Audit Standards

A standard is quality of work, which can be used to measure the performance of auditors. The
audit staff can follow the stated principle and practice in the conduct of an audit. The business
world is ever changing. In order to meet the business needs the professional accountants are
busy in improving the rule of business audit. The audit standard applied in the early period is
not acceptable at present. The introduction of computer in accounting separation of
management from ownership, the establishment of big companies has increased the
responsibilities of auditors. The association of professional accountants has framed rules for
the guidance of their members. The International Federation of Accountants issues
international auditing guidelines. The Chartered Accountants have also framed rules at
national level. Anyhow with the passage of time further improvements will be made to meet
the new challenges of auditing work.
International Auditing Standards (ISA)
1. Objectives and Scope of the Audit of Financial Statement
This standard state that objective of audit is to express an opinion. The management is
responsible is responsible for preparing financial statement. The scope of audit is determined
by an audit in according with the requirements of legislation regulation or relevant
professional bodies.
2. Audit Engagement Letters
This standard relates to audit engagement letter, which is written by an auditor to his client
for acceptance of the appointment. This letter confirms the objectives and scope of audit. This
standard also states the possible contents of audit engagement letter. An example of audit
engagement letter is also given at the end of it.
3. Basic Principle Governing An Audit
This standard describes the basic principle, which govern auditor's responsibilities. The
auditor is bound to follow their principle during audit work. These principles include
integrity, objectivity, independence, confidentiality skills and competence, work performed
by others, documentation planning, audit evidence, accounting system and internal control,
audit conclusion reporting.
4. Planning
This standard deals with the planning of audit work. Work auditor planning must be helpful
to complete an audit work in an efficiency and timely manner. The plans should include
accounting system, policies and internal control procedure, degree of reliance on internal
control, the nature timing and extent of audit procedures to be performed and coordination of
audit work.

5. Using the Work of an Other Auditor

This standard states procedures for using the work of other independent auditors with respect
to the financial statements of one or more divisions, branches, subsidiaries or associated
companies included in financial statements of one or more divisions, branches, subsidiaries or
associated companies included in financial statements of an entity. This guideline also applies
where the principle auditor report on other financial information.
6. Studies and Evaluation of Accounting System
The standard deals with accounting system and internal control. The management is
responsible for proper accounting system and related internal control. The auditor require
assurance system is reasonable and all accounting information has been recorded internal
control contributes to the assurance.
7. Control of the Qualities of Audit Work
The high standard of audit profession requires high quality of audit work. The guideline
states the individual audit and general quality control. There is relationship between these
two. The general control facilitates control over individual audit. The delegation of work to
assistants is stated. In order to control quality of work assistance is given to audit firm.
8. Audit Evidence
The audit evidence standard deals with information collected by the auditor. He can form an
opinion about financial statements. The nature and sources of audit evidence are described.
The methods used are stated. He can state whether it is sufficient and appropriate.
9. Documentation
The audit standard deals with documents. Guidance is provided about the contents and form
of working papers. The example of working is also stated. The auditor can know how to
prepare working papers. The ownership and custody of working paper remains with auditor.
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10. Using the Work of Internal Auditor
Business employees who have skill and experience conduct the internal audit work. The
internal auditor can check whether internal control is proper and effective. The independent
auditor can use the work of internal auditor. The procedure for assessment of internal auditor
work is stated in this standard.
11. Frauds and Error
This standard states the definition of fraud and errors. The responsibility of fraud and error is
linked with management. The plan of the auditor must be effective to trace frauds and errors.
When the auditor smells fraud and errors the procedures have been suggested. The condition
and events are stated when risk of fraud and error increases.
12. Analytical Review

This standard provides detail of the nature of analytical review procedure. The purpose,
timing and extent of reliance to be placed is stated in it. The auditor can check the unusual
fluctuations.
13. Auditor's Report on Financial Statements
The guideline deals with the form and content of auditor report relating to independent audit
of financial statement of a business concern. The wording for clean and qualified opinion is
suggested. The examples state the unqualified, qualified, adverse and disclaimer of opinion.
14. Other Information in Documents
The guideline provides guidance as to the auditor's consideration of other information on
which he has no obligation to report. When an auditor has an obligation to report specially on
other information, his responsibilities are determined by the nature of his engagement. The
other information may be financial or non-financial. It may include report of management on
operations, financial summaries employment data. Planned capital expenditure, financial
ratios name of officers and directors.
15. Auditing in an EDP Environment
The guideline deals with the auditing through computers. The skill and competence needed
by the auditor is stated. He is responsible for delegating the work to assistants. he is not free
from liability where he uses the work of others.
16. Computer Assisted Audit Techniques
The guidelines provides information to audit for using computer assisted techniques
especially software and test data. The instances are stated when such techniques are to be
used. The application in small business is also possible.
17. Related Parties
The standard deals with audit evidence to be collected from relating parties. The transactions
can take place with debtors and creditors. The auditors can guidance to see whether
management has properly disclosed the related party relation ship and transactions with such
parties.
18. Using the Work of an Expert
The guideline provides guidance to the auditor for using the work of an expert engaged by the
client or auditor. The examples of cases are stated when an auditor may depend upon experts.
Guidance is also providing relating to expert's skills, competence and objectivity. The way of
evaluation of work of expert is stated.
19. Audit Sampling
The auditing guideline states the factors when an auditor can design and select and audit
sample. The evaluation of audit procedures is stated. The statistical and non-statistical
sampling methods are provided. The elementary guidance is provided about sampling risk,
stratification selection methods and projection of errors.

20. Date of Auditor's Report

The guidelines states guidance on date of auditor's report. The events may occur after balance
sheet date. The facts may be discovered after the issue of financial statements. The auditor
can take steps to identify subsequent events. The auditor can issue revised report about the
audited financial statements after their revised by management.
21. Going Concern
The financial statement are prepare under the accounting assumption as going concern. When
such assumption does not seem good the entity is unable to realize assets at recorded costs.
The guideline provides example when going concern assumption should be questioned. The
collection of audit evidence, following audit procedure and reporting about going concern is
stated.
22. Materiality and Audit Risk
The auditing guideline states the concept of materiality and risk and their relationship. The
auditor can use these concepts in planning and conducting audit and evaluating the result of
his procedures. The definition of materiality and audit risk is given. The components of audit
risk are explained. The interrelationship is also stated.
23. Special Purpose Reports
The guideline state the issue of report other then issued in routing matters. The report may be
issued on compulsive basis other than accepted standards, specified accounts or any item of
financial statements, compliance with agreement and summarized financial statements. The
examples are given at the end of it.
24. Audit of Accounting Estimates
The auditing guideline provides guidance to auditors on the audit procedures that should be
performed in order to obtain reasonable assurance as to the appropriateness of the accounting
estimates contained in financial information. An accounting estimate is an approximation of
the amount of an item in the absence of a precise means of management.
Principles of Auditing
1. Integrity
Integrity is a principle of auditing. The auditor is straightforward, honest and sincere in his
approach. He must be fair towards his work. The auditors are known for their discretion and
tactfulness. The loyalty toward his work and profession must be beyond doubt.
2. Objectivity
Objectivity is a principle of auditing. The auditor maintains an impartial attitude. He cannot
allow prejudice or bias to avoid the purpose of audit. He can protect the right of shareholders
through this principle.

3. Independence
Independence is a principle of audit. The auditor maintains an impartial attitude. He should
be an appear to be free of any interest. No doubt he receive fee from his client even then
independence is essential. His personal views must not be included in his report.
4. Confidentiality
Confidentiality is a principle of auditing. The auditors can maintain secrecy of information
acquired in the course of his work. He can not disclosed any information to a third party
without specific authority. He can provide facts and figures to other under legal or
professional duty.
5. Skill
Skill is a principle of auditing. The auditors must acquire skill of doing audit work. He must
get training from his principle. The experience of all audit steps must be obtained. It is a stage
of learning by doing. This skill will help him when becomes independent auditor.
6. Competence
Competence is a principle of auditing. There is a need of best training in the field of audit.
The competent person has the right to sign the report. The practical knowledge and training
with expert firm of auditors can make the trainee as competent.
7. Work Performed By Others
Work performed by other is a principle of auditing. The auditor can rely on the work of other
auditors. The sole duty lies on the head of principle auditor who is depending upon of others.
The information is available for reliance on others.
8. Planning
Planning is a principle of auditing. The auditing should plan his work in an efficient manner.
The audit planning includes accounting system, internal control procedure and degree of
reliance on internal control. The nature timing and extent of audit procedures to be performed
are part of planning.
9. Documentation
Documentation is principles of auditing. The auditor can document matters, which are
important in providing evidence that the audit was carried out in according with the basis
principles. The working papers are prepared at the time of audit. The auditor as proof of audit
work can keep these papers.
10. Audit Evidence
Audit evidence is a principle of auditing. The auditor can collect audit evidence through
working papers. He can frame an opinion based on the audit evidence. The principle states
the nature and sources of audit evidence. The methods to be used are also stated.

11. Accounting System

According system is a principle of auditing. It is a series of tasks in an entity by which
transaction are processed for maintaining financial record. This system should recognize,
calculate, clarify, post summarized and report transactions.
12. Internal Control
Internal control is a principle of auditing. Internal control means all measures used with in an
organization to assure management that the organization is operating in accordance with
planes and policies of management.
13. Audit Conclusion
A conclusion is a principle of auditing. The auditing can draw conclusion based on the
evidence obtained from the books and records. He can note that accounting policies have
been followed, financial information relates to legal requirements, the financial statement
show the affairs of business, the disclosure has been made as required.
14. Reporting
Reporting is a principle of auditing. The auditing can report on the matters relating to
business functions. A report may be short or detailed. It may be conditional or unconditional.
There may be disclaimer or adverse opinion relating to business activities.
15. Disclosure
Disclosure is a principle of auditing. The facts and figures are disclosed for general
information. The auditor can note that financial information has been presented in full all
disclosure formalities are complete. The auditor must provide full information to the
shareholders.
16. Capitals Or Revenue
The capital or revenue is a principle of auditing. According to the nature of business the
accounting staff can record the item as capital or revenue. The wrong allocation cannot
provide true information. The auditor must know the real position of each item in order to
report the matter.
17. Compliance with Legal Formalities
The follow up of legal formalities is an auditing principle. The rules and regulation must be
applied in order to protect the rights of interested parties. The business activities can run on
lines through compliance with law.
18. Consistency
The consistency is an auditing principle. The accountant has the right to select the rate of
depreciation, provision for bad debts and valuation of stock. He must follow these rates for
the year to come. The changes are not acceptable at all.

Auditing Standards and Auditing Procedures

Auditing Standards
An auditing standard is a measurement of performance set up by professional authority and
consent. A standard is a measuring device of applied procedures resulting in general
acceptability of the result of the performance.

Audit Procedures
Auditing procedures are acts to be performed during the course of an examination. By
applying perfect technique, procedure lead to proof of accuracy of the accounts and financial
statements. Audit procedures constitute the course of acting available in determining the
validity of standards and principles. In every audit, there must be review and observation,
inspection and count, evidence, proof, accuracy of proof and reconciliation.
Audit Techniques
1. Inspection
Inspection is concerned with review or examination of records, documents or tangible assets.
The auditors can check many documents in order to examine the business transactions.
Vouchers support every entry. Inspection of record is made note recording, authority and
validity of data. The auditors commonly use this technique.
2. Observation
Observation means looking at an operation or procedure being performed by others in order
to determine the manner of its performance. The auditor can observe the physical stock taking
by management. He can that accounting principles are applied in preparing accounting
recorded. The audit staff commonly uses observation.
3. Inquiry
Inquiry means obtaining relevant information either written or oral from resource persons
within or outside the enterprise through formal or informal manner. The auditor can collect
data from management through representation letter. He can inquire from debtors, creditors,
bankers and other experts in the field to form an opinion.
4. Confirmation
Confirmation is a reasonable to an inquiry to prove certain data recorded in the books of
business concern. The auditor can ask the management to inform the debtors for confirmation
of their accounts balance. The auditor can collect information from debtors to ensure the
accuracy of data. He can write letters to bank for supply of account balance kept by the bank.
5. Computation
Computation is concerned with checking the arithmetical accuracy of accounting records or
doing independent calculations. An auditor may follow the accounting procedure to check the
accuracy of data. The journal entry, position and balancing accounts can be compared with

the vouchers to test the reliability of data.

6. Sampling
Sampling is concerned with selecting few items from whole accounting information. Audit
sampling is the application of a compliance or substantive procedure to less than 100 percent
of the items within an account balance or class of transactions to enable the auditor to obtain
and evaluate evidence of some characteristics of the balance or class and to from or assist
informing a conclusion concerning that characteristics.
7. Compliance Test
Compliance tests are designed to obtain reasonable assurance that those internal controls on
which audit reliance is being placed are in affect. In obtaining audit evidence auditor is
concerned with existence of internal control, effectiveness and continuity of internal control.
8. Substantive Test
Substantive test are designed to obtain evidence as to the completeness accuracy and validity
of the data procedure by accounting system. They are of two types

test of details of transaction and balance

analysis of significant ratio and trends including the resulting investing of unusual
fluctuation and items.

9. Analytical Review
The analytical review consists of studying significant ratios and trends and investigation
unusual fluctuations and items. The application of analytical review procedures is based on
the expectation that relationship among data exists and continues in the absence of known
conditions to the contrary.
10. Computer Assisted Audit
Computer assisted audit techniques include audit software test packs embedded audit
facilities, system software data analysis, application programme, examination, teaching, flow
charting and mapping. These techniques show how the computer has various uses in
accounting.
11. Reliance on Auditors
Reliance on auditors is an audit technique. The independent auditor can rely on internal
auditors or other auditors for completing the work of his own audit.
12. Reliance on Experts
Reliance on experts is an audit technique. The auditor is no expert in every field. Basically he
knows accounting and audit work. He is not an engineer, architect, lawyer and valuers. He
has relied on auditors for seeking their expert opinion about business matters.

Functions of Audit
1. Accounting System
The function of audit is to study accounting system. It can be stated as a series of tacks in an
entity by which transaction ahere processed as a means of maintaining financial records. Such
a system should recognize, calculate, clarify post summarize and report transactions. The
auditor should understand the accounting system in operation in order to determine the nature
timing and extent of other audit procedures.
2. Internal Control
Internal control is a function of auditing. Internal control is a process, which determine that
management policies are carried out and accounting principles are followed. This functions
helps to safeguards assets, location and prevention of errors and frauds. Moreover the
management is able to prepare reliable financial statements in time. When the auditor notes
that he can rely on internal control, the audit procedure may be less extensive. The
effectiveness of internal control is to be determined by an auditor.
3. Vouching
Vouching is the function of auditing. An auditor can inspect the document, which support and
prove the business transactions. The data amount and other details are checked. All entries in
books of accounts are made on the basis of relevant vouchers. This function is essential to
determine the accuracy of accounting records.
4. Arithmetical Accuracy
I is a function of auditing to check the arithmetic accuracy of account books and books and
other papers. The audit staff verifies the figures. The errors and fraud are discovered. The
management can take steps to rectify the mistakes. The responsibility of fraud can be fixed.
This function helps the auditors to show true and fair view of accounting statements.
5. Capitals and Revenue
It is a function of auditing to make different between capital and revenue items. The revenue
items are compared to determine income. The capital items are compared to note the financial
position of any business. The income and expense relating to many years can be divided into
current and coming years.
6. Verification As Assets
The verification of assets is a function of auditing. Verification is concerned with
determination of value, ownership, possession and any charge on the assets of any business.
The auditor can check the existence of asset. The documents and books can show the
purchase price. If any loan is taken on security of an asset, such information can be collected.
It is duty of an auditor to verify these assets.
7. Verification of Liabilities

The verification of liabilities is a function of auditing. The auditor can verify the liabilities
from the books of accounts. The auditors must receive a certificate from management that all
liabilities are included in the balance sheet. The auditors can write letters to creditors for
verification of liabilities.
8. Valuation of Assets
The valuation of assets is a function of auditing. The auditors can apply accounting
conventions and principles to examine and test the values of assets. The management
calculates the value to assets. The auditor must critically check the assigned values. He can
get help from technical personnel.
9. Valuation of Liabilities
The valuation of liabilities is a function of auditing. The value of liabilities is stated in the
balance sheet. The management can examine the value on the basis of dealing made. The
auditor can examine the value of liabilities from books of accounts and other papers. The
auditor can confirm the value from outside sources. Independent experts should determine the
value of contingent.
10. Legal Requirements
The functions of auditing are to follow the legal requirements. There are various laws like
companies ordinance 1984. Income tax ordinance 1979 and stock exchange rules 1971. It is
the duty of auditor to check that financial statement are prepared under the legal
requirements. The auditor can note this point in the report that management has followed the
legal formalities.
11. Reporting
The reporting is a function of auditing. It is the duty of auditor to submit his opinion in
writing. The report may be clean or conditional. An auditor is an independent person. If he is
satisfied about true and fair view, he can present clean report in case of some weakness he
can give qualified report.

Audit in SA 200: Overall Objectives of the Independent Auditor and the

Conduct of an Accordance with Standards on Auditing
This Standard establishes the independent auditors overall responsibilities when conducting
an audit of financial statements in accordance with SAs

Ethical Requirements Relating to an Audit of Financial Statements The auditor

should apply the following fundamental principles of professional ethics relevant when
conducting an audit of financial statements; (a) Integrity; (b) Objectivity; (c) Professional
competence and due care; (d) Confidentiality; and (e) Professional behavior

Professional Skepticism Professional skepticism includes being alert to, for

example; (a) Audit evidence that contradicts other audit evidence obtained;
(b) Information that brings into question the reliability of documents and responses to
inquiries to be used as audit evidence; (c) Conditions that may indicate possible fraud; (d)
Circumstances that suggest the need for audit procedures in addition to those required by the
SAs

Professional Judgment Professional judgment is necessary in particular regarding

decisions about:
(a) Materiality and audit risk; (b) The nature, timing, and extent of audit procedures used
to meet the requirements of the SAs and gather audit evidence; (c) Evaluating whether
sufficient appropriate audit evidence has been obtained, and whether more needs to be
done to achieve the objectives of the SAs and thereby, the overall objectives of the
auditor; (d) The evaluation of managements judgments in applying the entitys
applicable financial reporting framework; (e) The drawing of conclusions based on
the audit evidence obtained, for example, assessing the reasonableness of the
estimates made by management in preparing the financial statements

Sufficient Appropriate Audit Evidence and Audit Risk To obtain reasonable

assurance, the auditor shall obtain sufficient appropriate audit evidence to reduce audit risk to
an acceptably low level and thereby enable the auditor to draw reasonable conclusions on
which to base the auditors opinion
Sufficiency and Appropriateness of Audit Evidence Audit evidence is necessary to
support the auditors opinion and report. It is cumulative in nature and is primarily obtained
from audit procedures performed during the course of the audit. Sufficiency is the measure of
quantity of audit evidence whereas appropriateness is the measure of quality of audit
evidence
Audit Risk Audit risk is a function of the risks of material misstatement and detection
risk. The risks of material misstatement may exist at two levels:

(a) The overall financial statement level; and (b) The assertion level for classes of
transactions, account balances, and disclosures. For a given level of audit risk, the
acceptable level of detection risk bears an inverse relationship to the assessed risks of
material misstatement at the assertion level
(b)
Conduct of an Audit in Accordance with SAs The auditor shall comply
with all SAs relevant to the audit. An SA is relevant to the audit when the SA is in
effect and the circumstances addressed by the SA exist. The auditor shall have an
understanding of the entire text of an SA, including its application and other
explanatory material, to understand its objectives and to apply its requirements
properly. The auditor shall not represent compliance with SAs in the auditors report
unless the auditor has complied with the requirements of this SA and all other SAs
relevant to the audit
DEFINATION & MEANING of SA200:

(a) Applicable financial reporting framework The financial reporting framework adopted by
management and, where appropriate, those charged with governance in the preparation and
presentation of the financial statements that is acceptable in view of the nature of the entity
and the objective of the financial statements, or that is required by law or regulation.
The term fair presentation framework is used to refer to a financial reporting framework
that requires compliance with the requirements of the framework and:

(i)

Acknowledges explicitly or implicitly that, to achieve fair presentation of the

financial statements, it may be necessary for management to provide disclosures

(ii)

beyond those specifically required by the framework; or

(ii) Acknowledges explicitly that it may be necessary for management to depart
from a requirement of the framework to achieve fair presentation of the financial
statements. Such departures are expected to be necessary only in extremely rare
circumstances.

The term compliance framework is used to refer to a financial reporting framework that
requires compliance with the requirements of the framework, but does not contain the
acknowledgements in (i) or (ii) above.
(b) Audit evidence Information used by the auditor in arriving at the conclusions on which
the auditors opinion is based. Audit evidence includes both information contained in the
accounting records underlying the financial statements and other information. For purposes of
the SAs:

(i) Sufficiency of audit evidence is the measure of the quantity of audit evidence. The
quantity of the audit evidence needed is affected by the auditors assessment of the risks of
material misstatement and also by the quality of such audit evidence.
(ii) Appropriateness of audit evidence is the measure of the quality of audit evidence; that is,
its relevance and its reliability in providing support for the conclusions on which the auditors
opinion is based.
REQUIREMENTS:
Ethical Requirements Relating to an Audit of Financial Statements
The auditor shall comply with relevant ethical requirements, including those pertaining to
independence, relating to financial statement audit engagements.
Professional Skepticism
The auditor shall plan and perform an audit with professional skepticism recognising that
circumstances may exist that cause the financial statements to be materially misstated.
Professional Judgment
The auditor shall exercise professional judgment in planning and performing an audit of
financial statements. Sufficient Appropriate Audit Evidence and Audit Risk
To obtain reasonable assurance, the auditor shall obtain sufficient appropriate audit evidence
to reduce audit risk to an acceptably low level and thereby enable the auditor to draw
reasonable conclusions on which to base the auditors opinion. Conduct of an Audit in
Accordance with SAs Complying with SAs Relevant to the Audit
The auditor shall comply with all SAs relevant to the audit. An SA is relevant to the audit
when the SA is in effect and the circumstances addressed by the SA exist.
The auditor shall have an understanding of the entire text of an SA, including its application
and other explanatory material, to understand its objectives and to apply its requirements
properly.
The auditor shall not represent compliance with SAs in the auditors report unless the auditor
has complied with the requirements of this SA and all other SAs relevant to the audit.
To achieve the overall objectives of the auditor, the auditor shall use the objectives stated in
relevant SAs in planning and performing the audit, having regard to the interrelationships
among the SAs.
(a) Determine whether any audit procedures in addition to those required by the SAs are
necessary in pursuance of the objectives stated in the SAs;

(b) Evaluate whether sufficient appropriate audit evidence has been obtained.
Complying with Relevant Requirements
The auditor shall comply with each requirement of an SA unless, in the circumstances of the
audit:
(a) The entire SA is not relevant; or
(b) The requirement is not relevant because it is conditional and the condition does not exist.
In exceptional circumstances, the auditor may judge it necessary to depart from a relevant
requirement in an SA. In such circumstances, the auditor shall perform alternative audit
procedures to achieve the aim of that requirement. The need for the auditor to depart from a
relevant requirement is expected to arise only where the requirement is for a specific
procedure to be performed and, in the specific circumstances of the audit, that procedure
would be ineffective in achieving the aim of the requirement . Failure to Achieve an
Objective
If an objective in a relevant SA cannot be achieved, the auditor shall evaluate whether this
prevents the auditor from achieving the overall objectives of the auditor and thereby requires
the auditor, in accordance with the SAs, to modify the auditors opinion or withdraw from the
engagement. Failure to achieve an objective represents a significant matter requiring
documentation in accordance with SA 230.

AUDITORS RESPONSIBILITY:
(i) For the preparation and presentation of the financial statements in accordance with the
applicable financial reporting framework; this includes the design, implementation and
maintenance of internal control relevant to the preparation and presentation of financial
statements that are free from material misstatement, whether due to fraud or error; and
(ii) To provide the auditor with:
a. All information, such as records and documentation, and other matters that are relevant to
the preparation and presentation of the financial statements;
b. Any additional information that the auditor may request from management and, where
appropriate, those charged with governance; and
c. Unrestricted access to those within the entity from whom the auditor determines it
necessary to obtain audit evidence.
In the case of a fair presentation framework, the responsibility is for the preparation and fair
presentation of the financial statements in accordance with the financial reporting framework;

or the preparation of financial statements that give a true and fair view in accordance with the
financial reporting framework. This applies to all references to preparation and presentation
of the financial statements in the SAs. The premise, relating to the responsibilities of
management and, where appropriate, those charged with governance, on which an audit is
conducted may also be referred to as the premise.
(l) Professional skepticism An attitude that includes a questioning mind, being alert to
conditions which may indicate possible misstatement due to error or fraud, and a critical
assessment of audit evidence.
(m) Reasonable assurance In the context of an audit of financial statements, a high, but not
absolute, level of assurance.
(n) Risk of material misstatement The risk that the financial statements are materially
misstated prior to audit. This consists of two components, described as follows at the
assertion level:
(i) Inherent risk The susceptibility of an assertion about a class of transaction, account
balance or disclosure to a misstatement that could be material, either individually or when
aggregated with other misstatements, before consideration of any related controls.
(ii) Control risk The risk that a misstatement that could occur in an assertion about a class
of transaction, account balance or disclosure and that could be material, either individually or
when aggregated with other misstatements, will not be prevented, or detected and corrected,
on a timely basis by the entitys internal control.

SA 210: Agreeing the Terms of Audit Engagements


Auditor and client should agree on terms of engagement. Agreed terms would need to
be recorded in an audit engagement letter or other suitable form of contract

The form and content of audit engagement letter may vary for each client, but would
generally include reference to (a) objective and scope of the audit of financial statements; (b)
responsibilities of the auditor; (c) responsibilities of management; (d) Identification of
applicable financial reporting framework for the preparation of financial statements; and (e)
Reference to the expected form and content of any reports to be issued by the auditor and a
statement that there may be circumstances in which a report may differ from its expected
form and content. Other matters as per the circumstances should also be included

In case of recurring audits, auditor should consider whether circumstances require the
terms of engagement to be revised

Where the terms of engagement are changed, auditor and client should agree on the
new terms. If auditor is unable to agree to a change of engagement and is not permitted to
continue the original engagement, the auditor should consider withdrawing from the
engagement and determine whether there is any obligation, either contractual or otherwise, to
report the circumstances to other parties, such as those charged with governance, owners or
regulators

INTRODUCTION SA210:
This Standard on Auditing (SA) deals with the auditors responsibilities in agreeing the terms
of the audit engagement with management and, where appropriate, those charged with
governance. This includes establishing that certain preconditions for an audit, responsibility
for which rests with management and, where appropriate, those charged with governance, are
present. Proposed SA 220 (Revised) deals with those aspects of engagement acceptance that
are within the control of the auditor.
EFFECTIVE DATE:
This SA is effective for audits of financial statements for periods beginning on or after April
1, 2010.
OBJECTIVES of SA210:
The objective of the auditor is to accept or continue an audit engagement only when the basis
upon which it is to be performed has been agreed, through:
a Establishing whether the preconditions for an audit are present; and
b. Confirming that there is a common understanding between the auditor and management
and, where appropriate, those charged with governance of the terms of the audit engagement.

PRECONDITIONS FOR AN AUDIT :

The use by management of an acceptable financial reporting framework in the preparation of

the financial statements and the agreement of management and, where appropriate, those
charged with governance to the premise5 on which an audit is conducted. For the purposes of
this SA, references to management should be read hereafter as management and, where
appropriate, those charged with governance

Requirements of Preconditions for an Audit :

In order to establish whether the preconditions for an audit are present, the auditor shall:
a. Determine whether the financial reporting framework to be applied in the preparation of
the financial statements is acceptable; and
b. Obtain the agreement of management that it acknowledges and understands its
responsibility
(i) For the preparation of the financial statements in accordance with the applicable financial
reporting framework, including where relevant their fair presentation
(ii) For such internal control as management determines is necessary to enable the
preparation of financial statements that are free from material misstatement, whether due to
fraud or error; and
(iii) To provide the auditor with:
a. Access to all information of which management is aware that is relevant to the preparation
of the financial statements such as records, documentation and other matters;
b. Additional information that the auditor may request from management for the purpose of
the audit; and
c. Unrestricted access to persons within the entity from whom the auditor determines it
necessary to obtain audit evidence.
Limitation on Scope Prior to Audit Engagement Acceptance :
If management or those charged with governance impose a limitation on the scope of the
auditors work in the terms of a proposed audit engagement such that the auditor believes the
limitation will result in the auditor disclaiming an opinion on the financial statements, the
auditor shall not accept such a limited engagement as an audit engagement, unless required
by law or regulation to do so.

Agreement on Audit Engagement Terms :

auditor shall agree the terms of the audit engagement with management or those charged with
governance, as appropriate. The agreed terms of the audit engagement shall be recorded in an
audit engagement letter or other suitable form of written agreement and shall include
a. The objective and scope of the audit of the financial statements;
b. The responsibilities of the auditor;
c. The responsibilities of management;
d. Identification of the applicable financial reporting framework for the preparation of the
financial statements; and
e. Reference to the expected form and content of any reports to be issued by the auditor and a
statement that there may be circumstances in which a report may differ from its expected
form and content.
The auditor may determine that the law or regulation includes responsibilities that, in the
auditors judgment, are equivalent in effect to those set out in that paragraph. For such
responsibilities that are equivalent, the auditor may use the wording of the law or regulation
to describe them in the written agreement. For those responsibilities that are not prescribed by
law or regulation such that their effect is equivalent.

SA 220: Quality Control for an Audit of Financial Statements


Quality control policies and procedures should be implemented at both level of
audit firm and on individual audits

To implement quality control policies and procedures designed to ensure that all
audits are conducted in accordance with Standards of Auditing

Objectives of quality control policies to be adopted will incorporate Professional

Requirements, Skills and Competence, Assignment, Delegation, Consultation, Acceptance
and Retention of Clients, Monitoring

To be communicated to its personnel in a manner that provides reasonable assurance

that the policies and procedures are understood and implemented

To implement those quality control procedures which are, in the context of policies
and procedures of the firm, appropriate to individual audit. To consider professional
competence of assistants performing work delegated to them when deciding extent of
direction, supervision and review appropriate for each assistant. Assistants to whom work is
delegated need appropriate direction, supervision and review of audit work performed by
them
EFFECTIVE DATE :
Quality Control for an Audit of Financial Statements is effective for audits of financial
statements for periods beginning on or after April 1, 2010.
INTRODUCTION :
SCOPE :
This Standard on Auditing (SA) deals with the specific responsibilities of the auditor
regarding quality control procedures for an audit of financial statements. It also addresses,
where applicable, the responsibilities of the engagement quality control reviewer. This SA is
to be read in conjunction with relevant ethical requirements
OBJECTIVE :
The objective of the auditor is to implement quality control procedures at the engagement
level that provide the auditor with reasonable assurance that:
(a) The audit complies with professional standards and regulatory and legal requirements; and
(b) The auditors report issued is appropriate in the circumstances.
System of Quality Control and Role of Engagement Teams :
Quality control systems, policies and procedures are the responsibility of the audit firm.
Under SQC 1, the firm has an obligation to establish and maintain a system of quality control
to provide it with reasonable assurance that:

(a) The firm and its personnel comply with professional standards and regulatory and legal
requirements; and
(b) The reports issued by the firm or engagement partners are appropriate in the
circumstances2.
This SA is premised on the basis that the firm is subject to SQC 1.
Within the context of the firms system of quality control, engagement teams have a
responsibility to implement quality control procedures that are applicable to the audit
engagement and provide the firm with relevant information to enable the functioning of that
part of the firms system of quality control relating to independence.
Engagement teams are entitled to rely on the firms system of quality control, unless
information provided by the firm or other parties suggests otherwise.

DEFINATION & MEANING :

Engagement partner :
The partner or other person in the firm who is a member of the Institute of Chartered
Accountants of India and is in full time practice and is responsible for the engagement and its
performance, and for the report that is issued on behalf of the firm, and who, where required,
has the appropriate authority from a professional, legal or regulatory body.
Engagement quality control reviewer :
A partner, other person3 in the firm, suitably qualified external person, or a team made up of
such individuals, with sufficient and appropriate experience and authority to objectively
evaluate, before the report is issued, the significant judgments the engagement team made
and the conclusions they reached in formulating the report. However, in case the review is
done by a team of individuals, such team should be headed by a member of the Institute.
Engagement team :
All personnel performing an engagement, including any experts contracted by the firm in
connection with that engagement.
Firm :
A sole practitioner/proprietor, partnership, or any such entity of professional accountants, as
may be permitted by law.
REQUIREMENTS :
Leadership Responsibilities for Quality on Audits

The engagement partner shall take responsibility for the overall quality on each audit
engagement to which that partner is assigned.
Relevant Ethical Requirements
Throughout the audit engagement, the engagement partner shall remain alert, through
observation and making inquiries as necessary, for evidence of non-compliance with relevant
ethical requirements by members of the engagement team.
If matters come to the engagement partners attention through the firms system of quality
control or otherwise that indicate that members of the engagement team have not complied
with relevant ethical requirements, the engagement partner, in consultation with others in the
firm, shall determine the appropriate action.
Independence
The engagement partner shall form a conclusion on compliance with independence
requirements that apply to the audit engagement. In doing so, the engagement partner shall:
(a) Obtain relevant information from the firm and, where applicable, network firms, to
identify and evaluate circumstances and relationships that create threats to independence;
(b) Evaluate information on identified breaches, if any, of the firms independence policies
and procedures to determine whether they create a threat to independence for the audit
engagement; and
(c) Take appropriate action to eliminate such threats or reduce them to an acceptable level by
applying safeguards, or, if considered appropriate, to withdraw from the audit engagement,
where withdrawal is permitted by law or regulation. The engagement partner shall promptly
report to the firm any inability to resolve the matter for appropriate action.
Acceptance and Continuance of Client Relationships and Audit Engagements
The engagement partner shall be satisfied that appropriate procedures regarding the
acceptance and continuance of client relationships and audit engagements have been
followed, and shall determine that conclusions reached in this regard are appropriate. If the
engagement partner obtains information that would have caused the firm to decline the audit
engagement had that information been available earlier, the engagement partner shall
communicate that information promptly to the firm, so that the firm and the engagement
partner can take the necessary action.

Assignment of Engagement Teams

The engagement partner shall be satisfied that the engagement team, and any auditors
experts who are not part of the engagement team, collectively have the appropriate
competence and capabilities to:
(a) Perform the audit engagement in accordance with professional standards and regulatory
and legal requirements; and
(b) Enable an auditors report that is appropriate in the circumstances to be issued.
Engagement Performance
The engagement partner shall take responsibility for:(a) The direction, supervision and
performance of the audit engagement in compliance with professional standards and
regulatory and legal requirements;(b) The auditors report being appropriate in the
circumstances.
Reviews
The engagement partner shall take responsibility for reviews being performed in accordance
with the firms review policies and procedures. On or before the date of the auditors report,
the engagement partner shall, through a review of the audit documentation and discussion
with the engagement team, be satisfied that sufficient appropriate audit evidence has been
obtained to support the conclusions reached and for the auditors report to be issued.
Consultation
The engagement partner shall:
(a) Take responsibility for the engagement team undertaking appropriate consultation on
difficult or contentious matters;
(b) Be satisfied that members of the engagement team have undertaken appropriate
consultation during the course of the engagement, both within the engagement team and
between the engagement team and others at the appropriate level within or outside the firm;
(c) Be satisfied that the nature and scope of, and conclusions resulting from, such
consultations are agreed with the party consulted; and
(d) Determine that conclusions resulting from such consultations have been implemented.
Documentation
The auditor shall document:
(a) Issues identified with respect to compliance with relevant ethical requirements and how
they were resolved.

(b) Conclusions on compliance with independence requirements that apply to the audit
engagement, and any relevant discussions with the firm that support these conclusions.
(c) Conclusions reached regarding the acceptance and continuance of client relationships and
audit engagements.
(d) The nature and scope of, and conclusions resulting from, consultations undertaken during
the course of the audit engagement.
The engagement quality control reviewer shall document, for the audit engagement reviewed,
that:
(a) The procedures required by the firms policies on engagement quality control review have
been performed;
(b) The engagement quality control review has been completed on or before the date of the
auditors report; and
(c) The reviewer is not aware of any unresolved matters that would cause the reviewer to
believe that the significant judgments the engagement team made and the conclusions they
reached were not appropriate.

SA 230: Audit Documentation

Audit documentation that meets the requirements of this SA and the specific
documentation requirements of other relevant SAs provides (a) evidence of auditors basis for
a conclusion about the achievement of overall objective of audit; and (b) evidence that the
audit was planned and performed in accordance with SAs and applicable legal and regulatory
requirements

Audit Documentation refers to the record of audit procedures performed, relevant

audit evidence obtained, and conclusions the auditor reached. Preparing sufficient and
appropriate audit documentation on a timely basis helps to enhance the quality of audit and
facilitates effective review and evaluation of audit evidence obtained and conclusions reached
before finalizing auditors report

To document discussions of significant matters with management, those charged with

governance, and others, including the nature of significant matters discussed and when and
with whom the discussions took place

Auditor may consider preparing and retaining a summary (Completion Memorandum)

that describes significant matters identified during the audit and how they were addressed. SA
220 requires auditor to review audit work performed through review of audit documentation.
Standards on Quality Control (SQC) 1 require firms to establish policies and procedures for
timely completion of assembly of audit files. An appropriate time limit within which to
complete the assembly of final audit file is ordinarily not more than 60 days after the date of
auditors report. SQC 1 requires firms to establish policies and procedures for retention of
engagement documentation

Retention period for audit engagements ordinarily is no shorter than ten years from
the date of auditors report, or, if later, the date of group auditors report
DATE:
This SA is effective for audits of financial statements for periods beginning on or after April
1, 2009.

SCOPE:
1. This Standard on Auditing (SA) deals with the auditors responsibility to prepare audit
documentation for an audit of financial statements. It is to be adapted as necessary in the
circumstances when applied to audits of other historical financial information. The specific
documentation requirements of other SAs do not limit the application of this SA. Laws or
regulations may establish additional documentation requirement
Nature and Purposes of Audit Documentation:
Audit documentation that meets the requirements of this SA and the specific documentation
requirements of other relevant SAs provides:

(a) Evidence of the auditors basis for a conclusion about the achievement of the overall
objective of the auditor; and
(b) Evidence that the audit was planned and performed in accordance with SAs and
applicable legal and regulatory requirements.
Audit documentation serves a number of additional purposes, including the following:
Assisting the engagement team to plan and perform the audit.
Assisting members of the engagement team responsible for supervision to direct and
supervise the audit work, and to discharge their review responsibilities in accordance with
Proposed SA 220 (Revised).
Enabling the engagement team to be accountable for its work.
Retaining a record of matters of continuing significance to future audits.
Enabling the conduct of quality control reviews and inspections in accordance with SQC 1.
Enabling the conduct of external inspections in accordance with applicable legal,
regulatory or other requirements.
OBJECTIVE :
The objective of the auditor is to prepare documentation that provides:
(a) A sufficient and appropriate record of the basis for the auditors report; and
(b) Evidence that the audit was planned and performed in accordance with SAs and
applicable legal and regulatory requirements.
DEFINATION & MEANING :
Audit documentation :
The record of audit procedures performed, relevant audit evidence obtained, and conclusions

the auditor reached (terms such as working papers or workpapers are also sometimes
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.
REQUIREMENTS :
Timely Preparation of Audit Documentation
The auditor shall prepare audit documentation on a timely basis.
Documentation of the Audit Procedures Performed and Audit Evidence Obtained
Form, Content and Extent of Audit Documentation :
The auditor shall prepare audit documentation that is sufficient to enable an experienced
auditor, having no previous connection with the audit, to understand:
(a) The nature, timing, and extent of the audit procedures performed to comply with the SAs
and applicable legal and regulatory requirements;
(b) The results of the audit procedures performed, and the audit evidence obtained; and
(c) Significant matters arising during the audit, the conclusions reached thereon, and
significant professional judgments made in reaching those conclusions.
In documenting the nature, timing and extent of audit procedures performed, the auditor shall
record:
(a) The identifying characteristics of the specific items or matters tested;
(b) Who performed the audit work and the date such work was completed; and
(c) Who reviewed the audit work performed and the date and extent of such review.
The auditor shall document discussions of significant matters with management, those
charged with governance, and others, including the nature of the significant matters discussed
and when and with whom the discussions took place. If the auditor identified information that
is inconsistent with the auditors final conclusion regarding a significant matter, the auditor
shall document how the auditor addressed the inconsistency.

SA 240: The Auditors Responsibilities Relating to Fraud in an Audit of

Financial Statements

Auditor is concerned with fraud that causes a material misstatement in financial

statements

Two types of intentional misstatements are relevant misstatements resulting from

fraudulent financial reporting and misstatements resulting from misappropriation of assets

Primary responsibility of prevention and detection of frauds is of the management as

well as those charged with governance. It is important that management, with oversight of
those charged with governance; place a strong emphasis on fraud prevention which may
reduce opportunities for fraud to take place and act as a deterrent

Auditor is responsible for obtaining reasonable assurance that financial statement

taken as a whole are free from material misstatement, whether caused by fraud or error. While
auditor may be able to identify potential opportunities for fraud to be perpetrated, it is
difficult for him to determine whether misstatements in judgment areas such as accounting
estimates are caused by fraud or error

Risk of auditor not detecting a material misstatement resulting from management

fraud is greater than for employee fraud, because management is frequently in a position to
directly or indirectly manipulate accounting records, present fraudulent financial information
or override control procedures designed to prevent similar frauds by other employees.
Auditor is responsible for maintaining an attitude of professional skepticism throughout the
audit, considering the potential for management override of controls and recognizing the fact
that audit procedures that are effective for detecting error may not be effective in detecting
fraud

Auditor shall identify and assess risks of material misstatement due to fraud at
financial statement level, and at assertion level for classes of transactions, account balances
and disclosures. Auditor must make appropriate inquiries of the management. Auditor must
discuss with those charged with governance as they have oversight responsibility for systems
for accounting risk, financial control and compliance with the law

When auditor identifies a misstatement, s/he should consider whether such a

misstatement may be indicative of fraud and if there is such an indication, s/he should

consider the implications of misstatement in relation to other aspects of the audit, particularly
the reliability of management representations
EFFECTIVE DATE :
This SA is effective for audits relating to accounting period beginning on or after 1st April,
2009.
INTRODUCTION:
The purpose of this Auditing and Assurance Standard (AAS) is to establish standards on the
auditor's responsibility to consider fraud and error in an audit of financial statements. While
this AAS focuses on the auditor's responsibilities with respect to fraud and error, the primary
responsibility for the prevention and detection of fraud and error rests with both those
charged with governance and the management of an entity. In this Standard, the term
'financial information' encompasses 'financial statements'. In some circumstances, specific
legislations and regulations may require the auditor to undertake procedures additional to
those set out in this AAS.
When planning and performing audit procedures and evaluating and reporting the results
thereof, the auditor should consider the risk of material misstatements in the financial
statements resulting from fraud or error.
SCOPE:
This Standard on Auditing (SA) deals with the auditors responsibilities relating to fraud in an
audit of financial statements. Specifically, it expands on how SA 315, Identifying and
Assessing the Risks of Material Misstatement Through Understanding the Entity and Its
Environment, and SA 330, The Auditors Responses to Assessed Risks, are to be applied
in relation to risks of material misstatement due to fraud.
OBJECTIVES :
The objectives of the auditor are :
(a) To identify and assess the risks of material misstatement in the financial statements due to
fraud;
(b) To obtain sufficient appropriate audit evidence about the assessed risks of material
misstatement due to fraud, through designing and implementing appropriate responses; and
(c) To respond appropriately to identified or suspected fraud.

DEFINITIONS & MEANING :

For purposes of the SAs, the following terms have the meanings attributed below:
(a) 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.
(b) Fraud risk factors - Events or conditions that indicate an incentive or pressure to commit
fraud or provide an opportunity to commit fraud.

REQUIREMENTS :
Professional Skepticism
In accordance with SA 200, the auditor shall maintain an attitude of professional skepticism
throughout the audit, recognizing the possibility that a material misstatement due to fraud
could exist, notwithstanding the auditors past experience of the honesty and integrity of the
entitys management and those charged with governance. Unless the auditor has reason to
believe the contrary, the auditor may accept records and documents as genuine. If conditions
identified during the audit cause the auditor to believe that a document may not be authentic
or that terms in a document have been modified but not disclosed to the auditor, the auditor
shall investigate further. Where responses to inquiries of management or those charged with
governance are inconsistent, the auditor shall investigate the inconsistencies.
Discussion Among the Engagement Team
SA 315 requires a discussion among the engagement team members and a determination by
the engagement partner of matters which are to be communicated to those team members not
involved in the discussion. This discussion shall place particular emphasis on how and where
the entitys financial statements may be susceptible to material misstatement due to fraud,
including how fraud might occur. The discussion shall occur notwithstanding the engagement
team members beliefs that management and those charged with governance are honest and
have integrity.
Risk Assessment Procedures and Related Activities
When performing risk assessment procedures and related activities to obtain an
understanding of the entity and its environment, including the entitys internal control,
required by SA 3155. the risks of material misstatement due to frau Evaluation of Fraud Risk
Factors The auditor shall evaluate whether the information obtained from the other risk
assessment procedures and related activities performed indicates that one or more fraud risk
factors are present. While fraud risk factors may not necessarily indicate the existence of

fraud, they have often been present in circumstances where frauds have occurred and
therefore may indicate risks of material misstatement due to fraud.
Evaluation of Audit Evidence
The auditor shall evaluate whether analytical procedures that are Identification and
Assessment of the Risks of Material Misstatement Due to Fraud
In accordance with SA 315, the auditor shall identify and assess the risks of material
misstatement due to fraud at the financial statement level, and at the assertion level for
classes of transactions, account balances and disclosures When identifying and assessing the
risks of material misstatement due to fraud, the auditor shall, based on a presumption that
there are risks of fraud in revenue recognition, evaluate which types of revenue, revenue
transactions or assertions give rise to such risks. presumption is not applicable in the
circumstances of the engagement and, accordingly, has not identified revenue recognition as a
risk of material misstatement due to fraud. The auditor shall treat those assessed risks of
material misstatement due to fraud as significant risks and accordingly, to the extent not
already done so, the auditor shall obtain an understanding of the entitys related controls,
including control activities, relevant to such risks
Responses to the Assessed Risks of Material Misstatement Due to Fraud
Overall Responses
In accordance with SA 330, the auditor shall determine overall responses to address the
assessed risks of material misstatement due to fraud at the financial statement level.
In determining overall responses to address the assessed risks of material misstatement due
to fraud at the financial statement level, the auditor shall:
(a) Assign and supervise personnel taking account of the knowledge, skill and ability of the
individuals to be given significant engagement responsibilities and the auditors assessment
of the risks of material misstatement due to fraud for the engagement;
(b) Evaluate whether the selection and application of accounting policies by the entity,
particularly those related to subjective measurements and complex transactions, may be
indicative of fraudulent financial reporting resulting from managements effort to manage
earnings; and
(c) Incorporate an element of unpredictability in the selection of the nature, timing and extent
of audit procedures.
Audit Procedures Responsive to Assessed Risks of Material

Misstatement Due to Fraud at the Assertion Level . In accordance with SA 330, the auditor
shall design and perform further audit procedures whose nature, timing and extent are
responsive to the assessed risks of material misstatement due to fraud at the assertion level
Audit Procedures Responsive to Risks Related to Management Override of Controls.
Management is in a unique position to perpetrate fraud because of managements ability to
manipulate accounting records and prepare fraudulent financial statements by overriding
controls that otherwise appear to be operating effectively. Although the level of risk of
management override of controls will vary from entity to entity, the risk is nevertheless
present in all entities. Due to the unpredictable way in which such override could occur, it is a
risk of material misstatement due to fraud and thus a significant risk

When the auditor identifies a misstatement resulting from fraud, or a suspected fraud,
s/he should consider auditors responsibility to communicate that information to
management, those charged with governance and, in some circumstances, when so required
by laws and regulations, to regulatory and enforcement authorities also

To obtain written representations from management

To document the understanding of entity and its environment and the assessment of
risks of material misstatement, responses to assessed risks of material misstatement and
communications about fraud made to management, those charged with governance,
regulators and others

SA 250: Consideration of Laws and Regulations in an Audit of Financial

Statements

To recognise that noncompliance by entity with laws and regulations may materially
affect financial statements. It is managements responsibility to ensure that entitys operations
are conducted in accordance with laws and regulations

Auditor is not responsible for preventing noncompliance. The auditor is responsible

for obtaining reasonable assurance that the financial statements, taken as a whole, are free
from material misstatement, whether caused by fraud or error

Risk of non detection of material misstatements is higher with regard to material

misstatements resulting from noncompliance with laws and regulations due to various
factors. To obtain a general understanding of legal and regulatory framework applicable to
the entity and how it is complying with that framework

After obtaining general understanding, auditor should perform procedures to identify

instances of noncompliance with these laws and regulations where noncompliance should
be considered when preparing financial statements. Further, auditor should obtain sufficient
appropriate audit evidence about compliance with those laws and regulations generally
recognised by Auditor to have an effect on determination of material amounts and disclosures
in financial statements

To obtain written representations that management has disclosed all known actual or
possible noncompliance with laws and regulations whose effects should be considered when
preparing financial statements. This SA does not apply to other assurance engagements in
which auditor is specifically engaged to test and report separately on compliance with
specific laws and regulations. Whether an act constitutes a noncompliance can be
determined only by a court of law

The Standard envisages "engaging a legal advisor to assist in monitoring legal

requirements" instead of "establishing a legal department" as one of the policies to ensure
compliance with laws and regulations. The Standard, in larger entities, also envisages
existence of a separate "compliance function" in addition to internal audit function and audit
committee to supplement policies and procedures for ensuring compliance with laws and
regulations

SA 260: Communication with those Charged with Governance

To communicate with those charged with governance, auditors responsibilities in

relation to financial statements audit, an overview of planned scope and timing of audit and
significant findings from the audit

Such matters include: Overall scope of audit; selection of/ changes in significant
accounting policies; potential effect on financial statements of any significant risks and
exposures, such as pending litigation; adjustments to financial statements arising out of audit
that have a significant effect on entitys financial statements; material uncertainties related to
events and conditions that may cast significant doubt on entitys ability to continue as a going
concern, disagreements with management about matters that could be significant to entitys
financial statements or auditors report; expected modifications to auditors report. Auditors
should communicate matters of governance interest on timely basis

Auditors communication may be made orally or in writing. In case of oral

communication, auditor should document their oral communications and response thereof

SA 265: Communicating Deficiencies in Internal Control to those Charged

with Governance and Management

The objective of the auditor is to communicate appropriately to those charged with

governance and management deficiencies in internal control that the auditor has identified
during the audit and that, in the auditors professional judgment, are of sufficient importance
to merit their respective attentions

The auditor shall determine whether, on the basis of the audit work performed, the
auditor has identified one or more deficiencies in internal control. If the auditor has identified
one or more deficiencies in internal control, the auditor shall determine, on the basis of the
audit work performed, whether, individually or in combination, they constitute significant
deficiencies.

SA 299 (AAS 12): Responsibility of Joint Auditors

Joint auditors should, by mutual discussion, divide audit work. Division of work
would usually be in terms of audit of identifiable units or specified areas. Division of work
may be with reference to items of assets or liabilities or income or expenditure or with
reference to periods of time

If a Joint auditor comes across matters which are relevant to areas of responsibility of
other joint auditors and which deserve their attention, or which require disclosure or
discussion with, or application of judgment by, other joint auditors, he should communicate
the same to all other joint auditors in writing prior to finalisation of audit

Certain areas of work, owing to their importance or owing to the nature of work
involved, would often not be divided and would have to be covered by all joint auditors

Each joint auditor is responsible only for the work allocated to them, whether or not
s/he has prepared a separate report on work performed by them

All joint auditors are jointly and severally responsible in respect of the audit work
which is not divided amongst them, for the appropriateness of decisions taken by them
concerning the nature, timing or extent of the audit procedures to be performed by any of the
joint auditors, for examining that the financial statements of the entity comply with disclosure
requirements of relevant statute, for ensuring that audit report complies with the requirements
of relevant statute and in respect of matters which are brought to the notice of joint auditors
by any one of them and on which there is an agreement among joint auditors

Each joint auditor is entitled to assume that other joint auditors have carried out their
part of audit work in accordance with generally accepted audit procedures. Normally, joint
auditors are able to arrive at an agreed report. However, where the joint auditors are in
disagreement with regard to any matters to be covered by the report, each one of them should
express his own opinion through a separate report

SA 300: Planning an Audit of Financial Statements


Planning an audit involves establishing the overall audit strategy for the engagement
and developing an audit plan. The objective of auditor is to plan the audit so that it will be
performed in an effective manner

Once the overall audit strategy has been established, an audit plan can be developed to
address various matters identified in the overall audit strategy, considering the need to
achieve the audit objectives through efficient use of auditors resources

To consider various matters in developing the overall plan like: terms of engagement;
nature and timing of reports; applicable legal or statutory requirements; accounting policies
adopted by the client; identification of significant audit areas; setting of materiality levels,
etc.

To obtain a level of knowledge of clients business that will enable them to identify
events, transactions and practices that, in their judgment, may have a significant effect on
financial information. Audit plan is more detailed than overall audit strategy that includes the
nature, timing and extent of audit procedures to be performed by engagement team members

Engagement partner and other key members of engagement team shall be involved in
planning the audit, including planning and participating in the discussion among engagement
team members so as to enhance effectiveness and efficiency of planning process

To plan the nature, timing and extent of direction and supervision of engagement team
members and review of their work. Auditor shall document overall audit strategy, audit plan
and any significant changes made during audit engagement to the overall audit strategy or
audit plan, and reasons for such changes

Audit planning ideally commences at the conclusion of previous years audit, and
along with related programme, it should be reconsidered for modification as the audit of their
compliance and substantive procedures progress. For an initial audit, auditor may need to
expand the planning activities because the auditor does not ordinarily have previous
experience with the entity that is considered when planning recurring engagements