Provide Sufficient Staff & other resources to do audit. • Prepare Written Audit Plan.
• Identify significant findings & recommendations of previous audits affecting current audit objectives.
• Determine if mgt corrected conditions causing those findings & implemented those recommendations.
• Identify potential sources of data that could be used as audit evidence & consider validity & reliability
of these data, including data collected by audited entity, data generated by auditors or data provided
by 3rd parties.
• Consider whether work of other auditors & experts may be used to satisfy some of auditors' objectives.
PERFORMANCE AUDIT
Committee (PAC)
= Duty of the PAC to examine Statement of A/c of autonomous and semi- autonomous bodies, audit
Public Accounts
of which is conducted by C & AG either under the directions of the President or by a Statute of
Parliament.
= Duty of PAC to satisfy itself: -
• Moneys were disbursed legally on service or purpose they were applied.
• Expenditure was authorized.
• Re-appropriation made as per provisions made (i.e. distribution of funds).
Functions of • Examine reports & accounts of public undertakings • Examine efficiency of PSUs
Committee on • Examine reports of Comptroller & Auditor General on public undertakings
Public • Exercise such other functions as may be allotted by Speaker from time to time.
Undertakings • See they are managed as per sound business principles & prudent commercial practices.
SECTIONS STEPS
• Sec 139(5): Appointment of Auditor other than 1st Auditor. * CAG appoints auditor & direct such auditor manner in which
• Sec 139(7): Appointment of First Auditor. accounts of Government co are required to be audited.
• Sec 143(5): Duties of Auditor of Government Companies * Auditor so appointed = submit a copy of audit report to CAG
• Sec 143(6): Powers of CAG to order Supplementary Audit. which, among other things, including following: -
• Sec 143(7): Powers of CAG to order Test Audit. - Directions issued by CAG.
- Action taken & its impact on Accounts & FS
• Independent mgt function involving continuous & critical appraisal of functioning of entity with a view to suggest
Internal Audit
improvements thereto and add value to and strengthen overall governance mechanism of entity, including entity’s
strategic Risk Mgt & ICS.
• Internal auditing need not be confined to financial transactions & its scope may be extended to task of reviewing
whether resource utilization of enterprise is efficient & economical.
• Internal Auditor to review & report but not expected to take upon himself functions of operational managers.
• Compliance by various segments with Policies, plans & procedures of Co. & regulations and laws.
• System of collecting data = ensure info given to mgt & to external agencies is relevant & reliable.
• Org structure of the enterprise and its congruence with its objectives.
• Efficient & economical use of available resources tangible as well as intangible.
On basis of such review, Internal auditor highlights weaknesses & suggests for Improvement in Report
* Special expertise necessary for evaluating mgt control systems, especially financial &accounting controls.
* Accounting and finance functions provide basic data for management control of an enterprise.
Internal Auditor
Qualifications of
* Internal auditor must have accounting and financial expertise to be able to discharge his duties.
* Evaluate operational performance and non-monetary, operational controls.
* Basic knowledge of the technology and commercial practices of the enterprise.
* Basic knowledge of Commerce, Laws, Tax, Cost, economics, quantitative methods &EDP systems.
* CA/ CWA/ Other Professional as decided by BODs (not Doctor/ lawyer)
* Understanding of mgt principles & techniques is another essential qualification of Internal auditor
* Provide an assurance to the management that confidentiality of such information would be maintained.
“Factors of
• Scope of work and related audit programme are adequate for the external auditor’s purpose.
Review of
• Work is properly planned & work of assistants is properly supervised, reviewed, and documented.
Internal
• SAAE is obtained to afford a reasonable basis for conclusions reached.
audit
• Conclusions reached appropriate in circumstances & reports consistent with results of work performed.
function by
• Any exceptions or unusual matters are disclosed by the internal auditor’s procedures.
Statutory
• External auditor should document his conclusions in respect of the specific work which he reviewed
Auditor”
Review of Internal • Review custodianship & safeguarding of assets • Review goals & objects
Control System (ICS) & • Review comply to policies, plans, procedures & regulations • Review use of resources
Procedures • Review relevance and reliability of information • Review org structure
• Objectivity = Maintain credibility of internal audit function; comments & opinions expressed
in the report should be as objective and unbiased as possible.
General • Clarity = Language used should be simple and straight-forward.
Rules/ • Accuracy = Information contained in the report, whether quantified or otherwise be accurate.
Features • Conciseness = Important information should not be omitted.
of Good • Constructive = Destructive criticism should carefully be avoided in the report.
Quality • Readability = Reader’s interest be captured & retained by using Appropriate Para heading
Internal • Timeliness = Submitted promptly as if time lag in event & its reporting is considerable,
Audit opportunity for taking action lost or a wrong decision taken in absence of Info.
Report • Views = Client views about audit conclusions or recommendations included
in Audit report in appropriate circumstances.
• Summary = Of Conclusions & recommendations at end (particularly useful in long reports)
• Identify benchmarks against which actual results of activities, time spent, cost incurred be measured
specifying Coverage
Internal audit plan
• Degree of reliance he expects to be able to place on accounting system and internal control
• Terms of engagement & statutory responsibilities • A/c policies adopted by client & changes in them
• Applicable legal or statutory requirements • Identification of significant audit areas
• Determining NTE of procedures to be performed • Setting of materiality levels for audit purposes
• Establishing and coordinating staffing requirements • Method to physically verify cash & investment
Staff / * Mgt auditors are staff people while members of other departments are line people.
Possible Solutions to overcome these problems
Line * They to discount difficulties line staff may face, if called on to act on ideas of mgt auditor
conflict * They are specialists in their field & may think their approach & solutions is only answer
* Demonstrate that audit is part of overall programme of review for protective benefit
behavioural
Solution to
Effectiveness
Efficiency: - Review of efficiency in mgt decisions & functions and to judge whether: -
& Efficiency
• Management is doing the correct things
• Management is doing those things correctly.
• Managerial problems & related operational difficulties can be spotted before fact
• Mgt tool to assist the organization in accomplishing desired objectives.
• Helpful in case of ailing industries, to isolate problems and account for their ailments.
• Important if such industries are either to be taken over by government or to be heavily financed by
financial institutions with a view to bring back vigour in them.
Develop Mgt * Devising Statement of policy * Location of audit function in org * Allocate personnel
Audit Program * Staff training programme * Time and other aspects * Frequency
• Getting the facts through interviews • Measuring performance by Mgt Audit Questionnaire
Conduct • Once top mgt has decided on scope, staffing & frequency of mgt audit, next phase is
Mgt undertaking of actual audit.
• This involves investigating & analyzing present facts through interviews as well as
Audit
STPES
• Prepare Mgt audit report that covers details of mgt auditor’s findings & recommendations
Conclude Mgt
• To assist in preparation of final report mgt auditors normally meet with mgt & other concerned
personnel for discussing freely aspect or finding of audit.
Audit
• Assists independent 3rd party in bringing together important elements of audit as well as
determining appropriate recommendations.
• Comprehensive investigation involves report that is very broad in scope, while a smaller-scale
investigation of 1 or 2 functional areas will result in a less comprehensive report.
Serves as mgt tool to analyze current situation & enables mgt auditors to identify those
Importance
elements that are causing org. difficulties and deficiencies.
Meaning • Written report is the medium by which the comments, criticisms and recommendations of mgt audit
department are conveyed to the Board, to functional directors and to mgt in general.
• Mgt audit reports will inevitably cover a wide variety of subjects, reflecting the many and ever
increasing ramifications of mgt audit departments.
* Periodical reports prepared by senior members of mgt audit department which summarize main audit
findings & recommendations for the period under consideration and which afford a concise review of
department’s activities for that period.
MANAGEMENT AUDIT REPORTS
* Reports on the results of special investigations and inquiries. * Annual audit report.
* In many situations, reporting of results will be on oral basis& required a result of emergency needs.
reports
Interim * When deemed advisable to inform mgt of significant developments during audit or at least
written preceding release of regular report.
* Pertain to especially problems where need for early consideration or report may be of
reports
TYPES
progress nature.
Concerned with review & appraisal of operations of organization Concerned with Determining whether other
carried on by competent independent person. internal controls are well designed and in place.
Not part of Internal Control System (ICS) Part of internal control system.
Constructive function (provide suggestions for improvement) Protective function (safeguard assets of enterprise)
Analyzes all aspects of operations whether they are in tune with mgt Focuses more on Quantitative aspects.
policies, objectives & Goals.
• Audit is review & appraisal of operations of org. conducted by competent independent person.
Meaning • It analyses regular operations like production, purchases, sales etc. to check whether they are in tune
with company’s policies, objectives & goals or not.
• It focuses more on Qualitative aspects of operations rather than regular accounting aspects.
• Operational auditing arose from need of managers responsible for areas beyond their direct
observation to be fully, objectively & currently informed about conditions in units under control.
Need/ Why
• Traditional sources of info remain ineffective where mgt is at a distance from actual operations due to
layers of delegation of responsibility, separating it from actualities in the organization.
• It is specialized mgt info tool to fill the void that conventional info sources fail to fill.
• Conventional sources of Mgt info are departmental managers, routine performance report, internal audit
reports & periodic special investigation and survey.
* Appraisal of objectives & plans = In Performance Appraisal, operational auditor accumulates info &
evidence to measure effectiveness, efficiency & economy with which operations carried on.
* Appraisal of org. structure = Consider whether structure is in conformity with mgt objectives & drawn
up on basis of matching of responsibility & authority.
Factors • Job Stress & work life imbalance • Wrong policies of Mgt
considered for • Unbearable behaviour of Senior Staff • Safety factors
Analysis of • Limited opportunities for promotion • Low monetary benefits
high employee • If organization has properly qualified & experienced personnel for various levels of works?
attrition rate • Is number of people employed at various work centres excessive or inadequate?
• Deals with > 1 functions in organization like payroll for division or for company as whole.
Functional • Permit specialization by auditors as more efficiently spend all their time auditing in that area.
Audits
• A disadvantage of functional auditing is the failure to evaluate interrelated functions.
Management Audit & Operational Audit are complementary & supplementary to 1 another
Since Having large area of overlapping jurisdiction it may be convenient to consider them together to avoid duplication. So
expression “Mgt & operational audit” acceptable as Mgt audit including in its scope all elements of operational auditing
AUDIT OF DIVIDEND
Check if dividend declared out of profits after depreciation u/s 123(2) of Act & whether: -
Steps to ensure Dividend
Paid only out of profit
* Depreciation provided as per Schedule II to Act * Board resolution recommending dividend passed.
* Dividend was declared only in AGM. * Register of members was closed u/s 91 of Act.
* Dividend declared in GM not > amt recommended by Board.
* Amount paid/ credited as paid on Share in advance of calls = not treated as paid on share.
* Dividend paid in prescribed manner in 30 days of time u/s 123(5).
* Dividend deposited in Separate Bank A/c in 5 days from Date of declaration of dividend.
* Intimation sent to Stock Exchange in case of listed company.
* If corrective action taken on complaints of non-payment/ delayed payment of dividend?
• Examine MOA & AOA to ascertain dividend rights of different classes of shares
• Confirm dividend is made out of distributable profits u/s Sec. 123.
Steps to Verify/ Audit
• If dividend made out of reserves, examine compliance of conditions as set out in rules.
• Inspect shareholders’ Minute Book to verify dividend declared.
Dividend
• Examine if dividend payable is deposited in Separate bank a/c in 5 days of declaration of dividend.
• Check particulars of members as entered in Dividend List by reference to Register of Members.
• Check amount of dividend paid with dividend warrants surrendered.
• Verify if dividend unclaimed or unpaid in 30 days of declaration = transferred to “Unpaid Dividend A/c”
in 7 days from date of expiry of 30 days.
• Verify if Unpaid or unclaimed dividend amt after 7 years from date of transfer = transferred to IEPF.
* Where instrument of Transfer of shares delivered to company for registration &Transfer of shares
& Bonus Shares Held In
Registration of Transfer
Dividend, Rights Shares
Section 126 (Right Of
- T/f dividend on such shares to Unpaid Dividend A/c unless co. authorized by Registered
of Shares)
holder in writing to pay such dividend to Transferee specified in such instrument of transfer
- Keep in abeyance on such shares = offer of rights shares & issue of fully paid-up bonus shares
* Final Dividend once declared in AGM cannot be revoked by BOD.
* Before declaration of dividend in AGM = dividend recommended by BOD may be revoked for
just & proper reasons
Payment of Dividend)
If inadequacy/ absence of profits in any year, a co may declare dividend out of free reserves if: -
Co. (Declaration &
* Rate of dividend declared not > Average of rates of dividend declared by it in 3 yrs
Rules, 2014
immediately preceding that yr. (This N/A if co not declared dividend in each of 3 PFYs)
(SEC 123) DECLARATION OF DIVIDEND
* Total amount to draw from accumulated profits not > One-Tenth (10%) of paid-up s/c & free
Reserves as appearing in latest Audited FS
* Amount drawn 1st be used to set off loss in FY in which dividend is declared before dividend
on equity shares is declared.
* Balance reserves after withdrawal not to fall below 15% of paid up s/c as in latest Audited FS.
• BODs may declare Interim Dividend during any FY till holding AGM out of Surplus in P/L or
out of profits of FY for which such Interim dividend is sought to be declared OR out of profits
123(3)
of FY till end of quarter immediately preceding date of declaration of Interim dividend
Interim
• If company incurred loss in Current FY up to end of quarter immediately preceding date of
Dividend
declaration of Interim dividend, such interim dividend not declared at Rate > Average dividends
declared by company in immediately preceding 3 FYs.
123(4) Dividend (including interim dividend) = to be deposited in Scheduled bank in Separate a/c in 5
Depositing days from Date of declaration (N/A to Govt. Co where entire paid up s/c held by CG/ SG(s) or
Dividend both)
123(5) • Dividends paid in Cash/ CHEQUE/ Warrant/ E- Mode to Registered shareholder/ his banker
Payment • 123(5) not prohibits capitalization of profits/ reserves for issuing fully paid-up bonus shares
of • This sub-section N/A to NIDHI Company. But any dividend payable in cash may be paid by
dividend Crediting same to account of member, if dividend not claimed in 30 days from date of declaration
* Every Director of company if * Dividend not paid by operation of law. To NIDHI company where dividend
knowingly a party to default = * Shareholder directions to co. on payment payable to member is < ₹100 &
punishable with imprisonment of dividend & those directions can’t be sufficient compliance of provisions of
up to 2 yrs & Fine > ₹1,000 for complied & same is communicated to him. section, if declaration of dividend
every day that default continues * Dispute on Right to receive dividend. announced in local language in 1 Local
* Company to pay Simple * Dividend lawfully adjusted by company newspaper of wide circulation &
interest @ 18% p.a. for time against any sum due to it from Shareholder displayed on Notice board of NIDHIS
default continues. * For other reason failure to pay dividend or for at least 3 months.
to post warrant wasn’t due to default of co.
• General revenue a/c of CG transferred to account u/s 205 remaining unpaid/ unclaimed on
commencement of Act.
• IEPF lying u/s 205C of Co. Act 1956.
• Income from investments as Interest or other income on investments of Fund.
• Amount received on disgorgement or disposal of securities.
• Application money got for allotment of securities & due for refund + Interest accrued
• Matured deposits with companies other than banks + Interest accrued
• Matured debentures with companies + Interest accrued
SECTION 125 (INVESTOR EDUCATION AND PROTECTION FUND (IEPF)
• Amt of sale proceeds of fractional shares of bonus shares, merger & amalgamation for 7 or more yrs.
• Redemption amount of preference shares remaining unpaid/ unclaimed for 7 or more years.
• Refund of unclaimed dividends, matured deposits & debentures, application money refund & interest
Utilization of Fund
thereon.
• Promotion of investors’ education, awareness and protection.
125(3)
• Distribution of amt to eligible & identifiable applicants for shares/ debt holders/ depositors who
suffered losses due to wrong actions by person as per orders by Court.
• Reimbursement of legal expenses on suits by members, debt-holders or depositors as sanctioned by
Tribunal.
• Other purpose incidental thereto as per rules as prescribed.
125(4) Application of Person claiming amount u/s 124(2) = may apply to Authority u/s 125(5) for
Claim payment of money claimed.
125(5) Authority for CG constitutes by notification = Authority for admin of IEPF consisting of
admin of fund Chairperson & other members not > 7 & CEO as CG may appoint.
125(6) Handling Manner of admin of Fund, appointment of chairperson, members & CEO and holding of
Fund meetings of authority = as per rules prescribed under IEPF Authority Rules, 2016.
125(7) CG Provides CG may provide to authority such offices, officers, employees & other
Resources to Administer resources as per IEPFAuthority (Appointment of Chairperson & Members,
fund holding of meetings & provision for offices & officers) Rules, 2016.
125(8) C&AG Authority to administer Fund & maintain separate a/c & relevant records in
consultation relation to Fund in form as prescribed after consultation with C& AG.
125(9) Right of Authority Competent for authority constituted u/s 125(5) to spend money out of Fund to
to spend money carry objects.
125(11) Authority to prepare in form & at time for each FY as prescribed its annual report giving full
Annual account of activities during FY & forward copy to CG & SG & to be laid before each House of
Report Parliament
124 (1) = T/f to * Declared dividend not paid/ claimed in 30 days from Declaration
Unpaid * T/f dividend remaining unpaid/ unclaimed to Special A/c (to be opened by company in that
Dividend A/c behalf in scheduled bank as “Unpaid Dividend A/c” ) in 7 days from expiry of said 30 days.
Particulars
Company in 90 days of making any transfer of amt u/s 124(1): -
Statement
124 (2) =
• Prepare Statement of Names, last known addresses & unpaid dividend payable to each person &
of
SECTION 124 (UNPAID DIVIDEND ACCOUNT)
124(3) • If default in transferring Total amount/ part thereof to Unpaid Dividend A/c = Pay from Date of
Default default = Interest on it @ 12% p.a. &
in T/f • Interest on it to benefit Members of company in proportion to amt remains unpaid to them.
Person claiming entitlement to money transferred u/s 124(1) = may apply to
124(4) Apply for Claim
company for payment
* Any money transferred to Unpaid Dividend A/c remaining unpaid or unclaimed for 7 yrs from
124(5) Date of such transfer
T/f to * Transferred to Investor Education & Protection Fund (IEPF) with interest to Fund u/s 125(1)
IEPF * Company to send Statement of details of transfer to authority which administers said Fund
* That authority to issue Receipt to company as evidence of T/f.
124(6) * All shares on which dividend not paid/ claimed for 7 consecutive years or more = transferred
Transfer of in name of IEPF with Statement of details.
shares to * Any claimant of shares transferred above = entitled to claim shares from IEPF by procedure
IEPF on submission of docs prescribed.
Prohibition Co. having license u/s 8 (Formation of Company with Charitable objects) of Act are prohibited from
on Sec 8 Co. paying any dividend to members (their profits to be applied only for promoting objects of company)
LIABILITIES OF AUDITOR
Over the Co & Officer in Company = Fine from Rs. 25,000 to Rs. 5 Lac
Sec. 147 – Punishment for Contravention
Sec 34 = Criminal Where prospectus circulated/ issued/ distributed (CID) including statement which is
Liability for untrue or misleading or inclusion or omission of any matter is likely to mislead = Every
CRIMINAL LIABILITIES IN CO ACT
Misstatements in person who authorize issue of such prospectus = Liable u/s 447 (Fraud)
Prospectus
Sec 448 = Criminal If in Return, Report, Certificate, F.S., Prospectus, Statement or Other doc under this law,
Liability for any person makes statement: -
(a) Which is false in material particulars, knowing to be false. OR
making False
(b) Which omits material fact, knowing it to be material.
Statement = Liable u/s 447 (Fraud)
• Person convi-cted of offence connected with Income Tax proceeding or on whom penalty
LIABILITIES UNDER INCOME
If any person: -
* Who is Legal practitioner or accountant is found guilty of misconduct in professional capacity
by any authority entitled to institute disciplinary proceedings against him = order passed by that
authority shall have effect in relation to his right to attend before an income-tax authority as it
has in relation to his right to practice as a legal practitioner or account, as the case may be
* Who is not a legal practitioner or an accountant, is found guilty of misconduct in connection
with any income-tax proceedings by the prescribed authority = prescribed authority (Chief
Commissioner or Commissioner having requisite jurisdiction) may direct that he shall be
disqualified to represent assesse.
LIABILITIES UNDER INCOME TAX ACT, Any person who acts or induces another person to make & deliver to Income Tax
Authorities false account, Statement, or Declaration relating to any Taxable income
Sec 278 = False knowingly false or does not believe to be true is punishable with =
Representation * FINE + Imprisonment = 6 months - 3 years = Tax, penalty or interest evaded > 25000
& Willfully accept/ attempted it
* FINE + Rigorous Imprisonment = 3 months - 2 years = In other case
Sec 271 J
1961
• Business Turnover/ Total Sales/ Gross receipts > Rs.1 Cr in any previous yr {Clause (a) of 44 AB) OR
Audit u/s 44 AB
• Person carrying business referred u/s 44AE/44BB (Exploration of mineral oil)/ 44BBB (Foreign co engaged
in Civil Construction) & declaring lower income than prescribed under those sections in PY
{Clause (c) of 44 AB). OR
• Person carrying business u/s 44 AD & declaring lower income than 44 AD & his income > max exempted
limits.{Clause (d) of 44 AB}
TURNOVER
• Goods imported duty free or payment at concessional rates without properly complying with conditions
• Valuation Issues – valuation not in line with customs rules
• Valuation of goods not removed using valuation methods not in line with Central Excise Valuation Rules.
• Ignoring Liability under Service Tax on services provided or availed
• Passing on of duty suffered on imported goods and of locally manufactured goods in excess of actual.
• Utilisation / Availability of credit of duty/ tax paid on inputs, capital goods of input services.
Clause 31 (a) = Particulars of each loan or deposit > limit specified in Sec 269SS taken or accepted in previous year: -
* Name, address & PAN (if available with assesses) of lender or depositor * Amount of loan or deposit taken or accepted
* Whether loan or deposit was squared up in previous yr * Max amt outstanding in a/c at any time in previous yr
* Whether loan or deposit taken or accepted by CHEQUE/ DD/ ECS through bank account
* If loan or deposit was taken or accepted by CHEQUE/ DD, whether same was a/c payee cheque
(These particulars not be given if Govt. co, bank or corporation established by CG, SG or Provincial Act)
Clause 31 (e) = Particulars of repayment of loan or deposit or specified advance > limit specified in Sec 269T received by
CHEQUE/ DD which is not account payee during previous year: -
* Name, address & PAN (if available with assesses) of lender or depositor
* Amt of loan or deposit or specified advance received by CHEQUE/ DD which isn’t a/c payee cheque in previous yr
* Whether loan or deposit was squared up during previous year
NOTE: - * Sec 269 SS of Income Tax Act = Loan/ deposit > Rs 20,000 to be only by CHEQUE/ DD/ ECS
* Sec 269 T of Income Tax Act = Loan/ deposit > Rs 20,000 to be only by CHEQUE/ DD/ ECS
* Sec 44AB apply when turnover exceeds Rs 1 Cr but benefit 44AD is available (i.e. option of 8% presumptive
income or 6 % if digital payment is made) if turnover is up to Rs 2 cr.
* Sec 44AD tax audit N/A to commission income.
Clause 13 (d) = Whether Adjustment is required to be made to the profits or loss for complying with provisions of income
computation and disclosure standards notified under section 145(2).
Clause 13 (e) = If answer to (d) above is in the affirmative, give details of such adjustments: -
S.N. Particulars Increase in profit Decrease in profit Net effect
ICDS I Accounting Policies X X X
ICDS II Valuation of Inventories X X X
TOTAL XX XX XX
1 Name Clause: - Person whose accounts are being audited u/s 44AB to be given.
2 Address Clause: - Address same as communicated by Person to Income-tax Dept. for assessment purposes
as on date of signing of audit report.
3 PAN allotted to Person indicated. (in E-filing = PAN is mandatory)
Details of IDT Registration (Person liable to pay IDT like Excise, Service Tax, GST, VAT, Custom
4 (If yes, please furnish Registration no. or any other identification number allotted for same)
5 Status of Person mentioned (Individual, HUF, Co, Firm, AOP etc)
6 Previous Year (Period of previous year to be stated)
7 AY relevant to previous yr for which accounts being audited = mentioned.
8 Under which Clause of Sec 44AB audit conducted = mentioned by auditor.
(a) If firm or AOP, indicate names of partners/members & PSR.
9 (b) If change in partners/ members/ PSR since last date of preceding year = particulars of change.
(a) Nature of business or profession
10 (If > 1 business or profession carried in previous year = Nature of every business or profession)
(b) If change in nature of business or profession = particulars of such change.
(a) Whether BOA prescribed u/s 44AA (If yes = List of books so prescribed)
(Example: - Mentioning Stock book and register not maintained).
(b) List of BOA maintained & address at which BOA are kept.
11 (In case BOA maintained in a computer system, mention BOA generated by such computer system. If
BOA are not kept at 1 location, please furnish Addresses of locations along with details of BOA
maintained at each location)
(c) List of BOA & nature of relevant documents examined.
Whether P/L includes any profits & gains assessable on presumptive basis.
12 {If yes indicate amt & section (44AD, 44AE, 44AF, 44B, 44BB, 44BBA, 44BBB, etc)}
(a) Method of accounting employed in previous yr
(b) Whether change in method of accounting employed in comparison to method in previous yr
13 (c) If answer to (b) above is in affirmative = give details of such change & effect thereof on P/L.
(d) Details of deviation in method of accounting employed in previous yr from AS prescribed u/S 145
& effect on P/L.
(a) Method of valuation of closing stock employed in previous yr.
14 (Link with AS-2 i.e. FIFO to LIFO but if change is LIFO to FIFO = reporting required but we will
mention that this is a bona fide change and meets requirement of AS-2.)
(b) If deviation from method of valuation prescribed u/s 145A & effect on P/L
Amounts not credited to P/L being: -
(a) Items falling in Scope of section 28.
(b) Performa credits, drawbacks, refund of duty of customs or excise or service tax or sales tax or VAT
(c) Escalation claims accepted during the previous yr.
(d) Any other item of income.
16 (e) Capital receipt (i.e. Capital receipts Taxable u/h PGBP & not Capital Gain) {CG goes CP}
• C = Capital subsidy in nature of promoters contribution. • G = Govt. Grants for Fixed Assets.
• C = Compensation for surrender of Certain Rights. • P = Profit on Sale of Fixed Assets.
Where any land or building or both is transferred during the previous year for a consideration less than
17 value adopted or assessed or assessable by any authority of SG referred to in section 43CA or 50C, please
furnish: - Details of property ,Consideration received or accrued, Value adopted or assessed or assessable.
18 Particulars of depreciation allowable in Income-tax Act, 1961 of each asset or block of assets.
19 Capital exp on scientific research assets & entire Sec 35 series of PGBP & 32 AC, AB, ABA.
(a) Furnish details of amt debited to P/L, being in nature of capital, personal, advertisement exp etc.
(i.e. Any expenditure not disallowed u/s 37 or personal expense not debited in P & L.
(Ex: - Expenditure incurred on club, If same is incurred by co to meet personal exp of Director report.)
(b) Amounts inadmissible u/s 40(a) (i.e. when TDS not deducted or not deducted in due date = give details
21 of amt ,date of payment, Name & Address of payee)
(c) Amt debited to P/L = interest, salary, bonus, commission or remuneration inadmissible u/s 40(b)/ 40(ba)
(d) Disallowed income/ expenses i.e. Disallowance/deemed income under section 40A (3).
(i.e. Cash payment> Rs.10000.However exceptions given in Rule 6DD must be kept in mind).
22 Amt inadmissible u/s 23 of Micro, Small & Medium Enterprises Development Act, 2006.
Particulars of payments made to persons specified under section 40A (2) (b) (Related party).
23 Example: - Rent paid to brother-Report in form 3CD.
Also check if payment is excessive (> FMV or legitimate needs of business).
24 Amounts deemed to be Profits& Gains u/s 32AC, 33AB or 33ABA or 33AC
25 Amt of profit chargeable to tax u/s 41 & computation thereof.
In previous yr person received property (share of co not being co in which public are substantially
28 interested) without consideration or for inadequate consideration u/s 56(2) (vii a) & If yes = furnish details
29 In previous yr Person got consideration for shares > FMV us/ 56(2) (vii b) & If yes = Furnish details of it
Particulars of each loan or deposit in amt > limit us/ 269SS (taken or accepted >20000) or 269 T
31 (repayment > 20000) in cash. (Furnish details such as PAN, Amount, Name, Address & Payment Mode. )
Details of brought forward loss or depreciation allowance, incurred any speculation loss, incurred any loss
32 referred to in Sec 73A on any specified business in previous yr, change in shareholding due to which losses
can’t be allowed to be carried forward u/s 79.
33, 34 If Person is required to deduct or collect tax, furnished statement of tax deducted or tax collected in
prescribed time, liable to pay interest u/s 201(1A) or section 206C(7).
• When accounts are revised in following circumstances, Tax Auditor to revise his Tax audit report also.
REPORT
• Revision of accounts of a company after its adoption in the annual general meeting.
• Change in law with retrospective effect.
• Change in interpretation of law (e.g.) CBDT Circular, Notifications, Judgments, etc.
• Tax Auditor to state it is Revised Report & clearly specify reasons of revision & refer to earlier report.
• Clarification issued by Institute on Tax Audit Assignments = Tax audit reports may be signed by partners in
by ICAI
Where any expenditure in respect of which payment is made in excess of 10,000 at a time otherwise than by
40 A(3)
Account-payee cheque or draft, 100% of such payment shall be disallowed.
Clause 30A =
30A (a) Whether primary adjustment to transfer price in 92CE = been made during PY? (Yes/No)
30A (b) If yes, please furnishthe following details: -
* Under which clause of 92CEprimary adjustment is made? * Amount of primary adjustment:
* Whether excess money available with associated enterprise is required to be repatriated to India as per 92CE? (Yes/No)
* If yes, whether the excess money has been repatriated within the prescribed time (Yes/No)
* If no, imputed interest income on such excess money which has not been repatriated in prescribed time.
Clause 30Ahas been introduced, requiring reporting of primary adjustments & various other details, for making secondary
adjustments 92CE. 92CE for secondary transfer pricing adjustments, introduced by Finance Act 2017 from AY 2018-19
It requires making of secondaryadjustmentin certain cases where primary transfer pricing adjustments made. These cases
are where transfer pricing adjustment has been: -
* Made by the taxpayer of his own accord in his return of income
* Made by the assessing officer and accepted bythe taxpayer
* Determined under an Advance Pricing Agreement entered into by the assessee under section 92CC
* Made as per Safe Harbour Rulesframed under section 92CB
* Arising as result of a resolution of an assessmentunder Mutual Agreement Procedure under DTAA entered in 90 or 90A.
No secondaryadjustmentisrequired if the amountof primaryadjustmentmade in anyprevious year doesnot > 1 crore. Due to
the primaryadjustment, if there is an increase in the total income or a reduction in the loss of the assessee, adjustment
(difference between the arm’s length price and the actual transaction price) is regarded asexcessmoneyavailable with
associated enterprise, and is to be repatriated to India within the prescribed time. Rule 10CB provides for a time limit of 90
days for repatriation of the excessmoney. Where the excessmoneyis not repatriated to India within the prescribed time, it is
deemed asan advance to the associated enterprise and interest is to be computed on such advance in the prescribed manner,
asa secondaryadjustment. Secondaryadjustmentsare applicable onlyin respectof transfer pricing adjustmentsrelating to
international transactions, and notin respectof domestic transfer pricing adjustments.
Clause 30A requires reporting of whether primaryadjustmentto transfer price, as referred to in section 92CE(1), has been
made during the previous year. Thus the tax auditor is required to verify whether anyprimaryadjustmentis‘made’ in termsof
S. 92CE(1) during the previous year under consideration. The primaryadjustmentmade maynot necessarilyrelate to
previous year under consideration. Primaryadjustmentswhich do notwarrantsecondaryadjustmentsshould also be reported.
Clause 36A =
(a) = Whether the assessee received amount in the nature of dividend in clause (22) of Section 2.
(b) = If yes, please furnish the following details:-
* Tax auditor obtain from the taxpayer a certificate containing a list of closely held co in which he is beneficial owner
* Obtain certificate from taxpayer giving particulars of loans or advances received by concern of his substantial interest
* Include appropriate remarks of his inability to independently verify the info & reliance on certificates obtained Above
* Verify Form 26AS if taxpayer to know if the closely held company has deducted tax at source
* Whether Amount is chargeable to tax as dividend 2(22)(e) been a subject matter of litigation = needs to consider
Tax auditor to review Due diligence procedures carried out by taxpayer in accordance with Rule 114H & results of such
procedures. Tax auditor should review list of Reportable Accounts identified by due diligence process and the information
to be maintained and reported by Taxpayer. In case any reportable accounthas been omitted, or there is any error or
omission in Form 61B, the same may be reported under the Form No. 3CD. The auditor should verify if the taxpayer has
filed Form No. 61B for correcting errors or omissions in the form filed originally.
(a) Whether assessee is required to furnish statement in Form No.61 or Form No. 61A or Form No. 61B? (Yes/No)
(b) If yes, please furnish: -
42 Income Tax Type Due Date of Whether form contains If not please furnish list of
(a) Dept Reporting of date for furnish info on transa ctions the details/tran sactions
entity ID No. Form furnish required to be reported which are not reported