CA SAMIKSHA SETHIA. Documentation of Objectives and scope AUDIT DOCUMENTATION [REFERENCE: SA 230] Audit Programme Audit Working Papers Audit Notebook

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SCOPE

AUDIT ENGAGEMENT, AUDIT DOCUMENTATION AND REPORT

AUDIT ENGAGEMENT, AUDIT DOCUMENTATION AND REPORT

Confirmation of appointment acceptance [Reference: SA 210]

AUDIT ENGAGEMENT LETTER - Signifies

Documentation of Objectives and scope

Form and Content

• _{Restriction of auditor's liability}

• _{Inherent limitations of audit}



Auditor's liability

ko

limit

karne ke lie

management responsibilty

ka

Scope

badhaya,

Confirmation

liya,

Experts

ko

• _{Objective & Scope}

use kiya, finally

Report

banake

Fees

collect kiya.

• _{Use of experts and internal auditors} • _{Form of audit report}

• _{Fees and billing arrangements}

AUDIT DOCUMENTATION [REFERENCE: SA 230]

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2 |



→ _{Detailed written plan} → _{Exact details of}

→ _{Audit procedures to be performed for} → _{Verification of FS items}

→ _{Estimated time required}

Advantages

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S

C

A

R

C

•

E

F

•

U

N

D

Disadvantages

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•

D

R

•

U

M



→ _{Records of}

→ _{Planning and Execution}

→ _{Prepared by/for and retained by auditor} → _{3 purposes}

aids in

Planning Supervision Evidence & performance & Review

Form and Content depends on:

• _{Nature of engagement (internal/tax/cost audit)} • _{Nature of business( IT, FMCG etc.)}

• _{Nature of records(manual, computerized)} • _{Form of Audit Report (LFAR, SA 700)} • _{Reliance on IC (strong,weak)}

• _{Supervision of work}

Types

Permanent Current

• _{Papers relevant for} • _{Relating to single}

> 1 year period

• _{Info. of continued significance • Current period}



→ _{Bound book}

→ _{Large variety of matters observed}

during audit

→ _{Permanent record}

Contents

• _{Entity's name}

• _{Organisation structure}

• _{Key Managerial Personnel (KMPs)} • _{MOA and AOA provisions}

• _{Errors and frauds} • _{Special points}

• _{Matters requiring explanation} • _{Management representations} • _{List of books}

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PERMANENT AUDIT FILE CURRENT AUDIT FILE

• _{Legal and organizational structure- MOA, AOA} • _{Extracts of minutes of BMs}

• _{Agreements, Deeds • Appointment acceptance letter}

• _{Evaluation of Internal Controls} • _{Management Representation letters} • _{Ratio and trend analysis} • _{Analysis of transactions and balances}

• _{Previous year audited FS} • _{Audit Programmes}

• _{Significant accounting policies} • _{Audit conclusions}



Working papers are auditor's property

Extracts can be provided at auditor's discretion

Or when legal or professional obligation

AUDIT EVIDENCE [ REFERENCE: SA 500]

→ _{Facts and reasons (information)}

→ _{used by auditor}

→ _{to evaluate assertions (Quantum) (Quality Relevance, Reliability)}

→ _{to enable expression of}

→ _Opinion

Factors influencing auditors judgment while obtaining audit evidence

Item Related (4) Entity Related (4) Auditor Related(2)

• _{Nature • Adequacy of Internal Control} • _Experience

• _{Materiality • Nature and Size • Results of auditing procedures}

• _{Trend • Unusual influence}

• _{Type of information} • _{Financial position}

SUFFICIENT AUDIT EVIDENCE APPROPRIATE

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Need of audit evidence

→ _{Audit evidence provides the auditor with a reasonable assurance about assertions} → _{While performing audit procedures we come acress assertions made by management}

Assertions by management

Substantive audit procedures

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V

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P

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Obligations & Disclosure

Methods of obtaining Audit Evidence

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C

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[

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[

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documents etc. performed by others from knowledgable persons accuracy ratios & trends Reliability of Audit Evidence

increases when

Obtained from Related controls Obtained directly Obtained in documentary Provided by

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CMA Inter Auditing Summary

| 5

TYPES OF AUDIT PROCEDURES

Risk Assessment procedures(RAP) Other Procedures

Compliance Procedures or Substantive Procedures

Test of Controls (TOC)

Stage: Control testing stage Substantive testing stage

Obtain evidence on: Operating effectiveness of controls Completeness, validity, accuracy of ABC Techniques used: Observation, Inspection of IO-ICAR

evidence, Inquiry

Test of Details (TOD) Analytical Procedures

→ _{Study of relationships}

between financial or

Vouching Verification non-financial variables

(classes of transactions) (Account Balances) Eg., Ratio Analysis, → _{Examination of P/L assertions} → _{Examination of B/S assertions Trend Analysis etc.}

→ Incomes and Expenses → _{Assets and liabilities}

AUDIT PROCEDURES

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SOME IMPORTANT CONCEPTS TRUE AND FAIR VIEW

→ _{Fundamental concept in auditing} → _{Whether results and affairs of entity}

truly and fairly presented → _{Subjective matter}

→ _{Depends on Auditor's professional judgment}

Schedule III disclosures made [Section 129] No material asset/ liability omitted True and _{Proper Valuation} Fair View

Exceptions separately disclosed

Accounting policies

selected and applied consistently

MATERIALITY _Planning SA 320

Performing

→ _{Materiality of an item influences}

economic decision of the user → _{Relative term}

→ _{No item is material in all circumstances}

Factors to be concerned for determining

Individually (item wise) In Aggregate (in totality) Legal considerations Legal Definition

Relative overall impact Qualitative

Insignificant quantity but special context

SURPRISE CHECKS

→ _{Moral check on employees} → _{Deterrent effect}

→ _{Improves effectiveness} → _{Once in every audit}

→ _{Cash, Inventories, Investments} → _{Results communicate with} management

→ _{Adequate action}

→ _{Include in audit report if} material

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SURPRISE CHECKS

→ _{Moral check on employees} → _{Deterrent effect}

→ _{Improves effectiveness} → _{Once in every audit}

→ _{Cash, Inventories, Investments} → _{Results communicate with} management

→ _{Adequate action}

→ _{Include in audit report if} material

DISCLOSURE OF ACCOUNTING POLICIES

→ _{Specific accounting principles and methods} → _{Eg., SLM or WDV depreciation}

→ _{Fundamental Accounting assumptions [CAG]}

C

A

G

→ _{Selection of Accounting policies}

based on

Prudence Substance over form Materiality

AUDIT RISK [AR]

Risk that auditor expresses an inappropriate audit opinion when FS are materially misstated

Risk of Material Misstatement [RMM] Detection Risk [DR]

⇓

Auditor's procedures failed to

Inherent Risk [IR] Control Risk [CR] detect a MS that existed

⇓

⇓

Susceptibility of an item Controls will not be able sampling a MS could

to MS without considering related controls to prevent, detect or correct MS not be detected]

[Eg., Risk due to estimation in PBDD] [Eg., Controls for budget review failed]

