NATURE, OBJECT AND SCOPE OF AUDIT BY- CANOTESCOMMUNITY

Audit "An audit is independent examination of financial information of any entity, whether profit
oriented or not, and irrespective of its size or legal form, when such an examination is conducted
with a view to expressing an opinion thereon."

Notes
Independence means that the judgement of a person is not subordinate to wishes of another person.
Financial statements including Profit and loss account, Balance sheet, Cah flow statement, statement of
change in equity & notes to accounts.
Entity- it may be proprietorship, partnership, trust, co-operative society or company etc. may be profit
oriented or a charitable one.
Opinion – We will Study different types of Opinion in SA 700 Series
1. Qualified opinion- Subject to some transactions financial statement represent true and fair
view
2. Adverse opinion- majority of transaction misstated
3. Disclaimer of opinion- No record available to auditor or many record not available
4. Unqualified opinion- No mis- statement auditor to give true and fair view or unqualified
opinion
In India a chartered accountant having certificate of practice is eligible to conduct audit.
Auditor 1. Accounts are drawn with reference to entries from Books of account
should to keep 2. Entries are adequately supported by sufficient and appropriate audit evidence
to ensure 3. No entries have been omitted in process of compilation & nothing which is not in books of
financial account is included in financial statement
statement is 4. Information conveyed by statement is clear & unambiguous
not misleading 5. Amount in financial statement are properly classified, disclosed as per AS
6. Statement of accounts presents true and fair view of financial results and financial positions.
Implications The auditor’s opinion does not guarantee
on Audit a. Future viability of entity
opinion b. Efficiency and effectiveness of management
Audit is just an opinion on future on historical financial records whether they are reliable or not
Engagement 1. Engagement partner
team 2. Audit manager
3. Paid assistant
4. Article assistant
Types of Audit 1. Statutory audit – mandatorily required by law
2. Voluntary audit- not required by law [optional]
Qualities of a 1) TECHNICAL QUALITIES: (PROFESSIONAL): The auditor should possess specific knowledge of the
good auditor following:
a) Accountancy - Its principles, procedures and standards (AS).
b) Auditing Its principles, procedures and standards (SA)
c) Direct and Indirect taxation laws such as income tax and GST.
d) General principles of law of contracts, partnership;
e) Specific statutes and provisions applicable, E.g. Companies Act, 2013, Banking regulation act, etc.

2) PERSONAL QUALITIES:
a) Apart from the knowledge acquired by the auditor possess certain personal qualities such as, tact,
caution, firmness, good temper, judgement patience, clear headedness and common sense, reliability and
trust.
b) All those qualities that make a good person contribute to make a good auditor

As per Lord Justice Lindley – “auditor must be honest, not certify what he doesn’t believe to be true and
must take reasonable care and skill before he believes that what he certifies true”

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 NATURE, OBJECT AND SCOPE OF AUDIT BY- CANOTESCOMMUNITY

SA-200 Overall objective of independent auditor & conduct of audit in accordance with Sas
1- Overall Objective of Auditor
2- Scope of Audit
3- Aspects to be covered in Audit
4- Reasonable Assurance
5- Inherent Limitations of Audit
6- Auditor Requirement/Responsibility of Auditor
Overall 1. Financial statement as a whole are free from material mis-statement either due to fraud or error
objective of and enabling the auditor whether financial statement are prepared in accordance with applicable
auditor - FRF
2. To report and communicate as required by SAs in accordance with auditor’s finding.

Notes
FRF- the framework adopted by management in preparation and presentation of financial statement.
MISSTATEMENT- A difference between the Amount, Classification, Presentation, or Disclosure of a
reported financial statement item & the Amount, Classification Presentation or Disclosure that is
required as per applicable financial reporting framework

Misstatements can arise from error or fraud

FRAUD: An intentional act by one or more individuals among management, those charged with
governance, employees, or third parties, involving the use of deception to obtain an unjust or illegal
advantage.
a) FRAUDULENT FINANCIAL REPORTING:
It involves intentional misstatements, including omissions of amounts or disclosures in financial
statements, to deceive financial statement users either Overstatement or understatement of
performance.
b) MISAPPROPRIATION OF ASSETS:
Involves the theft of an entity's assets and is often perpetrated by employees in relatively small and
immaterial amounts. it involved misuse of resources.

ERROR:
The term "error" refers to unintentional mistakes in financial statements such as:
a) Clerical errors, like errors of omission, errors of commission errors of duplication and compensating
errors.
b) Misapplication of accounting policies (Called errors of principle).
Scope of Audit 1. Audit should cover all aspects of enterprise relevant to audit of financial statement
2. To form an opinion auditor should reasonably satisfy information in accounting records and
source data is reliable & sufficient for preparation of financial information
3. Auditor assess reliability & sufficiency of accounting record & source data by
• Making a study of accounting system & internal control
• Carrying out test enquiry & other verification procedures
4. Auditor should also decide whether information is properly disclosed in financial statement as per
statutory requirement
5. Information is properly disclosed by: -
• Comparing financial statement with source data
• Considering the judgement that management has made in preparing in financial
statement
6. Auditor is not expected to perform duties which fall outside the scope of his competence
7. Constraints on the scope of audit should be set out in his audit report and qualified or disclaimer
of opinion should be expressed as appropriate.

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 NATURE, OBJECT AND SCOPE OF AUDIT BY- CANOTESCOMMUNITY

Aspects to be i) Verification of the authenticity of transactions entered into by making an examination of the
covered in entries in the books of accounts with the relevant supporting documents.
audit ii) Verification of the title, existence and value of the assets appearing in the balance sheet.
iii) Verification of the liabilities stated in the balance sheet.
iv) Comparison of the balance sheet and profit and loss account or other statements with the
underlying record in order to see that they are in accordance therewith.
v) Checking the result shown by the profit and loss and to see whether the results shown are
true and fair.
vi) Checking of the arithmetical accuracy of the books of account by the verification of postings,
balances, etc
vii) Ascertaining that a proper distinction has been made between items of capital and of
revenue nature and that the amounts of various items of income and expenditure adjusted in
the accounts corresponding to the accounting period.
viii) Reporting to the appropriate person/body whether the statements of account examined do
reveal a true and fair view of the state of affairs and of the profit and loss of the organisation.
ix) An examination of the system of accounting and internal control to ascertain whether it is
appropriate for the business and helps in properly recording all transactions.
x) Reviewing the system and procedures to find out whether they are adequate and
comprehensive and incidentally whether material inadequacies and weaknesses exist to
allow frauds and errors going unnoticed.
xi) Where audit is of a corporate body, confirming that the statutory requirements have been
complied with.

Reasonable Auditor is required to obtain reasonable assurance as to whether the financial statements are free from
Assurance material misstatements
Thus, auditor obtains sufficient and appropriate audit evidence to reduce audit risk to an acceptable low
level.
However, reasonable assurance is not absolute assurance. This is due to inherent limitations of an audit.
Inherent (a) Nature of Financial Reporting – it involves number of managements judgement which are
Limitations of subjective in nature & vary from person to person.
Audit (b) Nature of audit procedures-certain legal & practical limitation within the very nature of audit
procedures.
• Management may not provide intentionally or unintentionally the complete information
relating to financial statement.
• There may be sophisticated & carefully scheme to conceal fraud.
• Audit is not an official investigation.
(c) Timeliness of financial reporting and balance between time & cost-
The matter of difficulty or cost involved is not a valid basis for auditor to omit an audit procedure.
The relevance of information tends to diminish over time and there is balance to be struck
between time and cost.
• Appropriate planning helps in making sufficient time and resources available for the
conduct of the audit.
(d) Other matters-
➢ Fraud involving senior management
➢ Existence and Completeness of Related party transactions
➢ Non-compliance of laws
➢ Future events that cause entity to cease as going concern.
Auditor 1. Conduct of an Audit in Accordance with SAs
Requirement/
Responsibility Compliance –
of Auditor 👉The auditor shall comply with all SAs relevant to the audit.
👉The auditor shall have an understanding of the entire text of an SA.
👉The auditor shall not represent compliance with SAs in the auditor’s report unless the auditor has
complied with the requirements of this SA and all other SAs relevant to the audit.

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 NATURE, OBJECT AND SCOPE OF AUDIT BY- CANOTESCOMMUNITY

Objectives-
👉Having regard to interrelationship between SAs:
👉Determine if any audit procedure in addition to that required by SAs is necessary.
👉Evaluate whether sufficient appropriate audit evidence has been obtained.

Complying with relevant Requirements of SA

Auditor have to comply all the SA’s unless,
👉Entire SA is not relevant.
👉Requirement is not relevant because it is conditional & condition does not exist.
👉Departure form requirement in exceptional circumstances - perform alternative procedures to achieve
aim of requirement.

Failure to Achieve an Objective

Auditor should evaluate if the failure Prevents auditor from achieving the overall objectives of
the auditor, and necessitates modified audit opinion. Auditor should withdraw from engagement if it is a
significant matter for documentation.

2.Ethical requirements IESBA code:

• Integrity- straight forward, honest, fair dealing, truthfulness not associated with
misleading financial statement
• Objectivity- unbiased, no undue influence, not to compromise professional judgement
• Professional competence & due care – professional knowledge and skills required to
render competent professional service.
• Confidentiality- auditor to respect confidential information acquired.
• Professional behaviour -comply with relevant law and regulations to avoid any conduct
which might discredit profession
Professional refers to an attitude that includes a questioning mind, being alert to conditions which may indicate
skepticism possible misstatement due to error or fraud, and a critical assessment of audit evidence.
• When audit evidence contradicts each-other
• Information brings into question the reliability of documents as responses of inquiry
• Circumstances indicate possible frauds
• Additional audit procedure is required over and above the procedures of Sas
• Maintaining professional skepticism reduce risk of
▪ Overlooking unusual circumstances
▪ Overgeneralising while drawing conclusions
▪ Using inappropriate assumptions while nature timing and extent of audit procedures.
Professional The application of relevant training, knowledge and experience, within the context provided by auditing,
Judgment accounting and ethical standards,
• in making informed decisions about the courses of action.
• that are appropriate in the circumstances of the audit engagement.
Requirements:
A. The auditor shall exercise professional judgment in planning and performing an audit.
B. Its exercise depends on facts & circumstances known to the auditor.
C. Professional Judgment is to be exercised throughout the audit and to be appropriately
documented.
D. Professional Judgment is important when deciding about:
• Materiality & audit risk.
• NTE of audit procedures.
• Evaluating sufficiency & appropriateness of audit procedures.
• Evaluating management judgment in applying applicable FRF.
• Drawing conclusions based on audit evidence.

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 NATURE, OBJECT AND SCOPE OF AUDIT BY- CANOTESCOMMUNITY

Sufficient To obtain reasonable assurance, the auditor shall obtain sufficient appropriate audit evidence
Appropriate to reduce audit risk to an acceptably low level and thereby enable the auditor to draw
Audit reasonable conclusions on which to base the auditor’s opinion.
Evidence • Reasonable Assurance: In the context of an audit, a high, but not absolute, level of assurance.
• Sufficient Appropriate Audit Evidence: Sufficiency refers to quantum and Appropriateness refers
to quality.
Audit risk when Auditor gives an inappropriate audit opinion when financial statements are materially mis-stated.
Auditor is not expected to & cannot reduce audit risk to zero. So, cannot obtain absolute assurance
Advantages of (a) It safeguards the financial interest of persons who are not associated with the management of the
Audit entity.
(b) It acts as a moral check on the employees from committing embezzlement.
(c) Audited financial statements are helpful in settling
• liability for taxes, negotiating loan, determining purchase consideration for business
• trade disputes for higher wages, bonus or insurance claims
• of account at the time of admission or death of partner
(d) An audit can also help in the detection of wastages and losses.
(e) Audit ascertains whether the necessary books of account and allied records have been properly
kept.
(f) Audit reviews the existence and operations of various controls in the organisations and reports
weaknesses, inadequacies, etc., in them.
(g) Government may require audited and certified financial statements before it gives assistance or
issues a license for a particular trade.
Relationship of Auditing with
Accounting • Auditing and accounting are closely related with each-other
• Audit reviews the financial statements which are the result of accounting process
• Auditor should have thorough knowledge of accounting principles for auditing
Law • Auditor should have good knowledge of business laws affecting entity.
• Should have good knowledge of direct as well as indirect tax laws
• Auditor is more concerned with micro economics rather than Macro economics
Economics • Auditor should be familiar with overall economic environment in which client operates.
Behavioural • It is knowledge of human behaviour which is essential for the auditor to effectively
Science discharge his duties
• Financial auditor has to interact with a lot of people in the organisation
Statistics & • Auditor should have the knowledge of statistical sampling as to arrive at meaningful
Mathematics conclusions
• Knowledge of mathematics is required at the time of verification of inventories
Data • All the accounting activities from recording documents to processing information,
processing everything is done with the help of computer. Therefore, Auditor should have good
knowledge of computer components & its capabilities.
Financial • Auditor should have fair knowledge of various financial techniques
management E.g., Ratio analysis, capital budgeting etc.
• Auditor should have knowledge about various institution e.g., gov. activities that
influence financial market
Production • Auditor is required to have knowledge of client’s business
• Auditor shall evaluate the accounting aspect of transaction – accounting for joint product
& by product
• Auditor is expected to obtain understanding of cost system operating in the factory

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 NATURE, OBJECT AND SCOPE OF AUDIT BY- CANOTESCOMMUNITY

• Auditor shall have good knowledge of production terminology so that auditor can
interact with production employees.
Guidance Document issued by ICAI to recommend to its members and recommendatory in nature. Auditor may
Notes disclose non-compliance of guidance note in preparation of financial statement as he deems fit.
Statements Matters which are critical in opinion of council are mandatory in nature and every member shall comply
with these statements issued on audit or accounting matters (mandatory in nature)
SA-210 1. Pre conditions
2. Terms of Audit engagement
3. Other requirements
Pre conditions of Audit
I. Determine whether the financial reporting framework to be applied in the preparation of the
financial statements is acceptable; and
II. Obtain the agreement of management that it acknowledges and understands its
responsibilities for followings:
• The preparation of the F.S. in accordance with the applicable FRF.
• Designing & implementation of internal control
• to provide the auditor with:
👉Access to all relevant information such as records, documentation and other matters;
👉Additional information that the auditor may request from management for the purpose of the
audit; and
👉Unrestricted access to persons within the entity from whom the auditor determines it
necessary to obtain audit evidence.

Terms of Audit engagement

Auditor shall agree with terms of Audit Engagement with Management or those charged with Governance
as appropriate. Audit Engagement Letter is sent by Auditor to his client
The terms of Audit Engagement shall include -
1. Objective & Scope of Audit of Financial Statements
2. Responsibilities of Auditor
3. Responsibilities of Management
4. Identification of Applicable FRF for preparation of financial statements
5. Form & Content of Audit report to be issued by Auditor

Other requirements
Recurring Auditor may not decide to send new Engagement Letter for each period.
Audit However, in following factors prepare New Engagement Letter -
• Any Indication that entity misunderstands objective & scope Audit
• Any revised or special terms of audit engagement
• A recent change of Senior Management
• Significant change in ownership
• A significant change in nature and size of entity
• Change in legal and regulatory requirements
• Change in reporting requirement
Limitation If Management or those charged with Governance put limitation on scope of auditor's
on Scope work
Prior to Such that auditor feels he must issue Disclaimer of Opinion Report
Engagement Auditor shall not accept such limited Engagement unless required by law or regulation
Acceptance to do so

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 NATURE, OBJECT AND SCOPE OF AUDIT BY- CANOTESCOMMUNITY

Acceptance of Auditor before completion of Engagement is requested to change the Engagement to a lower level of
a change in assurance
engagement 1. If there is Reasonable Justification - change the engagement, he shall prepare New Engagement
Letter & Issue report under revised terms and to avoid confusion would not reference to original
engagement or work performed under original engagement.
2. If there is No Reasonable Justification- Auditor should not agree & should tell management to
continue the assignment If not permitted by Management to continue he shall withdraw from
Audit Engagement where possible under law or regulation & report to parties such as owner,
regulator or TCWG.
Firms’ system 1. Leadership Responsibilities for Quality of Audit- Engagement partner is responsible for quality of each
of Quality audit engagement to which he is assigned as partner
Control Actions of Engagement Partner & members of Engagement Team in taking responsibility for overall quality
includes on each audit engagement emphasize-
policies & Importance to Audit Quality of -
procedures • Performing work that complies with professional standards, regulatory & legal requirements
addressing • Complying with firm's quality control policies & procedures
• Issuing auditor's report appropriate as per circumstances
• Ability to raise concern without fear of reprisal
The fact that quality is essential in performing audit engagements
Engagement Policies and procedures designed to provide it with reasonable assurance that engagements are
performance performed in accordance with professional standards
Through its policies and procedures, the firm seeks to establish consistency in the quality of engagement
performance.
This is often accomplished through written or electronic manuals, software tools or other forms of
standardized documentation, and industry or subject matter-specific guidance materials.
Monitoring The firm should establish policies and procedures designed to obtain reasonable assurance
✓ Ongoing consideration and evaluation of firm’s system of quality control
✓ periodic inspection of selection of completed audit engagement
The purpose of monitoring:
(a) Adherence to professional standard, legal regulatory Requirement
(b) Quality control system appropriately designed effectively implemented
(c) Appropriately applied, appropriate report
(d) Follow up necessary modification are promptly made.
Human Firm shall establish policies and procedures designed to provide it with reasonable assurance that it has
resources sufficient personnel with the capabilities, competence, and commitment to ethical principles necessary to
perform its engagements.
Such policies and procedures address the following personnel issues:
(a) Recruitment;
(b) Capabilities;
(c) Competence;
(d) Compensation; and
(e) Performance evaluation;
(f) Promotion;
(g) Career development;
(h) Estimation of personnel needs.
Engagement Engagement partner refers to the partner or other person in the firm who is responsible for the audit
partner engagement and its performance, and for the auditor’s report that is issued on behalf of the firm, and
who, where required, has the appropriate authority from a professional, legal or regulatory body.

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 NATURE, OBJECT AND SCOPE OF AUDIT BY- CANOTESCOMMUNITY

Independence a. Independence of Mind – The state of mind that permits the provision of an opinion without being
of auditor affected by influences allowing an individual to act with integrity, and exercise objectivity and
professional scepticism; and
b. Independence in Appearance – The avoidance of facts and circumstances that are so significant
that a third party would reasonably conclude “auditor’s integrity, objectivity or professional
scepticism had been compromised.”
Threats to 1. Self-interest threats-which occur when an auditing firm, its partner or associate could benefit
independence: from a financial interest in an audit client. E.g., -
• loan or guarantee to or from the concerned client
• undue dependence on a client's fees
• close business relationship
• potential employment
• contingent fees

2. Self-review threats-which occur when during a review of any judgement or conclusion reached in
a previous audit, or
non-audit engagement (any professional services provided by an auditor, other than audit or
review of the financial statements. These include management services, internal audit,
investment advisory service, design and implementation of information technology systems etc.),
or
when a member of the audit team was previously a director or senior employee of the client.

3. Advocacy threats- which occur when the auditor promotes, or is perceived to promote, a client's
opinion to a point where 3rd party may believe that objectivity is getting compromised.

4. Familiarity threats are self-evident, and occur when auditors form relationships with the client
where they end up being too sympathetic to the client's interests. This can occur in many ways:
a. close relative of the audit team working in a senior position in the client company,
b. former partner of the audit firm being a director or senior employee of the client

5. Intimidation threat- occur when auditors are deterred from acting objectively with an adequate
degree of professional scepticism. because of threat of replacement over disagreements with the
application of accounting principles, or pressure to
disproportionately reduce work in response to reduced audit fees or being threatened with
litigation. Such threats attempt to intimidate auditors to deter them from acting objectively
Safeguards to 1. Auditor should be and appear to be independent for the public to have confidence in qualities of
independent audit.
2. Auditor shall always maintain professional skepticism, objectivity, and integrity to remain
independent
3. Before accepting any audit, auditor shall consider if there are threats to independence
4. Desist from task or if adequate safeguards can be implemented
5. If auditor is unable to put adequate safeguards, he must not accept the work

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 NATURE, OBJECT AND SCOPE OF AUDIT BY- CANOTESCOMMUNITY

SQC 1 requires Information such as the following assists the engagement partner in determining whether the decisions
the firm to regarding the acceptance and continuance of audit engagements are appropriate:
obtain 1. The integrity of the principal owners, key management and TCWG of the entity;
information 2. Whether the engagement team is competent to perform the audit engagement and has the
before necessary capabilities, including time and resources;
accepting an 3. Whether the firm and the engagement team can comply with relevant ethical requirements; and
engagement. 4. Significant matters that have arisen during the current or previous audit engagement, and their
implications for continuing the relationship

Irrelevant for exams

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 AUDIT STRATEGY, AUDIT PLANNING AND AUDIT PROGRAMME BY- CANOTESCOMMUNITY

Why Audit Plan Work to be performed effectively, efficiently and in timely manner.
Audit plan should 1. Knowledge of client accounting system, policies, and internal control
cover 2. Establishing the expected degree of reliance to be placed on internal control
3. Determining nature, timing, and extent of audit procedures to be performed
4. Co-ordinating the work to be performed
SA-300 Audit Planning is not a discrete phase of audit rather continuous and iterative process that begins shortly
planning after completion of previous engagement and continuous till completion of current audit
engagement

Advantages of planning in audit

1. Proper organisation of audit engagement so it can be performed effectively & efficiently.
2. Attention to important areas
3. Identification & timely resolution of potential problem
4. Assisting in selection of engagement team depending on capabilities & competence
5. Direction and supervision of engagement team members
6. Easy co-ordination of work to be performed

Content of audit plan

1. Nature time and extent of risk assessment procedures
2. Nature time extent of further audit procedure at assertion level
3. Other audit procedure as per SA

Change in audit plan may result in change in nature timing and extent of Audit procedure based on
consideration of assessed risk.
Audit Strategy Sets scope timing and direction of Audit, that guides the development of audit plan.
Advantages of 1. what resources to deploy ?- Employment of Qualitative Resources [complex matters – experts,
Audit Strategy high risky area- experienced team member]
2. How much resources to deploy ?- Allotment of Quantity of Resources [no. of team members to
observe verification of inventory count]
3. when to deploy the resources ?-Timing of Deployment of Resources [key cut-off dates, interim
audit stages]
4. Management, direction & supervision of Resources
Establishment of 1. Determination of Characteristics of Audit - Identify the characteristics of engagement that define
Overall Audit its scope
Strategy 2. Team Efforts - Consider factors in auditors’ judgement are significant in directing the Engagement
Team's effort
3. Reporting Objectives - Ascertain the reporting objectives to plan timing of audit & nature of
communication required
4. Nature, Timing & Extent of Resources - Determine nature, timing & extent of resources required
to perform the Engagement
5. Preliminary Work - Consider results of preliminary engagement activities & where Applicable
knowledge gained on other assignments.
Knowledge of SA 315 “IDENTIFYING AND ASSESSING THE RISK OF MATERIAL MISSTATEMENT THROUGH
client’s business UNDERSTANDING THE ENTITY AND ITS ENVIRONMENT”
The auditor shall obtain an understanding of the following:
A) Relevant industry, regulatory and other external factors including the applicable financial
reporting framework.
B) The nature of the entity, including
• its operations;
• its ownership and governance structures;
• the types of investments including investments in special-purpose entities; and
• the way that the entity is structured and how it is financed;
• to enable the auditor to understand the classes of transactions, account balances, and
disclosures to be expected in the financial statements

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 AUDIT STRATEGY, AUDIT PLANNING AND AUDIT PROGRAMME BY- CANOTESCOMMUNITY

C) The entity's selection and application of accounting policies, including the reasons for changes.
The auditor shall evaluate whether the entity's accounting policies are appropriate for its business
and
consistent with the applicable financial reporting framework.
D) The entity's objectives and strategies, and those related business risks that may result in risks of
material misstatement.
Audit Planning: a Planning includes certain activities to be done before performance of Further Audit Procedures &
continuous include matters such as:
process 1. Analytical Procedures to be applied as risk assessment procedures
2. Performance of other risk assessment procedures
3. Obtain General understanding of legal & regulatory framework applicable to entity and how
entity is complying with that framework
4. Determination of materiality involvement of experts
5. involvement of experts
Overall Audit Auditor may discuss elements of planning with management to facilitate the conduct &
Strategy & Plan is management of audit engagement Although these discussions often occur, overall strategy & plan
Auditor's remain auditor's responsibility
Responsibility
When discussing matters with management, care is required not to compromise effectiveness of
audit (not making audit procedures too predictable to management)
Changes to • due to unexpected events or change in conditions or the audit evidence obtained from
planning during audit procedures
Audit • information at the time of planning audit procedures differs significantly from information
of auditor’s attention.
E.g., one audit evidence contradicts other evidence
Direction, 1. Capabilities & Competence of Individual team members performing work
Supervision & 2. Area of the audit
Review of 3. Assessed risk of material misstatements
Engagement
4. Size & Complexity of entity
Team Members
Depends on:
Documentation of Auditor shall document:
Audit Plan • Overall Audit Strategy-Over all Audit Strategy includes record of key decisions considered
necessary to properly plan the audit & communicate significant matters to engagement
team
• Audit Plan- Audit Plan is record of planned Nature, Timing & Extent of Risk assessment
procedures & further assessment procedures at assertion level.
• Changes made to Audit Strategy & Audit Plan & reason of such change - Changes in Plan &
Strategy will also make changes in Nature, Timing & Extent of Audit Procedures
Purpose of documentation:
✓ It Record of key decisions taken during planning & audit was properly planned
✓ Changes made in audit plan & strategy shall be recorded to understand why changes were
made and final audit plan.
Audit Programme It is series of Verification Procedures to be applied to financial statements of company to obtaining
sufficient evidence to enable auditor to express an informed opinion on financial statements
• Business varies in size, nature & composition, work which is suitable to one business may
not be suitable to other. Hence, one Audit Programme applicable to all business under all
circumstances is not practicable.
Assistants ✓ Note and report significant matters that arise during audit to seniors/partners.
encouraged to

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 AUDIT STRATEGY, AUDIT PLANNING AND AUDIT PROGRAMME BY- CANOTESCOMMUNITY

keep an open ✓ As the audit continues the auditor gains knowledge and hence should includes all the
mind matters which he finds relevant in the audit programme which are not originally covered
and drop irrelevant audit procedures.
Periodic review of ✓ To know if the audit programme is adequate enough to obtain sufficient knowledge and
audit programme audit evidences
✓ If the audit programme is not updated the auditor follows outdated programme and hence
any changes in business policy shall not be known to auditor resulting in negligently
conduct of audit
✓ To maintain utility of audit programme and remove weakness if any
✓ It shall make audit programme rigid
Constructing FOLLOWING POINTS TO BE KEPT IN MIND
Audit Programme 1. Stay within the Scope & Limitations of Assignment
2. Consider all the Possibilities of Error
3. Determine Evidence reasonably available & identify best evidence for deriving satisfaction
4. Apply those steps & procedures which are useful in Verification Purpose in specific situation
5. Co-ordinate the procedures to be applied to related items
Developing the 1. Written Audit Programme - It will include procedures that are needed to implement audit
Audit Programme plan
2. Audit Objective & Instruction to Assistants - Audit Objective of each areas & set of
instruction to assistants
3. Reliance on Internal Controls -For Determining Nature, Timing & Extent of Auditing
Procedures
4. Timing of Performance of Audit Procedures - Auditor is flexible in performing audit
procedures except in some cases
5. Audit planning – starts after completion of previous years audit & should be modified as
audit progresses.
Standard Having regard to Nature, Size & Composition of business & Internal Controls, we should frame a
Programme programme with minimum essential work
Alterations As experience is gained by carrying out the work, program may be altered to take care of situations
that were earlier left out
Advantages of • It gives Assistants clear set of instruction of work to be done
Audit Programme • In case of major audits, it gives total perspective of work to be performed
• In case of written Programme, there is no danger of ignoring certain Books & Records
• Selection of Assistants for Jobs on basis of capability, becomes easier when work is divided
/ segregated
• Signature by assistants on programme accept responsibility of work and work can be traced
back
• Principal can control progress of various audits by audit programme
• Serves as a Guide for audits to be carried out in succeeding years
• Serves as an Evidence in event of charge of Negligence against Auditor
Disadvantages of 1. Work can become mechanical & some steps can be carried out without understanding objective of
Audit Programme whole audit scheme
2. Inefficient Assistants take shelter behind program
3. Programme can tend to be rigid & inflexible following rules, business is changed, but still old
programme is carried on.
4. Hard & Fast Audit Programme may kill initiative of efficient assistants
Auditor picks a. Documentary examination
evidence from b. Physical examination
variety of fields c. Statement & explanations from management employees or 3rd party
-examples d. Arithmetical calculation by auditor
e. Inter relationship of various accounting data

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QUALITY A lot of work is delegated by auditor to his assistants. The auditor should carefully direct, supervise
CONTROL FOR and review work delegated to assistants. The auditor should obtain reasonable assurance that work
AUDIT WORK performed by other auditors or experts is adequate for his purpose. SA 220, “Quality Control for an
DELEGATION AND Audit of Financial Statements” lays down standards on the quality control.
SUPERVISION OF
AUDIT
WORK
Performance means the amount or amounts set by the auditor at less than materiality for the financial
Materiality statements as a whole to reduce to an appropriately low level the probability that the aggregate of
defined uncorrected and undetected misstatements exceeds materiality for the financial statements as a
whole. If applicable, performance materiality also refers to the amount or amounts set
by the auditor at less than the materiality level or levels for particular classes of transactions,
account balances or disclosures.
Factor affecting Determining materiality involves the exercise of professional judgment. A percentage is applied to a
Benchmarks in chosen benchmark as a starting point in determining materiality for the financial statements as a
identification of whole.
appropriate
benchmark Factors that may affect the identification of an appropriate benchmark include the following:
• The elements of the financial statements (for example, assets, liabilities, equity, revenue,
expenses)
• Whether there are items on which the attention of the users of the particular entity’s
financial statements tends to be focused (for example, for the purpose of evaluating
financial performance users may tend to focus on profit, revenue or net assets)
• The nature of the entity, where the entity is at in its life cycle, and the industry and
economic environment in which it operates
• Ownership structure and how it is financed
• Volatility of benchmark
Chosen
Benchmark –
Relevant financial
data

Determining a There is a relationship between the percentage and the chosen benchmark, such
percentage to be that a percentage applied to profit before tax from continuing operations will
applied to a normally be higher than a percentage applied to total revenue.
chosen
benchmark
involves
professional
judgment.
Materiality Level Factors that may indicate the existence of one or more particular classes of
or Levels for transactions, account balances or disclosures for which misstatements of lesser
Particular Classes amounts than materiality for the financial statements as a whole could reasonably
of Transactions, be expected to influence the economic decisions of users taken on the basis of the
Account Balances financial statements include the following:
or
Disclosures 1) Whether law or the applicable financial reporting framework affect users’ expectations regarding
the measurement or disclosure of certain items.
Example : Related party transactions, and the remuneration of management and TCWG.

2) The key disclosures in relation to the industry in which the entity operates.
Example: Research and development costs for a pharmaceutical company.

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3) Whether attention is focused on a particular aspect of the entity’s business that is separately
disclosed in the financial statements. Example: A newly acquired business.
Revision in ✓ a change in circumstances that occurred during the audit (for example, a decision to dispose
Materiality level of a major part of the entity’s business)
as the Audit ✓ new information, or
Progresses ✓ a change in the auditor’s understanding of the entity and its operations as a result of
performing further audit procedures.

If the auditor concludes that a lower materiality for the financial statements as a whole than that
initially determined is appropriate, the auditor shall determine whether it is necessary to revise
performance materiality, and whether the nature, timing and extent of the further audit procedures
remain appropriate.
Documenting the The audit documentation shall include the following amounts and the factors considered in their
Materiality determination:
a) Materiality for the financial statements as a whole;
b) If applicable, the materiality level or levels for particular classes of transactions,
account balances or disclosures;
c) Performance materiality; and
d) Any revision of (a)-(c) as the audit progressed

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SA-230 AUDIT DOCUMENTATION

Audit documentation refers to record of audit procedures performed and relevant audit evidence obtained and conclusions
the auditor reached.
Nature of Audit Documentation
Audit documentation provides
a. Evidence of auditor’s basis for conclusion
b. Evidence that audit was planned and performed
Purpose of audit documentation
1. Assist the engagement team to plan & perform their work
2. Enabling the engagement team to be accountable for its work
3. Assist the member of engagement team to direct & supervise their work
4. Enabling the conduct of external inspection
5. Enabling the conduct of quality control reviews and inspection
6. Retaining document of continuing significance for future Audit.
Form, content and extent of Audit documentation-
a) The size and complexity of the entity.
b) The nature of the audit procedures to be performed
c) The identified risks of material misstatement.
d) The significance of the audit evidence obtained.
e) The nature and extent of exceptions identified
f) The audit methodology and tools used.
Audit file - one or more folders or other storage media, in physical or electronic form, containing the records that comprise
the audit documentation for a specific engagement

As per SQC 1, an appropriate time limit within which to complete the assembly of the final audit file is ordinarily not more
than 60 days after the date of the auditor's report.

As per SQC 1,the retention period for audit engagements ordinarily is no shorter than seven years from the date of the
auditor's report, or, if later, the date of the group auditor's report
Audit documentation is property of Auditor.
Completion memorandum -The auditor may consider it helpful to prepare and retain as part of the audit documentation a
summary
that describes-
✓ the significant matters identified during the audit and
✓ how they were addressed.
Audit evidence - the information used by the auditor in arriving at the conclusions on which the auditor's opinion is based.
1. Information related to Financial Statement:
- The records of initial accounting entries and supporting records, invoices; contracts; the general and subsidiary
ledgers, journal entry etc
2. other information for example minutes of the meetings, written confirmations from trade receivables and trade
payables, manuals containing details of internal control etc.
When information to be used as audit evidence has been prepared using the work of a management's expert, the auditor
shall
(a) Evaluate the competence, capabilities and objectivity of that expert
(b) Obtain an understanding of the work of that expert; and
(c) Evaluate the appropriateness of that expert's work as audit evidence for the relevant assertion.
Sufficiency & Appropriateness of Audit evidence
Sufficiency – Quantity
Appropriateness – Quality
Auditor’s judgement as to sufficiency may be affected by
1. Materiality [more assertions more audit evidence would be required and vice versa]
2. Risk of material mis-statement [more risk of material mis-statement more audit evidence would be required and
less in case of less risk of material mis statement]
3. Size and composition of population [small and homogenous less audit evidence, large and heterogenous more
audit evidence]

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SA 501 AUDIT EVIDENCE-SPECIFIC CONSIDERATIONS FOR SELECTED ITEMS

The objective of the auditor is to obtain sufficient appropriate audit evidence regarding the
1. Existence and condition of inventory;
2. Completeness of litigation and claims involving the entity, and
3. Presentation and disclosure of segment information in accordance with applicable FRF

1. Requirement of SA- 501 in relation to inventory

When inventory is material to financial statement auditor shall obtain sufficient and appropriate audit evidence regarding
existence and condition of inventory by
a) attendance at physical counting, unless impracticable, to;
i) evaluate instructions by management and procedure for recording and controlling the result of entity’s
physical inventory counting
ii) inspect the inventory
iii) perform test counts
b) Perform Audit procedures over entity's final inventory records to determine whether they reflect actual inventory count
results
• If physical inventory counting is conducted at a date other than date of financial statement Auditor shall perform
additional audit procedure to obtain audit evidence about whether changes in inventory between the count date
and date of financial statement are properly recorded
• If the Auditor is unable to Attend Physical Inventory Counting due to Unforeseen Circumstances, the auditor shall
make or observe some physical counts on an alternative date, and perform audit procedures on intervening
transactions.
• If attendance at physical inventory counting is impracticable, the auditor shall perform alternative audit
procedures to obtain sufficient appropriate audit evidence regarding the existence and condition of inventory. If it
is not possible to do so, the auditor shall modify the opinion in the auditor’s report in accordance with SA 705.
• Where inventory is under the Custody of 3rd party e.g., Goods with consignee/transporter etc. Auditor shall obtain
sufficient and appropriate audit evidence regarding existence and condition of inventory by performing 1 of the
following
i) request confirmation from 3rd party as to quantity & condition of inventory
ii) Arrange another auditor to attend 3rd party counting
iii) perform inspection or other Audit procedure appropriate in circumstances

2. In relation to litigation & claims

• Auditor shall design & perform audit procedure in order to identify litigation and claims involving entity in
following manner
i) inquiry of management & others within the entity including in house litigation counsel (employees who
are LLB/LLM).; &
ii) review minutes of meeting of TCWG & correspondence between entity & its external legal counsel; &
iii) Review legal expenses account
• Communication with external legal counsel Where auditor assess risk of material misstatement regarding
litigation, auditor shall seek direct communication with entity's external legal counsel where,
a) Management refuses to give permission to auditor to communicate with entity's external legal counsel; or
b) entity's external legal counsel refuses to respond to letter of enquiry or is prohibited from responding; &
c) Auditor is unable to obtain sufficient and appropriate audit evidence by performing alternate audit procedures,
auditor shall modify his Audit report as per SA-705
WRITTEN REPRESENTATION
The auditor shall request management and, where appropriate, those charged with governance to provide written
representations that all known actual or possible litigation and claims whose effects should be considered when
preparing the financial statements have been disclosed as per FRF.
3. Segment information
• Auditor shall obtain sufficient and appropriate audit evidence regarding the preparation and disclosure of segment
information in accordance with applicable FRF
a) obtaining and understanding of method used by management in presenting segment information and
b) evaluating whether such methods are likely to result in disclosure in accordance with FRF and
c) where appropriate, testing of such methods

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SA- 505 EXTERNAL CONFIRMATION

External confirmation audit evidence obtained as a direct written response to auditor from 3rd party, in paper form aur by
electronic mode or any other medium
1. Positive confirmation request- a request that the confirming party respond directly to auditor indicating whether
the confirming party agree or disagree with the information in request.
2. Negative confirmation request-A request that the confirming party respond directly to auditor only if the
confirming party disagrees with the information provided in the request.
3. Non response: A failure of confirming party to respond or fully respond, to a positive confirmation request or
request returned undelivered
4. Exception - A Response that indicates difference between information requested to be confirmed and information
provided by confirming party

Procedure of external confirmation

1. Determine-the information to be confirmed or requested
2. Selection- the appropriate confirming party
3. Designing the confirmation request
4. Sending the request to confirming party & follow up if required

Factors to be considered while designing confirmation request

1. Prior experience of Auditor
2. Layout of confirmation, the assertion being addressed and risk of material mis-statement
3. Method of communication
4. Ability of confirming party to respond

Management's refusal to allow the auditor to send confirmation request Auditor shall inquire as to
1. Management's reason for refusal & seek audit evidence as to their validity
2. Evaluate implication of such refusal on risk of material misstatement; and
3. Perform alternate audit procedure to obtain audit evidence. e.g., GST return, bills to know balance of 3rd party
👉Where auditor concludes that management's refusal to allow the auditor to send confirmation request is
unreasonable; or
👉Auditor is unable to obtain reliable audit evidence from alternate audit procedures
👉Auditor shall determine the implication for audit and auditors’ opinion in accordance with SA-705 he will either
qualify or disclaimer

Negative confirmation provides less pervasive (reliable) audit evidence than positive confirmation
Auditor shall not use negative confirmation as the audit procedure to address the risk of material miss-statement all the
following are present
1. Auditor expect the risk of material misstatement as low
2. Auditor has obtained sufficient and appropriate audit evidence regarding internal control
3. Population of items subject to negative confirmation comprises of large number of small account balances
4. A very low exception rate is expected

Situation where response to a positive confirmation is necessary to obtain sufficient and appropriate audit evidence
1. Where auditor has determined that response to a positive confirmation is necessary to obtain sufficient and
appropriate audit evidence; & Alternate audit evidence which auditor requires If auditor doesn't obtain such
confirmation Auditor shall determine implicate for audit and auditor’s opinion as per SA 705
Space for workings

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SA 510 INITIAL AUDIT ENGAGEMENT

An engagement in which either.
- The financial statements for the prior period were not audited; or
- The financial statements for the prior period were audited by a predecessor auditor.

Objective of Auditor with respect to Opening Balances in conducting an Initial Audit Engagement
(a) Opening balances contain misstatements that materially affect the current period's financial statements; and
(b) Appropriate accounting policies reflected in the opening balances have been consistently applied in the current
period's financial statements, or changes thereto are properly accounted for and adequately presented and
disclosed in accordance with the applicable financial reporting framework.

i) OPENING BALANCES
The auditor shall obtain sufficient and appropriate audit evidence about whether the opening balances contain
misstatements that materially affect the current period's financial statements by:
a. Determining whether the prior period's closing balances have been correctly brought forward to the
current period or when appropriate, any adjustments have been disclosed as prior period items in the
current year's Statement of Profit and Loss.
b. Determining whether the opening balances reflect the application of appropriate accounting policies.
c. Performing one or more of the Following
1. Where the prior year financial statements were audited financial statements including other relevant
documents relating to the prior period financial statements.
2. evaluating whether audit procedures performed in the current period provide evidence relevant to the
opening balances
3. Performing specific audit procedures to obtain evidence regarding the opening balances

Conclusion
If the auditor concludes that the opening balances contain a misstatement that materially affects the current period's
financial statements, and the effect of the misstatement is not properly accounted for or not adequately presented or
disclosed, the auditor shall express a qualified opinion or an adverse opinion, as appropriate, in accordance with SA 705.

ii) CONSISTENCY OF ACCOUNTING POLICIES

The auditor shall obtain sufficient appropriate audit evidence about whether the accounting policies reflected
in the opening balances have been consistently applied in the current period's financial statements, and
whether changes in the accounting policies have been properly accounted for and adequately presented and
disclosed in accordance with the applicable financial reporting framework.

If the auditor concludes that:

a. the current period's accounting policies are not consistently applied in relation to opening balances in
accordance with the applicable financial reporting framework; or
b. a change in accounting policies is not properly accounted for or not adequately presented or disclosed in
accordance with the applicable financial reporting framework, the auditor shall express a qualified opinion
or an adverse opinion as appropriate in accordance with SA 705(Revised).

iii) RELEVANT INFORMATION IN THE PREDECESSOR AUDITOR'S REPORT

if the prior period's financial statements were audited by a predecessor auditor and there was a modification
to the opinion, the auditor shall evaluate the effect of the matter giving rise to the modification in assessing
the risks of material misstatement in the current period's financial statements in accordance with SA 315

If the predecessor auditor's opinion regarding the prior period's financial statements included a modification to the
auditor's opinion that remains relevant and material to the current period's financial statements, the auditor shall modify
the auditor's opinion on the current period's financial statements in accordance with SA 705(Revised)

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SA-560 SUBSEQUENT EVENTS

Meaning of Subsequent Events
Events occurring between the date of the financial statements and the date of the auditor's report, and facts that become
known to the auditor after the date of the auditor's report.

Financial reporting frameworks ordinarily identify two types of events:

(a) Adjusting Events- Those that provide evidence of conditions that existed at the date of the financial statements;
and
(b) Disclosing Events- Those that provide evidence of conditions that arose after the date of the financial statements.

Objectives of the auditor

1. Obtain sufficient appropriate audit evidence and identity all subsequent events
a. Obtaining and understanding of procedure that management has established to ensure subsequent events are
identified.
b. Inquiring of management and where appropriate TCWG.
c. Reading minutes
d. Reading interim financial statements if any

2. Respond appropriately to facts that become known to audit after issue of audit’s report and may have caused to amend
the report.

Facts which become known to the auditor after the date of the auditor's report but before the date the financial statements
are issued

1. The auditor has no obligation to perform any audit procedures regarding the financial statements after the date of
the auditor's report.
2. fact becomes known to the auditor that had it been known to the auditor at the date of the auditor's report, may
have caused the auditor to amend the auditor's report, the auditor shall:
(a) Discuss the matter with management and, where appropriate, those charged with governance
(b) Determine whether the financial statements need amendment and, if so,
(c) Inquire how management intends to address the matter in the financial statements.
SA-580 Written representation
👉Meaning of Written representation
A WR by management is provided to auditor to confirm certain matters or to support other Audit evidence,
WR do not include financial statement or supporting books and records.

WR as audit evidence
Even though WR provide necessary audit evidence, they don't provide sufficient and appropriate audit evidence on their
own It means, even if the management has provided WR, it shall not affect the nature or extent of audit evidence that the
auditor obtaining.

👉Objectives of WR
1. To support other audit evidence by means of WR
2. To obtain WR from management and TCWG that they believe that they have fulfilled their responsibility (prepare
financial statement as per AS & FRF) for preparation of financial statement
3. To respond appropriately to Management and TCWG, if they don't provide WR as requested by auditor

👉WR which auditor need to obtained from management

1. Preparation of financial statement - Auditor shall request the management to provide WR that it has fulfilled it's
responsibilities for preparation of financial statement as per applicable FRF
2. Information and its completeness: Auditor shall request management to provide WR that
a) it has provided the auditor with all relevant information &
b) All transactions have been recorded & reflected in financial statement.
3. Other WR if auditor determines that it is necessary to obtain 1 or more WR to support other evidence, auditor shall
request such other WR e.g., WR in relation to going concern

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👉Date of WR
Date of WR Shall be as near as practicable to but not after the auditor's report on financial statement.

Doubt as to the reliability of WR or requested WR not provided

1. Doubt as to reliability - if auditor has concern about competence, integrity or ethical values of management,
auditor shall determine the effect that such concern may have on reliability of WR In this scenario Auditor shall
perform further Audit procedures to resolve the matter If an Auditor conclude that WR are not reliable, auditor
shall take appropriate action, including possible effect on opinion in auditor's report as per SA 705
2. Requested WR not provided - if management does not provide any WR, auditor shall
a. discuss the matter with management
b. Re-evaluate the integrity of management; &
c. Take appropriate action, including effect of opinion in auditor's report as per SA-705
SA 550- "Related Parties", deals with the auditor's responsibilities regarding related party relationships and transactions
when performing an audit of financial statements
A party that is either:
1. related party as defined in the applicable financial reporting framework; or
2. Where the applicable financial reporting framework establishes minimal or no related party requirements:
(a) A person or other entity that has control or significant influence, directly or indirectly through one or more
intermediaries, over the reporting entity;
(b) Another entity over which the reporting entity has control or significant influence, directly or indirectly through one
or more intermediaries; or
(c) Another entity that is under common control with the reporting entity through having:
✓ Common controlling ownership;
✓ Owners who are close family members; or
✓ Common key management.

Q. How can an auditor verify the existence of related party relationships and transactions?
During the audit, the auditor should maintain alertness for related party information while reviewing records and
documents. He may inspect the following records or documents that may provide information about related party
relationships and transactions,
for example:
1. Entity income tax returns.
2. Information supplied by the entity to regulatory authorities.
3. Shareholder registers to identify the entity's principal shareholders.
4. Statements of conflicts of interest from management and those charged with governance.
5. Records of the entity's investments and those of its pension plans
6. Contracts and agreements with key management or those charged with governance.
7. Significant contracts and agreements not in the entity's ordinary course of business.
8. Specific invoices and correspondence from the entity's professional advisors.

Responsibly of Auditor

• The auditor has a responsibility to perform audit procedures to identify, assess and respond to the risks of material
misstatement arising from the entity's failure to appropriately account for related party relationships, transactions or
balances.

• The auditor needs to obtain an understanding of the entity's related party relationships and transactions sufficient to be
able to conclude whether the financial
SA 570 GOING CONCERN
👉Meaning of Going concern: under the GOING CONCERN basis of accounting financial statement are prepared on the
assumption that the entity is a going concern & will continue its operations for foreseeable future

👉Management's responsibility for assessment of Going concern Management is primarily responsible to follow going
concern assumption as
i) some financial reporting framework (e.g., AS/IND AS) contains express requirement for management to make
assessment of entity's ability to continue as Going Concern.

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ii) Requirement regarding management's responsibility to assess entity's ability to continue as going concern may
also be set out in law or regulations
iii) Preparation of Financial statement requires management to assess the entity's ability to continue as going concern
even if the FRF does not include an express requirement to do so (moral responsibility).

👉Objectives/Responsibilities as per SA 570

1. To obtain sufficient and appropriate audit evidence regarding appropriateness of management's use of going
concern assumption.
2. To conclude based on audit evidence obtained whether any material uncertainty exist which may cast significant
doubt on entity's ability to continue as going concern assumption.
3. To report in accordance with SAs Events or conditions which may cast significant doubt on entity's ability to
continue as going concern

Financial factors Operating factors Other factors

Inability to pay creditors on time Loss of key management without Pending legal proceedings against
replacement entity
Inability to comply loan agreement Labour problems Uninsured disaster when they
occur
Adverse key financial ratios Emergence of highly successful
competitors
Withdrawal of financial support by Loss of key markets, key customer,
creditors license etc.
Arrears or discontinuance of dividend
Shift from credit to cash system of
purchase

👉Audit procedure when event/conditions which may cast doubt on entity's ability to continue as going concern identified
1. when management has not yet performed an assessment of entity's ability to continue as going concern, request
the management to make its assessment
2. Evaluate management's future plan & check if such plans are feasible
3. Where entity has prepared a cash flow forecast - evaluate the reliability of data used to prepare forecast; & -
determine whether there is a adequate support for assumption behind such forecast
4. Request WR from management and TCWG regarding their future plan and it's feasibility
5. Considering whether any additional facts or information have become available since the date on which
management made its assessment

Conclusion by Auditor -Auditor shall evaluate whether sufficient and appropriate audit evidence has been obtained
regarding management's use of going concern assumption Based on such evidence, auditor shall conclude if, in Auditors,
any material uncertainty exist which may cast doubt on entity's ability to continue as going concern

Sit 1: Adequacy of disclosure where event or conditions have been identified and material uncertainty exist: Auditor shall
determine, if financial statement
a) adequately disclose the event/conditions that may cast doubt on entity's ability to continue as going concern &
plan by management to deal with them; & (auditor to check that disclosure of event)
b) disclose clearly that such material uncertainty may cast significant doubt on entity's ability to continue as going
concern and therefore it may be unable to realise it's assets and discharge it's liability in normal course of business
(see that disclosure about seriousness is there)

Sit 2 Adequacy of disclosure when event or conditions have been identified but no material uncertainty exist (event exist
management have a good plan) Where based on audit evidence obtained, auditor concludes that no material uncertainty
exist, auditor shall evaluate whether financial statement provide disclosure about such event along with it's mitigate (i.e.,
just to disclose about event and mitigate plan)

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👉Impact on Auditor's Report

Sit 1: use of Going concern assumption by management is inappropriate: wherein the auditor's judgement, management's
use of going concern basis of accounting in preparation of financial assessment is inappropriate, auditor shall express an
adverse opinion.

Sit 2 Use of Going concern assumption is appropriate but material uncertainty exist and adequate disclosure of such
uncertainty is made in the financial statement: Auditor shall express an unmodified opinion & auditors report shall include
a separate section under the heading "material uncertainty relating to Going concern"
a) Draw attention to the notes in financial statement; &
b) State that material uncertainty exist which may cast significant doubt on entity's ability to continue as going
concern but the auditor's opinion is not modified in respect of this matter.

Sit 3: Adequate disclosure of material uncertainty is not made in financial statement Auditor shall express 'qualified opinion'
or adverse opinion, as appropriate, in accordance with SA 705

👉Significant delay in approval of financial statement If there is a significant delay in approval of financial statement by
management and TCWG the auditor shall enquire the reason for such delay If auditor believes that delay could be related to
events and conditions related to going concern assessment, auditor shall perform additional audit procedure and consider
effect on Auditor's conclusion regarding the existence of material uncertainty

Thank you for patience reading

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