Scope: This standard deals with auditors responsibilities in preparation of audit documentation while auditing financial statements. Specific documentation requirements of other Standards on auditing do not limit its scope. Show Nature and Purpose: Audit Documentation provides evidence as to whether the overall objective of the auditor was achieved as well as whether it was planned and performed in accordance with Standards of Auditing as also applicable legal and regulatory requirements. It assists in planning, performing, fixation of accountability and responsibility, supervision and review of audits. Retaining the records for future audits, as also conduct of quality controls (SQC 1). Definitions: Audit Documentation: The record of audit procedures performed, relevant audit evidence obtained and conclusions the auditor reached (working papers, work papers). Audit File: One or more folders or other storage media in physical or electronic form, containing the records that comprise of the audit documentation for a specific engagement. Experienced Auditor: An Individual (whether Internal or external to the firm) who has practical audit experience and a reasonable understanding of audit processes, SAs and applicable legal and regulatory requirements, the business environment in which the entity operates and auditing and financial reporting issues relevant to the entity’s industry. Form, Content and Extent in addition to the Nature and Purpose An auditor should prepare audit documentation sufficient to enable an experienced auditor having no previous connection with the audit to understand.
Matters arising after the date of the Auditor's Report If, in the exceptional circumstances, auditor performs new or additional audit procedures or draws new conclusions after the date of the auditor’s report, the auditor shall document:
Additional Points
Application and Other Explanatory Material
(SA) 250 – Consideration of Laws and Regulations in an Audit of Financial Statements Scope:— This Standard on Auditing (SA) deals with the auditor’s responsibility to consider laws and regulations while performing an audit of financial statements and not compliance with specific laws or regulations. Effect of Laws & Regulations The effect on financial statements depends on the fact that whether they are directly or indirectly related to the operational business. Non-compliance of the same shall attract fines, litigations or other consequences. Responsibility of Management The management must ensure that entity’s operations are conducted in accordance and with compliance of the various provisions of laws and regulations that determine the reported amounts and disclosures. The management should:—
In larger companies the policies and procedures are assigned to:
Responsibility of the Auditor This SA is designed to assist the auditor in identifying material misstatement of the financial statements. He is responsible for obtaining a reasonable assurance that the financial statements as a whole are free from any material misstatement. However, due to inherent limitations of audit there exists an unavoidable risk. Effective date: Audit of Financial Statements for period beginning on or after 1st April, 2009. Objectives: The objectives of an auditor are:—
Definition of Non-compliance Acts of omission or commission by the entity either intentional or unintentional which are contrary in nature other than personal misconduct. Duties of Auditor
Audit Procedures when Non-compliance is Identified or Suspected Firstly understand the nature of act and circumstances and then evaluate the possible effects. Then if there is any suspection, discuss the same with those charged with governance and if sufficient information is not obtained then the auditor can seek legal advice. SA – 260 Communication with those charged with Governance The auditor shall communicate with those charged with governance and if there exist any Audit Committee or supervisory board, the auditor shall communicate the matter to them. Reporting Non-compliance in the Auditor’s Report on Financial Statements
Reporting Non-compliance to Regulatory and Enforcement Authorities The auditor has to determine whether he has the responsibility to report the identified or suspected non-compliance to parties outside the entity. Documentation
(SA) – 700 Forming an Opinion and Reporting on Financial Statements (Earlier known as ‘The Auditor’s Report on Financial Statements’) Scope This SA deals with the auditor’s responsibility to form an opinion on the financial statements and with the form and content of the auditor’s report issued as a result of an audit of financial statements. It also promotes consistency in the auditor’s report. Effective date For audits of financial statements for periods beginning on or after 1-4-2012. Objectives
Requirements
Form of Opinion
Auditor’s Report For Audits conducted in accordance with SA’s Auditor’s Report :
We draw attention of the readers to the illustrative formats of reporting issued by the ICAI. AASB of The Institute of Chartered Accountants’ of India vide its announcement dated 16th December, 2014 has given illustrative formats of the Independent Auditor’s Report on standalone Financial Statements under the Companies Act, 2013 and Rules thereunder: The Auditing and Assurance Standards Board is issuing the following illustrative formats of the Independent Auditor’s Report on the Standalone Financial Statements under the Companies Act, 2013 and the Rules thereunder. These illustrative formats were approved by the Council of the Institute of Chartered Accountants of India (ICAI) at its Meeting held in November 2014. These illustrative formats would be added to the respective Appendices of Standard on Auditing (SA) 700, Forming An Opinion and Reporting On Financial Statements and Standard on Auditing (SA) 705, Modifications to the Opinion in the Independent Auditor’s Report, issued by ICAI.
AASB of The Institute of Chartered Accountants’ of India vide its announcement dated 1st May, 2015 has given illustrative formats of the Independent Auditor’s Report on consolidated financial statements under the Companies Act, 2013 and Rules thereunder While reporting on the consolidated financial statements (CFS) of a company under the Companies Act, 2013, the auditors may draw guidance from the aforementioned formats and suitably reword the same, as required, to meet the circumstances of audit of CFS. The auditors of CFS, while reporting in respect of the provisions of, inter alia, section 143(3) and section 143(11) of the Companies Act, 2013 in their report on CFS, are also advised to:
The auditors of CFS are also advised to apply concept of materiality and professional judgment as provided in the Standards on Audit while reporting on the Consolidated Financial Statements. The following illustrative formats of an auditors’ report on CFS, covering some of the clauses of section 143(3) of the Companies Act, 2013 (and where the auditor does not have the responsibility for reporting on internal financial controls over financial reporting under section 143(3)(i) of the Companies Act, 2013), are being issued herewith just to provide a broad guidance on how such a report may be prepared. These formats may be applied for the FY 2014-15 and until further announcement. It is reiterated that the auditors of CFS may suitably reword/redraft these formats to suit the circumstances of their audit engagement.
Reporting on Internal Financial Controls – Section 143(3)(i) of the Companies Act, 2013 has introduced the requirement of reporting by the auditors on whether the company has an adequate internal financial controls system in place and the operating effectiveness of such controls with effect from the financial year beginning 1st April, 2015. As per the “Guidance Note on Audit of Internal Financial Controls over Financial Reporting” issued by the ICAI, the reporting on Internal Financial Controls is only in the context of the audit of the financial statements. Hence, reporting by the auditors will be restricted to adequacy and effectiveness of internal financial controls relating to financial reporting. The Guidance Note covers aspects such as scope of reporting on financial controls under the Companies Act, 2013, essential components of internal controls, technical guidance on audit of internal financial controls and implementation guidance on audit of internal financial controls. Appendices to the Guidance Note include illustrative engagement letter, illustrative management representation letter, illustrative reports on internal financial controls, illustrative risks of material misstatements, related control objectives and control activities. The illustrative formats of the report on internal financial controls also include an illustrative format in case of audit of consolidated financial statements. Report on Fraud Reporting – Section 143(12) of the Companies Act, 2013 has introduced the requirement of reporting by auditors on frauds. The Auditing & Assurance Board of the ICAI has issued the “Revised Guidance Note on Reporting Fraud under section 143(12) of the Companies Act, 2013.” Section 143(12) and Rule 13 of the Companies (Audit and Auditors) Rule, 2014 have been amended with effect from 14th December, 2015. The amended provisions require reporting by the auditor to the Central Government only for individual frauds of ₹ 1 crore and above. The amended provisions have also made certain changes in the procedure and particulars of reporting under this section. The Revised Guidance Note has been issued to take into account the requirements of these amendments. Back to TopWhat documents are required by the auditor?The types of audit documentation that should be assembled include the following:. Analyses conducted.. Audit plans.. Checklists.. Confirmation letters.. Memoranda and correspondence regarding issues found.. Representation letters.. Summaries of significant findings.. What is not included in audit documentation?Audit documentation may be recorded on paper or on electronic or other media. Examples: Audit programmes, checklists, analysis, correspondence. Audit documentation should not include superseded drafts of working papers and financial statements, notes reflecting incomplete and preliminary thinking.
Why is audit documentation required?Audit documentation also facilitates the planning, performance, and supervision of the engagement, and is the basis for the review of the quality of the work because it provides the reviewer with written documentation of the evidence supporting the auditor's significant conclusions.
What should an auditor not do?First and foremost, auditors do not take responsibility for the financial statements on which they form an opinion. The responsibility for financial statement presentation lies squarely in the hands of the company being audited.
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