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CA – FINAL

ADVANCED AUDITING, ASSURANCE & PROFESSIONAL ETHICS

SIMPLIFIER
(Audit Handbook which covers everything you need)

BY CA VIKALP GUPTA
(1st Edition)

Applicable for May/Nov’25 Exams

All amendments issued by ICAI covered

“Dream Is Free, But Hustle Is Sold Separately”

(P.s. Read this every time you pick up this beautiful book)
First Edition: January’25

For CA Final
Advanced Auditing, Assurance & Professional Ethics

Copyright (2024, Vikalp Gupta)

All rights reserved. This book is protected by copyright. No part of this book may
be reproduced, stored in a retrieval system, or transmitted in any form or by any
means, electronic, mechanical, photocopying, recording, or otherwise, without the
written permission of the copyright owner.

Price: ₹ 699

"A sincere thank you to all the readers for reading my work. This book is a testament to our
collective pursuit of knowledge. Words cannot express my gratitude for your support and
enthusiasm. It has been an incredible journey bringing this book to life and knowing that
you've connected with it means the world to me. I trust it will serve as a valuable resource on
your path to becoming a Chartered Accountant. Wishing you all the very best in your
endeavours."
 WORDS OF GRATITUDE
(In the making of SIMPLIFIER)

The Seeds of Success

This book is a result of many seeds sown along the way. I am deeply grateful to
my parents, (Smt. Santosh & Sh. Sanjay Gupta), for nurturing my curiosity
and providing the fertile ground for my growth.

My brother, Dr. Tanuj have been my constant companions, enriching my journey

with laughter and shared experiences.

A special thanks to CA Manmohan Gupta for his unwavering support in this

journey of making this dream alive.

I would like to express my sincere gratitude to CA Yash Khandelwal Sir for

illuminating my path with his invaluable guidance. He had been my ideal and
motivator from Day 1 of this book.

Special thanks to you all my students for your constant belief in me. We are
surely going to crack this. Good luck!

Siya Ram! (Without them, this couldn’t even start)

CA Vikalp Gupta

Do connect with me on telegram directly for any queries and feedback.

 Index
Sr No. Chapter Name Page No.
1. Basic of Standard of Auditing 1.1 – 1.5
2. SA 200 Series 2.1 - 2.25
3. SA 300 Series 3.1 – 3.7
4. SA 400 Series 4.1 – 4.5
5. SA 500 Series 5.1 – 5.28
6. SA 600 Series 6.1 – 6.8
7. SA 700 Series + Reporting (CARO 2020) 7.1 – 7.26
8. SA 800 Series 8.1 – 8.8
9. Professional Ethics & Liabilities of Auditors 9.1 – 9.39
10. Group Audits 10.1 – 10.6
11. Digital Auditing & Assurance 11.1 – 11.10
12. Emerging Areas: SDG & ESG Assurance 12.1 – 12.6
13. Overview of Audit of Public Sector Undertakings 13.1 – 13.6
14. Special Features of Audit of Banks 14.1 – 14.14
15. Special Features of Audit of NBFCs 15.1 – 15.7
16. Due Diligence, Investigation & Forensic Accounting 16.1 – 16.11
17. Risk Assessment & Internal Control 17.1 – 17.7
18. Internal Audit 18.1 – 18.4
19. Related Service (SRS 4400, 4410) 19.1 – 19.5
20. Review of Financial Statements (SRE 2400, 2410) 20.1 – 20.9
21. Prospective Financial Information (SAE 3400, 3402, 3420) 21.1 – 21.10
 Basics of Standard of Auditing
Before starting SA’s, first need to obtain understanding of this chapter.

Structure of Standard issued by Auditing & Assurance standards Board under Authority of Council of ICAI.

Standard on Quality Control (SQCs)

Assurance Services Related Services

Audits & reviews of Historical Assurance Engagements

Financial Information other than audits &
Reviews of Historical F.S.

Standard on Standard on Standard on Standard on

Auditing (SAs) Review Engagement Assurance Related Services
(SREs) Engagement (SAEs) (SREs)

➢ Applicable Financial Reporting Framework (AFRF)

The FRF adopted by management & TCWG, in the preparation and presentation of F.S. that is acceptable
in the view of nature of entity & objective of F.S. or required by law or regulation.

Fair Presentation Framework: Compliance Framework:

FRF that require compliance with the framework; FRF that requires compliance
and with the framework only.
Acknowledges directly or indirectly, that may be necessary for Mgt E.g.: Co-operative society
to provide additional disclosures beyond those required by framework
Or
Acknowledges directly (in rare cases), that may be necessary to
depart from requirement of framework to achieve fair presentation.
Requirement of AFRF determine form and content of the F.S. Also determine what constitute a complete set
of F.S.

Audit Handbook 1. 1
 ➢ Management & Those Charge with Governance
Management: Perform with executive responsibility for conduct of entity’s operation.
TCWG: Responsible for overseeing the strategic direction & obligation related to accountability of the entity.

➢ Assertions
Representations made by Mgt, explicit or otherwise, that are embodied in F.S., as used by auditor to
consider different types of potential misstatement that may occur.

➢ Material Misstatement
Material: which can change or influence the decision of user.
Misstatement: A difference between the amount, classification, presentation or disclosure of reported F.S. &
that is required for the item to be in accordance with AFRF. Misstatement can arise from error or fraud.

➢ Audit Evidence
Information used by auditor in arriving at the conclusions on which auditor’s opinion is based.
It needs to be sufficient and Appropriate
Measures of Quantity of Audit Evidence Measures of Quality of Audit evidence; that is relevance
(logical connection) & reliability (complete & accurate)
Quality Quantity Quality Quantity

➢ Two type of F.S.: General Purpose F.S. & Special Purpose F.S.
F.S. prepared to serve common information F.S. prepared in order to serve specific information need of
needs of majority of the users of F.S. intended users of F.S. (SA 800)

➢ Audit Risk
The risk that auditor express inappropriate audit opinion when F.S. are materially misstated. It is a function
of Risk of Material Misstatement and detection Risk. Audit Risk: RoMM X Detection Risk
(It doesn’t include risk that auditor might express an opinion that F.S. are materially misstatement when they are not)

Audit Handbook 1. 2
 Risk of Material Misstatement (RoMM): The risk that F.S. are materially misstated prior to audit.
It consists of two components, described at assertion level: RoMM: Inherent Risk X Control Risk
Inherent Risk: The susceptibility of assertion about a class of transaction, account balance or disclosure to
misstatement that could be material before consideration of any related controls.
Control Risk: Risk that misstatement that could occur in an assertion about class of transaction, account
balance or disclosure and that could be material, will not be prevented, detected & corrected on
timely basis by entity's internal control.

Detection Risk: Risk that procedure performed by auditor to reduce audit risk to acceptable low level will not
detect a misstatement that exist & could be material.

RoMM may exist at two level: Overall F.S. level & Assertion level
RoMM at assertion level are assessed in order to determine NTE of further audit procedures necessary to
obtain SAAE.

➢ RoMM is inversely related with detection risk (DR)

When RoMM is high, auditor needs to reduce DR by performing more substantive procedures (e.g., detailed
tests or analytical procedures). This ensures that overall audit risk stays at an acceptably low level.
If RoMM is low (e.g., due to strong internal controls), auditor can accept a higher DR by performing fewer
or less detailed substantive procedures.

➢ Audit Materiality is inversely related with Audit Risk.

When higher the materiality level (auditor can tolerate larger misstatement), lower the audit risk & vice versa.
The Auditor considers this when determining NTE of Audit Procedures. For e.g: If after planning audit
procedures, auditor determines that acceptable materiality level is lower, audit risk increased. Auditor would
compensate for this by either:
(a) reducing assessed degree of control risk & supporting reduced degree by carrying out extended test of control.
(b) reducing detection risk by modifying the NTE of planned substantive procedures.

Audit Handbook 1. 3
 Audit Procedures
In order to conduct audit of F.S. and obtain SAAE, auditor needs to perform the following procedures:

Understanding the entity and its environment (obtaining knowledge of client business, Relevant
industry, application of accounting policies, etc.) to identify what can go wrong in F.S.: Inherent Risk
Risk Understand & Evaluate internal control relevant to audit (Components of Internal Control) to
Assessment assess the chance of error or fraud in F.S.: Control Risk
Procedures
Auditor shall identify and assess risk of material misstatement at:
Assertion level: for class of transactions, account balances & disclosures
F.S. Level: What can go wrong in the overall F.S.
It provides the basis for design and performing further audit procedures.

It deals with the design and implement response to RoMM identified and assessed as per SA 315
Further
Audit Test of Controls: Substantive Procedures:
Procedures Verifying operating effectiveness of controls Audit procedures to detect material
and detect deviations (Assertion level) misstatement.

Auditor also perform Analytical Procedures (ratios and comparisons) during risk assessment procedure &
Further audit procedures.

Audit Handbook 1. 4
 Some Points on AUDIT
• Purpose of an audit is to enhance the degree of confidence of intended users in the F.S. An audit conducted
in accordance with SAs & relevant ethical requirements enables the auditor to form that opinion.
• F.S. of entity prepared and presented by Mgt with oversight from TCWG. SAs do not impose responsibilities
on Mgt or TCWG.
However, Premise (assumption) relating to responsibilities of mgt & TCWG based upon which audit is
conducted. (Refer SA 210). Audit of F.S. does not relieve management or TCWG of those responsibilities.

• Auditor shall not represent compliance with SAs in the auditor’s report unless the auditor has complied with
the requirement of SA relevant to audit
The auditor shall comply with each requirement of SA unless:
✓ The entire SA is not relevant; or
✓ Requirement is not relevant because it is conditional and condition doesn’t exist
In exceptional circumstances, the auditor may judge it necessary to depart from relevant requirement in SA.
In such case, auditor shall perform alternative audit procedures to achieve the aim of requirement.

This expected to arise only when requirement of specific procedure would be ineffective in achieving aim.

• If F.S. may represent that they are prepared in accordance with 2 AFRF (Ind AS & IFRS) because mgt is
required to prepare F.S. as per both framework & both are AFRF. Such description is appropriate only if F.S.
comply with each of framework individually without any need for reconciling statements.

• F.S. may be prepared as per 1 AFRF and describe in the notes to F.S. the extent to which F.S. comply with
another framework. Such description may constitute supplementary financial information & may covered
auditor’s opinion if it cannot clearly differentiate from F.S.

• If F.S. comply with 2 AFRF individually, two opinion is expressed. These opinions are expressed separately or
single sentence.

Audit Handbook 1. 5
 SQC 1: Quality Control for Firms & SA 220: Quality Control for an Audit of F.S.

Quality Control
SQC 1: Apply at firm Level SA 220: Apply at Engagement Level
SQC 1: Quality Control for firms that perform Audits and Review of Historical Financial Information, and
Other Assurance and Related Service Engagement.
Elements of Quality Control Acceptance & Continuance
Leadership Responsibilities
for Qualities within firms of Client Relationship

Ethical Requirements: EQCR Engagement

Independence Performance
Consultation, Difference (Review &
Human Resource of Opinion, Monitoring Supervision)

SA 220: Quality Control for an Audit of Financial Statements

Implement Quality Control policies & procedures of firm in each audit engagement.
Definitions:
Engagement Partner (EP): Full Time Practicing member of ICAI in firm, who is responsible for engagement
and its performance, & report issued on behalf of firm.
Engagement Team: All personnel performing an engagement, including expert used by the firm.
Engagement Quality Control Reviewer (CA): Any person or team of individual, with sufficient & Appropriate
experience & authority to evaluate judgements and conclusions of engagement team, before the report issued.

SQC 1 SA 220
→ It applies to entire firm and fixes the responsibility → It applies to particular audit engagement & EP
of firm by CEO or managing partners. takes responsibility of the same.
→ Applicable to audits, reviews of historical financial → Applicable to audit engagements only.
information, other assurance & related services. → SQC 1 is sine qua non for applicability of SA 220.
→ It relates to setting up of QC system consisting of → It deals with ET responsibilities to implement
policies and procedures for firm as a whole. QC procedures that are applicable to audit.

Audit Handbook 0
 Introduction
SQC 1 SA 220
Firm should establish a system of quality control Auditor shall implement quality control procedures at
designed to provide with reasonable assurance that: engagement level to provide reasonable assurance that:
→ Firm and its personnel comply with professional → Audit complies with professional standards and
standards and regulatory requirements; and regulatory requirements; and
→ Reports issued are appropriate in circumstances. → Auditor report issued is appropriate in circumstance.
The Quality control policies and procedure should be documented and communicated to firm’s personnel.
Elements of system of Quality Control
The firm’s system of quality control should include policies and procedures addressing each of following:
(a) Leadership responsibilities for quality within the firm. (b) Ethical requirements.
(c) Acceptance and continuance of client relationships and specific engagements.
(d) Human resources. (d) Engagement performance.
(e) Monitoring.

Leadership responsibilities for quality within the Firm & Audit

SQC 1 for Quality within the firms SA 220 for quality within the audit
Quality control system overriding the firm’s business Leadership responsibility of EP is to take responsibility
strategy for achieving quality in engagement. Firm’s for overall quality on each audit assigned to him.
CEO/ MP shall assume ultimate responsibility for Action of engagement partner emphasis:
firm’s system of quality control. It should ensure → Importance of Audit Quality
→
that:Firm assign its responsibilities so that commercial • Performing work that comply with professional
considerations don’t override the quality of work standard & regulatory requirement.
Performed. • Comply with firm’s quality control policies.
→ Firm policy & procedure with regard to personnel, • Issuing report that is appropriate in circumstances.
are designed to demonstrate the firm’s overriding • Engagement team’s ability to raise concerns
commitment to quality. without fear of reprisals.
→ Firm devote sufficient resources for development → Fact that quality is essential in audit engagements.
& documentation of quality control policies.

Ethical Requirements (SQC 1 & SA 220)

Firm should establish policies and procedures to ensure that firm’s personnel comply with ethical requirement.

Audit Handbook 2. 1
 Code establishes the fundamental principles of professional ethics which apply to all type of engagements
including network firms.
Policies and procedures to comply with Independence requirement should enable firms to:
→ Communicate its Independence requirement to its personnel & others.
→ Identify & evaluate circumstances that create threat to independence and take appropriate actions to
eliminate or reduce such threat, or if consider necessary, withdrawal from engagement.
In case of Breach of Independence requirements, promptly notify the firm & EP who need to address such
breach & take actions to resolve the matter.

To ensure compliance with independence requirements that apply to audit engagement, EP shall:
→ Obtain relevant information to identify circumstances that create threat of Independence.
→ Evaluate information or identified breaches of firm’s independence policies and procedures.
→ Take appropriate action to eliminate such threat or reduce to an acceptable level by applying safeguards.

At least Annually, firm should obtain written confirmation of compliance with its policies & procedures on
independence from all relevant firm personnel. (Paper or electronic form)
For all audit of F.S. of listed entity, EP shall be rotated at least once in 7 years. (Due to Familiarity threat)

Acceptance & Continuance of Client Relationship & Specific Engagement

Firm should establish policies & procedures for acceptance & continuance of Client relationships and specific
Engagements. Firm will undertake or continue relationships & engagements only where:
→ Has consider the Integrity of Client (or not having info that led to lack of integrity)
→ Engagement team is competent to perform engagement and has capabilities, time and resources to do so.
→ Firm & engagement team can comply with ethical requirements.
If issues are identified & firm decides to accept relationship - Document how issues were resolved

Matter to consider with regards to integrity of Clients

→ Identity and business reputation of client's principal owners, key management, related parties and TCWG.
→ Nature of the client’s operations, including its business practices.
→ Whether the client is aggressively concerned with maintaining the firm's fees as low as possible.
→ Indications of an inappropriate limitation in the scope of work.
→ Indications that the client might be involved in money laundering or other criminal activities

Audit Handbook 2. 2
 → Reasons for the proposed appointment of the firm and non-reappointment of the previous firm.
→ Information concerning the attitude of the client’s principal owners, key management and TCWG

Matters to be considered with regard to capabilities, competence, time & resources:

→ Firm personnel have knowledge of relevant industries or subject matters
→ Firm personnel have experience with relevant regulatory or reporting requirements, or the ability to gain
the necessary skills and knowledge effectively.
→ Firm has sufficient personnel with the necessary capabilities and competence
→ Experts are available, if needed
→ Individuals meeting criteria and eligibility requirements to perform EQCR are available, where applicable
→ Firm would be able to complete the engagement within the reporting deadline.

Policies and procedure on withdrawal from engagement and client relationship include:
→ Discussing with the appropriate level of the client’s management and TCWG regarding the action that the
firm might take based on relevant facts and circumstances.
→ If the firm determines that it is appropriate to withdraw, discussing with the appropriate level of client’s
management and TCWG withdrawal from engagement and reasons for the withdrawal.
→ Considering whether there is a professional, regulatory or legal requirement for the firm to report the
withdrawal from the engagement with reasons, to regulatory authorities.
→ Documenting significant issues, consultations, conclusions and the basis for the conclusions.

E.g. If a client started to expand its operations into area where firm doesn’t possess necessary skills: Not
accept or continue such engagement
• What if EP obtains information that would cause firm to decline engagement if info. had been available
earlier? EP shall communicate to the firm, so that Firm & EP can take necessary action

Human Resource
→ Firm shall establish policies & procedures to ensure it has sufficient resource to perform required task.
→ Firm shall have policies to address personnel issues. (e.g. recruitment, compensation, competence, etc.)
(How to evaluate personnel’s capability, competence: above points but language change)
→ Whether EP has appropriate competence, capability & time to perform the role, etc.
→ Responsibilities of EP are clearly defined and communicate to the partner.

Audit Handbook 2. 3
 Engagement Performance
Review responsibilities are determined on the basis that more experienced engagement team member or EP,
review work performed by less experienced team member. Reviewers consider whether:
→ Work has been performed in accordance with professional standards and regulatory & legal requirements.
→ Significant matters have been raised for further consideration.
→ Appropriate consultation has been taken place and result of conclusion have been documented.
→ Work performed supports the conclusion reached and is appropriately documented.
→ The evidence obtained is sufficient and appropriate to support report.
→ Objective of engagement procedure has been achieved.
EP shall review audit documentation (not all doc) & discuss with engagement team on or before issuing report.
(If in between of Audit, EP changed, then new EP should review the work performed by outgoing EP)

Consultation: Appropriate consultation has been taken place on difficult or contentious matter & documented.
Difference of Opinion: If there is difference in Opinion between engagement team, EP and EQCR. Report
shall issue only after resolution of differences. Such difference shall be resolved by firm policies & procedures
like by consulting with another practitioner or firm or professional or regulatory body.
Audit Documentation: Engagement file shall be completed within 60 days after the date of Auditor’s report.

Engagement Quality Control Review (EQCR)

→ Engagement quality control review in listed entities is mandatory requirement.
→ EQCR should be CA or a team lead by CA & have sufficient and appropriate experience.
→ It is necessary to maintain objectivity of such reviewer. Review doesn’t reduce responsibilities of EP
→ EP may consult with EQCR during engagement but it doesn’t compromise his objectivity.

Matter to consider while performing EQCR for audit of F.S. of listed entity:
→ Engagement team’s evaluation of the firm’s independence in relation to the specific engagement.
→ Significant risks identified during the engagement and the responses to those risks.
→ Judgments made, particularly with respect to materiality and significant risks
→ Whether appropriate consultation has taken place on matters involving differences of opinion or other
difficult or contentious matters
→ Significance and disposition of corrected and uncorrected misstatement identified during the engagement.
→ Matters to be communicated to management and TCWG and, other parties such as regulatory bodies.

Audit Handbook 2. 4
 → Working papers selected for review reflect the work performed and support the conclusions reached
→ Appropriateness of the report to be issued.

EP responsibility in relation to EQCR:

→ Determine that EQCR has been appointed
→ Discuss significant matter arising from the audit engagement with EQCR
→ Not date the Auditor’s report until completion of EQCR.
(E.g. EQCR wanted to review Independence requirement of engagement team but EP was view that matter related to
Independence are responsibility to EP not EQCR: Such view is not correct; it is the role of EQCR.)

Monitoring
Firm should establish policies and procedures to provide it reasonable assurance that system of quality control
are relevant, adequate and operating effectively & its purpose is to evaluate compliance of professional
standards & regulatory requirements, firm’s quality control policies have been appropriately applied.
EP shall evaluate result of firm’s monitoring process and take necessary actions.
Quality control of engagements has been monitored taking following factors:
→ Deciding whether quality control system of firm has been appropriately designed & effectively implemented.
→ Whether new developments in professional standards, L&R requirements have been reflected in policies.
→ Dealing with complaints & allegations against firm or any employees of it of non-compliance with
regulatory requirements by a person within or outside the firm.
→ Taking appropriate remedial actions against personnel who did not conform to quality control policies.

How to deal with Complaints & Allegations

→ Firms should establish policies & procedures to deal appropriately with:
• Complaints and allegation that work performed by firm fail to comply with Professional standards and
regulatory and legal requirements.
• Allegation of non- compliance with firm’s system of quality control
→ Firm establish clearly defined channels for firm personnel to raise concern without fear of reprisals.
→ Firm investigate such complaint & allegations as per established policies & procedures and Investigation
is supervised by partner with sufficient experience and authority.

“Sapne dekhna acchi baat h, lekin audit padhte-padhte sapne dekhna yeh to theek nhi”

Audit Handbook 2. 5
 SA 240: Auditor’s Responsibilities relating to Fraud in Audit of F.S.

Introduction
This SA deals with Auditor’s responsibilities relating to fraud in audit of F.S. and auditor’s objective are:
→ To Identify and assess risk of material statement in the F.S. due to fraud.
→ To obtain sufficient appropriate audit evidence about assessed risk of material misstatement due to fraud.
→ To respond appropriately to identified or suspected fraud.

Auditor shall be concerned with fraud that cause Material Misstatement in F.S. Two types of Intentional
misstatements are relevant to the auditor:
(i) Misstatements resulting from fraudulent financial reporting (Management level fraud)
(ii) Misstatements resulting from misappropriation of assets. (Employee level fraud)

Responsibilities of Management: Primary responsibility from prevention and detection of Fraud of entity.
Responsibilities of Auditor:
→ Auditor is responsible for conduct audit in accordance with SAs and obtaining reasonable assurance that
F.S. taken as a whole are free from material misstatement, whether caused due to fraud or error.
→ Owing to Inherent Limitations of an audit, there is an unavoidable risk that some material misstatements
of F.S. may not be detected even though the audit is properly planned and performed as per SAs.
→ Risk of not detecting material misstatement resulting from fraud is higher than error because fraud may
involve sophisticated and carefully organized scheme.
→ Risk of not detecting material misstatement from management fraud is higher than employee frauds.
→ Auditor doesn’t make legal determination of whether fraud has actually occurred.
→ Auditor shall report fraud: section 143(12) of Companies act, 2013 & Clause (xxi) of para 3 of CARO 2020.

Types of Fraud that cause material misstatement

Fraudulent Financial Reporting (FFR) Misappropriation of assets
It involves intentional misstatements or omission of It involves theft of entity’s assets and is perpetrated by
amount or disclosures in F.S. to deceive users of F.S. employees in small & immaterial amounts.
It may be accomplished by: It may be accomplished by:
→ Manipulation, falsification or alteration of → Embezzling receipts.
Accounting records. → Stealing physical assets or intellectual property.
→ Intentional misapplication of accounting → Using entity’s assets for personal use.
principles.

Audit Handbook 2. 12
 → Misrepresentation or intentional omission of → Causing entity to pay goods and services not
significant information in F.S. received.

Fraudulent financial reporting often involves management override of control. Fraud can be committed by
Management overriding controls using such techniques:
→ Recording fictitious Journal entries, particularly close to end of accounting period.
→ Inappropriately adjusting assumptions and changing judgements used to estimate.
→ Omitting, advancing or delaying recognition of event or transaction in F.S.
→ Concealing, or not disclosing facts and altering records related to transaction.
→ Engaging in complex transactions.

Fraud Risk Factor

It means events or condition that indicate incentive, pressure or provide opportunity/ attitude to commit fraud.

Fraud Risk Incentive/ Pressure Opportunities Attitude/ Rationalization

• High degree of competition. • Strong financial presence to • Non-financial Mgt’s excessive
• Significant decline in [Link] Industry. participation in A/c policies selectn.
• Rapid negative or no cashflow. • Significant related party transactn • Known history of violation of laws.
Fraudulent • New accounting, statutory, not ordinary course of business. • Mgt failing to remedy known
Financial regulatory requirements. • Significant unusual or high complx significant deficiency in control.

ation of
Assets ▪ Recent change to employee marketable or lack of observable. • Disregard for need for monitoring.
compensation. • Tolerance of petty theft.
▪ Promotion or rewards
inconsistent with expectant.

Audit Handbook 2. 13
 Why evaluation of Fraud risk factor? Fraud risk factors may not necessarily indicate existence of fraud, but
above circumstances present when fraud occurred and therefore may indicate ROMM due to fraud.

Identification & Assessment of ROMM due to Fraud (RAP)

In addition to the procedures of SA 315, Auditor need to obtain information for identifying ROMM, such as:
→ Auditor shall make inquiry: Management/ TCWG
Others within entity
In case entity having Internal Audit function, then Internal Auditor
to determine whether they have knowledge of actual, suspected or alleged fraud affecting entity.
→ Unless TCWG involve in managing entity, Auditor shall obtain understanding of how TCWG exercise
oversight on management and internal control related to risk of fraud.
→ Auditor shall evaluate unexpected or unusual relationship that identified during procedure, indicate ROMM.
→ Auditor shall evaluate information that indicate fraud risk factors.
* Unless there is simple revenue model, auditor shall presume that there is risk of fraud in revenue recognition,
evaluate which type of revenue, transactions give rise to such risk and those assessed ROMM treat as
significant risks.

Response to assessed ROMM due to Fraud

Overall response to assessed ROMM due to fraud at F.S. level- Auditor shall:
→ Assign and supervise personnel according to skills, knowledge, etc.
→ Evaluate whether the selection and application of accounting policies may indicate FFR.
→ Incorporate element of unpredictability in selection of NTE of procedures.

Response at assertion level: Auditor shall perform further audit procedure- NTE

Response to risk related to Management override of controls: Irrespective of the auditor’s assessment of risk
of management override of control, auditor shall design and perform audit procedure to:
→ Test appropriateness of J.E. recorded in general ledger and other adjustments made in F.S., Auditor shall:
• Make inquiry from individual involve in reporting process; & select J.E. made at end of reporting period.
→ Review accounting estimates for biases and evaluate whether circumstances producing bias.
→ Check significant transaction that are outside the normal course of business & evaluate such transactions.

Audit Handbook 2. 14
 Auditor Unable to Continue the Engagement
If misstatement (whether material or not) resulting from fraud or suspected fraud, the auditor encounters
exceptional circumstances that bring question the auditor’s ability to continue performing audit, auditor shall:
(a) Determine Professional and legal responsibility including whether to report the person who made
audit appointment or regulatory authorities;
(b) Consider whether its appropriate to withdraw from engagement, if withdrawal is legally permitted.
(c) If the auditor withdraws:
• Discuss with the appropriate level of management or TCWG, Auditor’s withdrawal from engagement &

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Note:
• Auditor is responsible for maintaining professional skepticism throughout the audit.
• Unless doubtful situation present, auditor may accept record and document as genuine.
• If Auditor confirms that, or unable to conclude whether, F.S. are materially misstated as a result of fraud
then auditor shall evaluate implications for the audit.

For any Query, Directly message me on Telegram: [Link]

Audit Handbook 2. 15
 SA 250: Consideration of Law & Regulation in an audit of F.S.

Introduction
→ Auditor consider law and regulation while performing audit of F.S. in identifying material misstatement
due to non-compliance of law or regulation.
→ Auditor is not responsible for preventing non-compliance and cannot be expected to detect non-compliance
of all law or regulation (Refer Inherent limitation of audit also).

Inherent limitation on auditor’s ability to detect material misstatement are due to:
→ There are many law & regulations that do not affect the F.S. and not captured by entity’s info system.
→ Non-compliance conduct designed to conceal it, such as collusion, forgery, override of control, etc.
→ Whether an act constitute non-compliance is ultimately matter for legal determination by court of law.

Responsibilities of Management/ TCWG for compliance of Law & Regulation:

It is the responsibilities of management, with oversight of TCWG, to ensure that entity’s operations are
conducted, in accordance with provision of law and regulation.
Entities may implement following Policies and Procedures that assist prevention & detection of non-compliance:
→ Instituting and operating appropriate systems of internal control.
→ Developing, publicising and following code of conduct
→ Ensuring employees are properly trained and understand code of conduct.
→ Monitoring compliance with the code of conduct.
→ Maintaining a register of significant law & regulation with which entity has to comply.

Law & Regulation

That materially impact F.S. That don’t impact F.S.

Law that has direct Law that doesn’t have direct effect on F.S. Not cover
effect on F.S.
Auditor’s Consideration of Compliance with Laws and Regulations
→ Obtaining an understanding of the entity and its environment in accordance with SA 315, Auditor shall
obtain a general understanding of:
• Legal and regulatory framework applicable to the entity & industry in which the entity operates; and

Audit Handbook 2. 16
 • How the entity is complying with that framework
→ Auditor shall obtain sufficient and appropriate audit evidence regarding compliance with those law &
regulations which have direct effect on determination of Material amount & disclosures in F.S.
→ Auditor shall perform following procedures to help identify instances of non-compliances with other laws
and regulations that have material effect on F.S.:
• Inquiring of Management/ TCWG as to whether entity is in compliance with law & regulations; and
• Inspecting correspondence with relevant regulatory authorities.
→ Auditor shall request management/ TCWG to provide WR of all known instances of non-compliance have
been disclosed to auditor.

Indications of Non-Compliances with Law & Regulations

When auditor become aware of the existence/ information of following matters, it may be an indication of
non-compliance of law or regulations:

→ Sales commission or agent’s fees that appear excessive in relation to those ordinarily paid by entity
→ Adverse media comments.
→ Existence of information system which fails to provide adequate audit trail or sufficient evidence.

Audit procedures when Non-Compliance is Identified or Suspected

→ If auditor become aware of information concerning instance of non-compliance with law or regulation, the
auditor shall obtain:
(a) Obtain understanding of nature of act and circumstances in which it occurred; and
(b) Further information to evaluate the possible effect on F.S.
→ If auditor suspects there may be non-compliance, discuss matter with management and TCWG. If they do
not provide sufficient information and the effect of suspected non-compliance may be material to F.S.,

Audit Handbook 2. 17
 auditor shall consider the need to obtain legal advice.
→ If sufficient information about suspected non-compliance cannot be obtained, auditor shall evaluate the
effect of lack of SAAE on auditor’s opinion.

What if mgt or TCWG do not take remedial action that auditor considers appropriate in the circumstances?
Unless prohibited by L&R, Auditor may consider whether withdrawal from engagement is necessary even
when compliance is not material to F.S. (otherwise describe such non-compliance in OM para)

Reporting of Identified or Suspected Non-Compliance

Reporting to TCWG:
→ Unless TCWG involved in management, Auditor shall communicate with TCWG of matter involving non
compliance that comes to auditor’s attention during course of audit, other than inconsequential matter.
→ If, in auditor’s judgements, non-compliance referred above is intentional or material, Auditor shall
communicate the matter to TCWG as soon as possible.
→ If auditor suspects that management or TCWG are involved in non-compliance, auditor shall communicate
to next high-level authority, if it exists. When no such authority exist, auditor shall obtain legal advice.

Reporting in Auditor’s Report

in F.S.

mpliance
based on

Auditor has identified or suspected non-compliance with law or regulation, auditor shall determine whether the
auditor has responsibility to report identified or suspected non-compliance to parties outside the entity.
(Consider NOCLAR also in case listed entity & Net worth>=250Cr)

Audit Handbook 2. 18
 Some MCQ Points: (SA 200 Series)
• Engagement team should consult previous year engagement team during course of planning.
• If one partner gone outside India, then another partner can sign audit report on behalf of him after review.
• EP select EQCR & participation in making decision for ET is to be avoided by EQCR.
• Complete & proper documentation should be maintained on issues involved & results of consultation.
• Where two or more different reports are issued of same subject matter of entity, firm’s policies & procedures
should be considered for assembly of final engagement as if it were separate engagement.
• “Poor Corporate Governance” is not an Inherent Limitation of audit.
•
•
•
•
• .
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•

• Granting significant bonuses if unrealistic profit targets met may create incentive to commit fraud.
• A control environment that is not effective may create an Opportunity to commit fraud.
• When auditor obtained evidence that fraud exist, inform to appropriate level of mgt ASAP even if matter is
Inconsequential.

Audit Handbook 2. 25
 SA 570: Going Concern

Introduction
Under Going Concern basis of accounting, F.S. are prepared on the assumptions that entity is going concern
and will continue its operation for foreseeable future. (consider inherent limitation on auditor also)
Objective of Auditor:
→ To obtain SAAE regarding appropriateness of management’s use of going concern basis of accounting in
preparation of F.S.
→ To conclude whether material uncertainty exists related to events or conditions that may cast significant
doubt on entity’s ability to continue as going concern;
→ To report in accordance with SA.

Risk Assessment Procedures

The auditor shall consider whether events or conditions exist that may cast significant doubt on entity’s
ability to continue as going concern.
Auditor shall determine whether management has already performed preliminary assessment of entity’s
ability to continue as going concern.

If performed, Auditor shall discuss with mgt and If such assessment not performed, Auditor
determine whether mgt has identified events or shall discuss with mgt the basis for intended
conditions that may cast significant doubt on use of going concern basis of accounting.
entity’s ability to continue as going concern.

Indicators of Material Uncertainty or examples of event or conditions that may cast significant doubt:
Financial Indicator Operational Indicator Other Indicator
•
•

• t
•
•
• .
• Change from credit to COD. competitor. • Uninsured catastrophe occurs.

Audit Handbook 5. 24
 Further Audit Procedures
Evaluate management Assessment
→ Auditor shall evaluate management assessment of entity’s ability to continue as going concern.
→ In evaluation, Auditor shall cover same period as used by mgt to make assessment as required by AFRF.
→ If management assessment cover less than 12 months from the date of F.S., the auditor shall request mgt
to extend its assessment period to at least 12 months from the date.
→ In evaluating management assessment, auditor shall consider whether mgt’s assessment include all the
relevant information which auditor is aware.

Additional Audit Procedures When Events or Conditions are Identified:

Auditor shall obtain SAAE to determine whether or not material uncertainty exists that may cast significant
doubt on entity’s ability to continue as going concern through performing additional procedures, such as:
• Where mgt has not yet performed an assessment, requesting mgt to make its assessment.
se

• Considering additional facts or information have become available since the mgt’s assessment date.
• Requesting WR from mgt/ TCWG, regarding their plans and future actions.
Other procedures:
• Reading minutes of meeting with shareholders/ TCWG for reference of financial difficulties.
• Analysis of entity’s latest available interim F.S.
• Reading the term of debentures and loan agreements and determine whether they have breached.

Auditor Conclusion
(A) When Events or Conditions have been identified and auditor conclude that going concern basis of accounting
is appropriate but material uncertainty exists, then in F.S:
→ Adequacy disclose the principal events or conditions and management plans to deals with these events;
→ Disclosure clearly that there is material uncertainty related to going concern and therefore, that it may

Audit Handbook 5. 25
 unable to realize its assets or liabilities in normal course of business.

(B) If events or conditions have been identified that may cast significant doubts on entity’s ability to continue
as going concern but based on audit evidence, auditor concludes that no material uncertainty Exists, then
auditor evaluate whether F.S. provide adequate disclosures of these events and conditions.

Implications on Auditor’s Report

Adequate Disclosure of Material Uncertainty is made in F.S.

If adequate disclosure about material uncertainty is made in F.S., auditor shall express an unmodified opinion

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• In case of Inadequate Disclosure: Qualified opinion.

• KAM cannot substitute MURG Para.

Audit Handbook 5. 26
 For any Query, Directly message me on Telegram: [Link]

Some MCQ Points: SA 500 Series

• Consider both Qualitative & Quantitative factors while evaluating samples.
• Increase in population will have negligible effect on sample size.
• Increase in tolerable rate of deviation will have decrease effect on sample size.
• Stratification of population when appropriate will decrease the sample size.
• In case total purchase in P&L is ₹50 Cr. & auditor has taken 50 samples of total ₹10Lac., Auditor identified 2
misstatement in purchase invoice of total ₹5,000. Tolerable misstatement is ₹2lac. Projected misstatement will be
be increase.
ling Risk.

procedures.
ave satisfactory

• Non-Declaration of dividend is not a material uncertainty of going concern.

Audit Handbook 5. 28
 Reporting: SA 700 Series, CARO, 2020 & Other Reporting

SA 700

Framing an Opinion (How Elements of Audit Conducted Supplementary info.

to Frame, Type of Opinion) Auditor’s Report under Both SA & ISA presented with F.S.

SA 701

Detail about KAM Factor consider while How to communicate Circumstances where
(Mandatory for Listed Co) determining KAM KAM in Report KAM not
communicate in report

SA 705

Type of Modified What LOSA How to Determine How to Draft Opinion

Opinion imposed by Mgt appropriate Opinion & changes in Basis of
Opinion section

SA 706
Emphasis of Matter Para Other Matter Para

SA 710

About Corresponding Audit Procedure for Report on Corresponding Fig. &

Fig. & Comparative F.S. Comparative Info. Comparative F.S. based on various
scenarios
SA 720

How Auditor What if Material How to Report in Examples of Amount

Obtain Other Info misstatement exist Auditor’s Report or Other Items related
to Other Info.

Other Reporting Responsibilities

Duty to Report by Auditor Report under CARO, 2020

under section 143(1), 143(3) (Applicability & 21 clauses)
& 143(12) of Companies
Act, 2013

Audit Handbook 0
 SA 700: Forming an Opinion & Reporting on F.S.

Introduction
SA 700 applies to an audit of a complete set of general-purpose financial statements
Objective:
→ To form an opinion on the F.S. based on evaluation of the conclusions drawn from audit evidence.
→ To express clearly that opinion through a written report.

Forming an Opinion on the Financial Statements

Auditors shall form opinion whether F.S. are prepared as per Applicable Financial Statement Framework. (AFRF)
How to form opinion?? By obtaining SAAE as per SA 330
By obtaining reasonable assurance whether
F.S. as a whole are free from Material Whether uncorrected misstatements are
Misstatement material as per SA 450
Type of Opinion
→ Unmodified Opinion: When auditor conclude that F.S. are prepared, in all material respects, as per AFRF.
→ Modified Opinion: Auditor shall modify opinion as per SA 705:
(i) When Auditor conclude that, based on evidence obtained, the F.S. as a whole are not free from
Material Misstatement or
(ii) When Auditor unable to obtain SAAE to conclude that F.S. as a whole are free from Material
Misstatement

Auditor shall evaluate, as per the requirement of AFRF, whether:

→ F.S. adequately disclose the significant accounting policies selected & applied.
→ Accounting policies selected and applied are consistent with AFRF & appropriate.
→ Accounting estimates made by management are reasonable.
→ Information presented in the F.S. is relevant, reliable, comparable & understandable.
→ F.S. provide adequate disclosure to enable intended users to understand effect of material transactions.
→ Terminology used in F.S. including title of each F.S. is appropriate.

Elements of Auditor’s Report

(i) Title: It clearly indicates that it is the report of an Independent Auditor
(ii) Addressee: The auditor’s report shall be addressed as required by the circumstances of the engagement.

Audit Handbook 7. 1
 E.g.: To Members of Company (General purpose F.S.) or To BOD of Company (Special purpose F.S)
(iii) Auditor’s Opinion: First section of Auditor’s report shall include Auditor’s Opinion, and shall have heading
“Opinion”. The Opinion section shall also:
• Identify the entity whose F.S. have been audited
• State that the F.S. have been audited
• Identify the title of each statement comprising the F.S.
• Refer the notes including the summary of significant accounting policies; and
• Specify the dates and period covered by each F.S.
Extract of Independent Auditor’s Report: Opinion Para
• We have audited the standalone F.S. of ABC Ltd which comprise the balance sheet as at 31st March 20XX, and
standalone statement of Profit and Loss,…..Change in equity,……Cash Flow for the year ended 31st March 20XX
and notes to the standalone F.S. , include summary of Significant accounting policies and other information.
• In our opinion and the best of our information and explanation given to us………………………
In Disclaim of Opinion: Opinion Para start with
We were engaged to audit the standalone F.S. of ABC Ltd………………
(iv) Basis of Opinion: Report shall include a section, directly following opinion section, with the heading “Basis
of Opinion”, that:
• States that the audit was conducted in accordance with SAs. (Reference to SA)
• Refer to the section of Auditor’s Report that describe Auditor’s Responsibilities under SAs.
• Includes a statement that the auditor is independent of the entity in accordance with the relevant
ethical requirements relating to audit. The statement shall refer to the Code of Ethics issued by ICAI.
• States whether the auditor believes that audit evidence the auditor has obtained is sufficient &
appropriate to provide a basis for the auditor’s opinion.
(v) Going Concern: Auditor shall report as per SA 570
(vi) Key Audit Matters: Auditor shall communicate KAM in Auditor’s Report as per SA 701
(vii) Other Information: Auditor shall report as per SA 706 (EOM & OM Para)
(viii) Responsibilities for the Financial Statements: Auditor’s report shall include a section with a heading
“Responsibilities of Management for the Financial Statements.” (Refer SA 210)
(ix) Auditor’s Responsibilities for the Audit of the Financial Statement: It shall
• State that the objectives of the auditor are to:
✓ Obtain reasonable assurance about whether FS are free from material misstatement;
✓ Issue an auditor’s report that includes the auditor’s opinion

Audit Handbook 7. 2
 • State that reasonable assurance is a high level of assurance, but is not a guarantee that an audit
conducted in accordance with SAs will always detect a material misstatement when it exists.
• State that misstatements can arise from fraud or error, and either describe they are considered
material or provide a description of Materiality.
• Auditor needs to describe audit by explaining auditor’s responsibilities related to audit procedures.
Location of the description of Auditor’s responsibilities
→ Within the body of Auditor’s Report.
→ Within an appendix to Auditor’s Report & report include the reference of location of Appendix.
→ On a website, where law & regulation expressly permit, and specific reference of location in report.
In Group Audit engagement: Division of responsibilities as per SA 600
(x) Report on Other Legal & Regulatory Requirement: E.g. as required sec 143(3) of Companies Act, 2013
(xi) Signature of Auditor: Report is signed by Auditor (i.e. Engagement Partner) in his personal name. In case
of Firm, report is signed in personal name of auditor & in name of Audit Firm. Also mention UDIN,
membership number, registration number of firm (if applicable).
(xii) Place of Signature: include specific location, ordinarily city where audit report is signed.
(xiii) Date of Auditor’s Report

Auditor’s Report prescribed by Law & Regulation

If auditor is required by Law & Regulation applicable to entity to use specific layout, or wordings in auditor’s
report, the Auditor’s Report shall refer to SAs only if it includes minimum elements of Auditor’s Report.
Auditor’s Report for Audit conducted as per Both Standards on Auditing Issued by ICAI &
International Standard on Auditing (ISAs) or Any Other Jurisdiction
An auditor may be required to conduct an audit, in addition to Standards on Auditing issued by ICAI. If this is
t
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y
the same including jurisdiction of origin of the other auditing standards.

Audit Handbook 7. 3
 Supplementary Information Presented with the financial statements
If supplementary information that is not required by AFRF is presented with audited F.S., the auditor shall
evaluate whether supplementary information is an integral part of the F.S. due to its nature or how it is
presented.
→ If it is an integral part of F.S., Supplementary information shall be covered by Auditor’s Opinion.
→ If it is not considered an integral part of the audited F.S., evaluate whether it is presented in a way that
sufficiently and clearly differentiates it from the audited F.S. If not, then the auditor shall ask mgt. to
c or
s
s

Exam
• I
i
• If additional P&L A/c that disclose specific items of expenditure as separate schedule included as appendix
to F.S.: Auditor may consider this supplementary info. which clearly differentiate from F.S.

Audit Handbook 7. 4
 SA 701: Communicating Key Audit Matter in Auditor’s Report

Introduction
→ This SA deals with Auditor’s Responsibility to communicate key audit matters in the auditor’s report.
→ This SA applies to audit of Complete set of general purpose F.S. of:

Listed entity Circumstances when Auditor decide to Required by Law & Regulation
communicate KAM in Auditor’s Report

→ KAM are matters that in Auditor’s Professional Judgement, were of most significant in audit of F.S. of
Current Period. KAM are selected from the matters communicated with TCWG.
→ To enhance communicative value of Auditor’s Report or provide additional info to intended users or areas
of significant management judgement
→ Communicating KAM in Auditor’s Report is not:
• A substitute disclosure in F.S. that AFRF requires;
• A substitute for auditor expressing a modified opinion when required by SA 705;
• A substitute for reporting as per SA 570 when a material uncertainty exists relating to events or

→ Other Matters that may be not required to disclose in F.S. can also be consider as KAM, if it requires
significant auditor’s attention. (E.g.: Implementation of new IT system can be significant Auditor’s attention)
→ Examples: Taxation Matters, Assessment of Impairment, Valuation of Financial Instrument, etc.

Factor to Consider while determining KAM

→ Areas of higher assessed RoMM or significant risk identified as per SA 315.
→ Significant auditor judgments relating to areas in F.S. that involved significant management judgment,
including accounting estimates that have been identified as high estimation uncertainty. (SA 540)
→ The effect on the audit of significant events or transactions that occurred during the period.

Circumstances in which matter determined to be KAM is not communicated in Auditor’s Report

The Auditor shall describe each KAM in the Auditor’s Report unless:
(i) Law & Regulation precludes public disclosure about the Matter; or

Audit Handbook 7. 5
 (ii) In extremely rare circumstances, the auditor determines that the matter should not be communicated
in the auditor’s report because the adverse consequences of doing so would reasonably be expected to
outweigh public interest benefits of such communication.

Communicating Key Audit Matters

The introductory language in this section of the auditor’s report shall state that:
(i) Key Audit Matters are those matters that, in the auditor’s professional judgment,
Introductory
were of most significance in the audit of F.S. [of the current period];
Language
(ii) These matters were addressed in the context of audit of F.S. as a whole, and auditor
does not provide a separate opinion on these matters.
Description of each KAM shall address:
Description of → A reference to related disclosures/ notes to account, if any, in the F.S.
individual KAM → Why the matter considered as most significant and determined to be a KAM
→ How the matter was address in the Audit
If Auditor determine that there is no KAM then mention in KAM para:
If NO KAM “Except for the matter describe in the Basis for Opinion, Auditor have determined that
there is no KAM to communicate in Report”

Communication with TCWG (Refer SA 260)

→ Auditor may communicate preliminary views about KAM while discussing planned, scope & timing.
→ It provides the opportunity to TCWG to understand basis for auditor’s decision about such matters.
→ It also enables TCWG to consider whether new or enhance disclosures may be useful.
→ Co
to

Notes:
• If
circumstances, these matters not describe in KAM section. Rather, auditor shall include only reference to
that para in the KAM section.
• KAMs are additional important facts which auditor intends to highlight and it is not to be taken as
auditor’s opinion on such matters.

Audit Handbook 7. 6
 SA 705: Modifications to Opinion in Auditor’s Report

Introduction
SA 705 deals with auditor’s responsibility to issue an appropriate report in circumstances, if auditor concludes
that a modification to the auditor’s opinion on F.S. is necessary.
The decision regarding which type of modified opinion is appropriate depends upon:
• Nature of matter that give rise of modification; and
• Auditor’s Judgement about the pervasiveness of effect or possible effect of matter on the F.S.

Types of Modified Opinion

Three types of modified opinions in respect of F.S.:
→ When Auditor is obtained sufficient appropriate audit evidence (SAAE), conclude that
misstatement, individually or aggregate, are material but not pervasive; or
Qualified
→ When Auditor is unable to obtain sufficient appropriate audit evidence (SAAE), but he
Opinion concludes that possible effects of undetected misstatements, if any, could be material but
not pervasive.
When Auditor is obtained sufficient appropriate audit evidence (SAAE), conclude that
Adverse Opinion
misstatement, individually or aggregate, are both material & pervasive.
When Auditor is unable to obtain sufficient appropriate audit evidence (SAAE), and he
Disclaimer
concludes that possible effects of undetected misstatements, if any, could be material
Opinion and pervasive.

Consequences of an Inability to Obtain Sufficient Appropriate Audit Evidence Due to a Management-

Imposed Limitation after the Auditor has Accepted the Engagement
If, of
au

)
and determine whether it is possible to perform alternative procedure to obtain SAAE.

If Auditor is unable to obtain SAAE, then auditor shall determine implication as follows:
• If Auditor concludes that possible effect on F.S. of undetected misstatements, could be material but not
pervasive, he shall Qualify the opinion

Audit Handbook 7. 7
 • If Auditor concludes that possible effect on F.S. of undetected misstatements, could be material and
pervasive, he shall:
✓ Withdraw from the Audit where practicable and possible under law or regulation; or
✓ If withdraw from audit before issuing auditor’s report is not practicable, Disclaim an Opinion.
• Before Withdrawing, Auditor shall communicate to TCWG any matter regarding misstatement
identified during audit that give rise of modification.

Circumstances where Withdrawal not permitted: As per SEBI Circular, In case of listed entity if auditor
proposes to resign:
• within 45 days from end of any quarter of a period covered under appointment, then auditor shall,
before such resignation, issue audit/ limited review report for such quarter.
• after 45 days from end of any quarter of a period covered under appointment, then auditor shall, before
such
• If Li
full

Note:
• If Mate
→
→
• If Comp
• No Agr
• Non-Co
• In Case of Resignation of Auditor of Unlisted Co.: Auditor shall not mention “professional pre-occupation”
as a reason for the resignation. Auditor shall mention the reason clearly.
• If Auditor identifies a material misstatement but question does not clarify whether it is pervasive or not:
A “Qualified or Adverse opinion” appropriate. However, if asked to choose only one, always select
“Qualified Opinion”.

Audit Handbook 7. 8
 How to determine the appropriate Modified Opinion for the circumstances

How To draft Opinion Section in Audit Report

When Auditor modifies the audit Opinion, auditor shall use the heading “Qualified Opinion”, “Adverse Opinion”
or “Disclaimer of Opinion” as appropriate, for the opinion section.

Unmodified Opinion
In Our Opinion and to the best of our knowledge and information available with us, F.S. of the entity show
a true and fair view, in conformity with accounting principal generally accepted in India, of the state of
affairs as at 31st March 20XX and profit or loss account and cash flow for the year ended 31st March 20XX.

Qualified Opinion
In Our Opinion and to the best of our knowledge and information available with us, except for the matters
described in Basis for Qualified opinion Para, FS of the entity show a true and fair view, in conformity with

Audit Handbook 7. 9
 accounting principal generally accepted in India, of the state of affairs as at 31st March 20XX and profit or
loss account and cash flows for the year ended 31st March 20XX.

Adverse Opinion
In Our Opinion and to the best of our knowledge and information available with us, because of significance
of matters described in Basis for Adverse Opinion Para, FS of the entity do not show a true and fair view, in
conformity with accounting principal generally accepted in India, of the state of affairs as at 31st March

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o

Basis of Opinion Section

When Auditor modifies audit Opinion, auditor shall Amend the heading & use “Basis for Qualified Opinion”,
“Basis for Adverse Opinion” or “Basis for Disclaimer of Opinion” as appropriate; and
→ Within this section, include a description of the matter giving rise to the modification.
→ In case of Disclaim of Opinion, Basis of Opinion Para shall not include reference to section of “Auditor’s
responsibilities” and “statement of auditor believing SAAE obtained for basis of opinion”.

Audit Handbook 7. 10
 SA 706: Emphasis of Matter Paragraph & Other Matter Paragraph in Auditor’s Report

Introduction
This SA deals with additional communication in the Auditor’s Report when Auditor consider it necessary.
EOM Para: Refers to a matter that presented or disclosed in the F.S. (i.e. Accounting Matters)
OM Para: Refers to a matter other than those presented or disclosed in the F.S. (i.e. Auditing Matters)

Emphasis of Matter Paragraph

A paragraph included in Auditor’s Report that refers to matter presented or disclosed in F.S. that, in the
Auditor’s Judgement, is fundamental to users understanding of F.S.
• Auditor shall include an EOM Para in the Auditor’s Report provided:
• Auditor would not be required to modify opinion as per SA 705 as a result of the matter;
• When SA 701 applies, matter has not been determined to be a KAM.
• When Auditor’s include EOM Para in Auditor’s Report, he shall:

Ci

→ When fact become known to the auditor after the date of auditor’s Report & Auditor provide new or
amended report (Subsequent Event: SA 560)
Circumstances where Auditor may consider it necessary to include EOM Para:
→ Uncertainty relating to the future outcome of exceptional litigation or regulation action.
→ Significant subsequent event that occurs between the date of F.S. and date of Auditor’s Report.
→ Early application of new accounting standard that has material effect on F.S.
→ Major Catastrophe that has significant effect on entity’s financial position.

Other Matter Paragraph

A paragraph included in the Auditor’s Report that refer to a matter other than those presented or disclosed in
F.S., that in Auditor’s Judgement, is relevant to the users understanding of Auditor’s Report.
• Auditor shall include an OM Para in Auditor’s Report, provided:
• Not prohibited by Law or Regulation.

Audit Handbook 7. 11
 • When SA 701 applies, matter has not been determined to be a KAM.

Notes:
• If Auditor expect to include EOM or OM Para in Report, then Auditor shall communicate with TCWG
regarding expectation & Wordings.
• After EOM or OM Para, include this line: “Our Opinion regarding this matter is not modified”.
•

• .

Audit Handbook 7. 12
 SA 710: Comparative Information- Corresponding Figures & Comparative F.S.

Introduction
Corresponding Figures: Where amount & disclosure for prior period included as an integral part of Current
period F.S. and intended to read only in relation to current period figures. These are not presented as complete
F.S. and auditor’s opinion on F.S. refers to the current period only.
Comparative Financial Statement: Where amount and other disclosure for prior period included for comparison
with F.S. of current period and auditor’s opinion refers to each period for which F.S. are presented.

Audit Procedure for Comparative Information

For determining the F.S. contains appropriately classified comparative information, the auditor shall evaluate
whether:
&

If dditional
audit procedures to obtain SAAE to determine whether material misstatement exist.
(Note: SA 560 “Subsequent Event” also applies if auditor had audited the prior period F.S.)

As per SA 580, Auditor shall request WR for all period. Auditor shall also obtain specific WR regarding any
prior period that separately disclosed in current year P&L.

Audit Reporting in case Where Audit Report for Earlier year is Modified
If auditor’s report on prior period, as previously issued, included a modified opinion & matter which gave rise to
modification is unresolved, auditor shall modify the auditor’s opinion on current period’s F.S.
In the Basis for Modification Para in auditor’s report, auditor shall:
either:
(i) Refer to both current period’s figures & corresponding figures when the effects of matter on current
period’s figures are material; or
(ii) In other cases, explain that audit opinion has been modified because of the effects of unresolved matter
(iii) on comparability of current period’s figures and corresponding figures.

Audit Handbook 7. 13
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Audit Handbook 7. 14
 SA 720: Auditor’s Responsibility in relation to Other Information

Introduction
→ This SA requires auditor to read and consider other information for any information that is materially
inconsistent with the F.S. may indicate that there is a material misstatement in F.S. or Other Information
which may undermine credibility of F.S. or Annual Report.
→ Auditor’s opinion on F.S. does not cover other information and auditor is not require to obtain audit
evidence beyond that required to form an opinion on the F.S.
→ This SA doesn’t apply to
(i) Preliminary announcements of financial information (ii) Securities offering document (Prospectus)

When to obtain? At the date of auditor’s Report:

• In case of Listed entity, auditor has obtained or expected to obtained Other information
• In case of Unlisted entity, auditor has obtained some or all other information

How Auditor Obtain Other Information

→ Determine, through discussion with management, which document comprises the annual report, and the
entity’s planned manner and timing of the issuance of such document.
→ Make appropriate arrangements with management to obtain in a timely manner and, if possible, prior to
date of auditor's report, the final version of the document comprising the annual report.
→ When some or all documents determined above not available until after date of auditor’s report, request
mgt to provide a WR that final version of documents will be provided to auditor when available & prior
to its issuance by entity, such that auditor can complete procedures required by this SA

When any material inconsistency appears to exist (or other information appears to be materially misstated),
auditor shall discuss matter with management &, if necessary, perform other procedures to conclude
whether material misstatement exist.

When Auditor concludes that Material Misstatement of Other Information Exists

If auditor concludes that a material misstatement of other information exists, he shall request management
to correct other information. If management.:
✓ Agrees to make correction, auditor shall determine that correction has been made; or
✓ Refuses to make correction, auditor shall communicate matter with TCWG and request for correction.

Audit Handbook 7. 15
 What if auditor conclude that material misstatement exists in other information obtained prior to date of
auditor’s report, and other information is not corrected after communicating with TCWG?
The Auditor shall take appropriate action, including:
→ Considering implications for auditor’s report & communicating with TCWG about how auditor plans
to address material misstatement in auditor’s report,
→ Withdrawing from engagement, where withdrawal is possible under applicable Law or Regulation.

What if auditor conclude that material misstatement exists in other information obtained after date of
auditor’s report? The Auditor shall:
→ If other information is corrected, perform procedures necessary in the circumstances; or
→ If other information is not corrected after communicating with TCWG, take appropriate action
considering auditor’s legal rights & obligations, to seek to have uncorrected material misstatement
appropriately brought to attention of users for whom the auditor’s report is prepared.

Reporting of Other Information

→ Auditor’s report shall include a separate section with a heading “Other Information”, It includes:
• A statement that management is responsible for the other information

a statement that describes uncorrected material misstatement of the other information.

Examples of Amount or Other Items that may include in Other Information

Amount:
• Items in a summary of key financial result OR Capital expenditures by segment or division
• Selected operating data, such as income from continuing operations by major operating area
• Amounts involved in, and related financial effects of, off-balance sheet arrangements.

Audit Handbook 7. 16
 • Amount involve in guarantee, contractual obligation, claims OR Financial measures or ratios.

Other items:
• Identification of related parties and descriptions of transactions with them
• Description of guarantees, contractual obligation OR Description of off-balance sheet arrangements.
• Overview of strategy OR General business description of business environments.
• Descriptions of trends in market prices of key commodities or raw materials.
• Mgt assessment of impact of new reporting standard OR Explanations of critical accounting estimates

Notes:
• If F.S. is correct but other info is material misstated & Mgt or TCWG refuse to correct: Report such
matter under other information.
• Auditor is not precluded from issuing audit report if auditor has not obtained some or all Other info.
• Qualified or Adverse opinion in F.S. may not impact the reporting of Other info. if the matter in respect
of which opinion is modified is not included in other info. and doesn’t affect any part of other info.
• When Auditor disclaim an opinion on F.S., his report doesn’t include reporting section of Other info.

Audit Handbook 7. 17
 Duties of Company Auditor (Section 143)

Duty to Inquire on Certain Matters (Section 143(1))

(a) Whether loans & Advances made by company on basis of security have been properly secured & whether
terms are prejudicial to the interests of company or its members;
(b) Whether transactions of company which are represented by Book entries are prejudicial to interest of Co.
(c) Where Company not being investment Co. or banking Co., whether so much of assets of Co. as consist of
shares, debentures & other securities have been sold at a price less than at which they were purchased.
(d) Whether loans and advances made by the company have been shown as Deposits.
(e) Whether personal Expenses have been charged to revenue account.
(f) Where it is stated that any shares have been allotted For cash, whether cash has actually been received in
respect of such allotment, and if no cash has actually been so received, whether the position as stated in
the account books & balance sheet is correct, regular and not misleading.
Note: The auditor is not required to report on these matters unless he has any special comments to make.

Duty to Report (Section 143(3))

(a) Whether he has sought and obtained all information and explanation which are best of his knowledge and
belief for the purpose of his audit and if not, the details thereof and effect of such information on F.S.
(b) Whether proper BOA have been kept by company so far as appears from his examination of those books
and proper returns adequate for audit have been received from branches not visited by him.
(c) Whether report on accounts of Branch office audited by other person has been received & manner of
dealing with it in preparing report.
(d) Whether company’s balance sheet and P&L dealt are in agreement with BOA and returns.
(e) Whether F.S. comply with Accounting Standards.
(f) Observations or comments of the auditors on financial transactions or matters which have adverse effect
(g) whether any director is disqualified from being appointed as a director under section 164 (2).
(h) Any qualification, reservation or adverse remark relating to the maintenance of accounts.
(i) Whether Company has adequate Internal Financial Control with reference to F.S. & operating effectiveness
of that control. (Not apply to OPC, Small Company, Pvt Co. whose turnover <50cr)
(j) Such Other matter as may be prescribed.

Auditor shall also include their views and comments on the following matters:
→ Whether the company has disclosed the impact of pending litigations in its F.S.

Audit Handbook 7. 18
 → Whether the company has made provision for material foreseeable losses on long term contracts.
→ Whether there has been any delay in transferring amounts to Investor Education and Protection Fund.
→ Whether the dividend declared or paid during the year by company is in compliance with section 123.
→ Whether the company has used such accounting software for maintaining its books of account which
has a feature of recording audit trail?
Note: Audit Trail means, a step-by-step sequential record which provides evidence of the documented history of financial
transactions to its source.

Duty to Report on Fraud (Section 143(12))

Reporting to Central Government:
If auditor has reason to believe that an offence of fraud involving amount of > ₹ 1 Cr., is committed, in Co.
by its officers or employees, he shall report matter to Central Government.
→ Auditor shall report matter to Audit Committee/BOD within 2 days; seeking their reply within 45 days.
→ On receipt of reply, auditor shall forward his report and reply of Audit Committee/ BOD with comments
on such reply to Central Government within 15 days from receipt of reply
→ If auditor fail to get reply, he shall forward his report to CG along with a note, that reply not received.

This Part content not available in sample pages, you can purchase this book through
google form.
Check more detail about this book through youtube video:
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R
In
d
C

Note:
• Provision regarding reporting of fraud shall also apply to Cost Auditor & a Secretarial Auditor.
• In case Non-Compliance with provisions of Sec. 143(12), he shall be liable to a penalty of 5 lakh in case
of listed company & 1 lakh in case of other company

Audit Handbook 7. 19
 Reporting under CARO, 2020

Applicability of CARO
CARO, 2020 apply to all companies including foreign companies except the following:
→ Banking Company
→ Insurance Company
→ Company licensed to operate U/s 8 of Companies Act
→ One Person Company
→ Small Company (Paid-up <= 4 Cr & Turnover <= 40 Cr, also not a subsidiary of any company)
→ Private Company (not being subsidiary or holding of public company) having:
• Paid up capital + Reserves & Surplus <= 1Cr. (as on Balance Sheet Date)
• Total borrowings from Bank or Financial institution < =1Cr. (at any point of time during the FY)
• Total revenue as disclosed in Schedule III <= 10 Cr. (for the FY)
Note: CARO not apply over audit report on Consolidated F.S. except Para 3(xxi).

Matters to be reported under Para 3 of CARO 2020

Clause (i): Property Plant and Equipment (PPE) and Intangible Assets
(a) Whether company is maintaining proper records showing full particulars, including quantitative details
and situation of Property, Plant and Equipment & Intangible assets.
(b) Whether PPE have been physically verified by management at reasonable interval; & Whether any
material discrepancies were noticed on such verification & if so, whether same have been dealt with BOA.
(c) Whether title deeds of all the immovable properties disclosed in the F.S. are held in the name of company,
if not, provide the details thereof in the format below:
Description of Gross Carrying Held in Whether promoter, director Period held – Reason for not held
Property Value name of or relative or employee Indicate range in name of company
(d) Whether company has revalued its PPE (including RoU assets) or intangible assets during the year &,
if so, whether the revaluation is based on valuation by a Registered Valuer; specify amount of change, if
change is 10% or more in aggregate of net carrying value of each class of PPE or intangible assets.
(e) Whether any proceedings have been initiated or pending against the company for holding any benami
property under Benami Transactions (Prohibition) Act, 1988, if so, whether company has appropriately
disclosed details in its F.S.

Audit Handbook 7. 20
 Clause (ii): Inventory
(a) Whether physical verification of inventory has been conducted at reasonable intervals by management
and whether any discrepancies of 10% or more in aggregate for each class of inventory were noticed &
if so, whether they have been properly dealt with in BOA
(b) Whether during any point of time in year, company has been sanctioned working capital limits in excess
of Rs. 5 Crore, in aggregate, from banks or financial institutions on basis of security of current assets;
Whether quarterly returns filed by company are in agreement with BOA of Company, if not, give details.

Clause (iii): Loans, Investment, Guarantees & Securities

Whether during year, company made investment in, provided any guarantee or security or granted any
loans or advances, secured or unsecured, to companies, firms, LLPs or any other parties, if so,
(a) Whether company has provided loans or provided advances in nature of loans, or stood guarantee, or
provided security to any other entity, if so, indicate: (Gross amount)
→ aggregate amount during the year & balance O/s at balance sheet date with respect to loans or
advances and guarantees or security to subsidiaries, JVs and associates
→ aggregate amount during year & balance O/s at balance sheet date with respect to such loans or
advances and guarantees or security to other parties
(b) Whether investments made, guarantees provided, security given and terms and condition of grant of all
loans and advances are not prejudicial to company’s interest;
(c) In respect of loans & advances, whether schedule of repayment of principal & payment of interest has
been stipulated & whether repayments or receipts are regular;
(d) If amount is overdue, state total amount overdue for > 90 days, & whether reasonable steps have been
taken by company for recovery of principal & interest;
(e) Whether any loan or advance granted which has fallen due during the year, has been renewed or extended
or fresh loans granted to settle over dues of existing loans, if so, specify aggregate amount of such dues
and percentage of aggregate to total loans or advances granted during the year;
(f) Whether company has granted any loans or advances either repayable on demand or without specifying
any terms or period of repayment, if so, specify aggregate amount, percentage thereof to total loans
granted, aggregate amount of loans granted to Promoters, related parties as per Companies Act, 2013.

Clause (iv): Section 185 and 186

In respect of loans, investments, guarantees, and security, whether provisions of sections 185 and 186 of

Audit Handbook 7. 21
 Companies Act have been complied with, if not, provide the detail thereof;

Clause (v): Deposits

In respect of deposits accepted by company or amounts which are deemed deposits, whether directives issued by
RBI and provisions of sections 73 to 76 of Companies Act have been complied with, if not, the nature of such
contraventions be stated; if an order has been passed by Company Law Board or NCLT or RBI or any court
or any other tribunal, whether same has been complied with or not.

Clause (vi): Cost Record

Whether maintenance of cost records has been specified by Central Government under section 148 of Companies
Act and whether such accounts and records are maintained;
Clause (vii): Statutory Dues
(a) Whether company is regular in depositing undisputed statutory dues including GST, PF, ESI, Income-tax,
Service tax, duty of customs & excise, VAT & other statutory dues to authorities & if not, extent of arrears
of outstanding statutory dues as on last day of F.Y. concerned for a period of more than 6 months from
the date they became payable, shall be indicated. (e.g. O/s dues before Oct 23 will be indicated in case FY23-24)

(b) Where statutory dues referred above have not been deposited due to any dispute, then amounts involved
and forum where dispute is pending shall be mentioned (mere representation not treated as dispute)

Clause (viii): Income Disclosure

Whether any transactions not recorded in BOA have been surrendered or disclosed as income during year in
the tax assessments under Income Tax Act, 1961, if so, whether previously unrecorded income has been
properly recorded in the BOA during the year;

Clause (ix): Repayment of Dues

(a) Whether company has defaulted in repayment of loans or other borrowings or in payment of interest to
any lender, if yes, the period and amount of default to be reported as per below format:
Nature of borrowing, Name of Amount not paid Whether principal No. of days delay Remark, if
inc. debt securities lender on due date or interest or unpaid any
(b) Whether company is a declared wilful defaulter by any bank or financial institution.
(c) Whether term loans were applied for the purpose for which the loans were obtained; if not, amount of loan

Audit Handbook 7. 22
 diverted and the purpose for which it is used may be reported.
(d) Whether fund raised on short term basis utilized for long term purpose, if yes, nature & amount indicated.
(e) Whether company has taken any funds from any entity or person to meet obligations of its associates,
subsidiaries or joint ventures, if so, details thereof with nature of transactions and amount in each case;
(f) Whether company has raised loans during the year on pledge of securities held in its subsidiaries, JV or
associate companies, if so, give details thereof & also report if company has defaulted in repayment.

Clause (x): Public Offers and Private Placement

(a) Whether moneys raised by way of IPO or FPO (debt instrument) during year were applied for purposes for
which those are raised, if not, details together with delays or default & rectification, if any, be reported;
(b) Whether company has made any preferential allotment or private placement of shares or convertible
debentures during year & if so, whether requirement of section 42 and section 62 of Companies Act, 2013
have been complied with & the funds raised have been used for the purposes for which funds were raised,
if not, provide details in respect of amount involved and nature of non-compliance;

Clause (xi): Fraud Reporting

(a) Whether any fraud by the company or any fraud on the company has been noticed or reported during
the year, if yes, nature and amount involved is to be indicated;
(b) Whether any report under section 143(12) of Companies Act has filed by auditors in Form ADT-4 with CG.
(c) Whether the auditor has considered whistle-blower complaints received during the year.

Clause (xii): Nidhi Company

(a) Whether Nidhi Company has complied with Net Owned Funds to Deposits in ratio of 1:20 to meet liability.
(b) Whether Nidhi Company is maintaining 10% unencumbered term deposits as specified in Nidhi Rules, 2014
to meet out the liability.
(c) Whether there has been any default in payment of interest on deposits or repayment thereof for any
period and if so, the details thereof

Clause (xiii): Related Party

Whether all transactions with related parties are in compliance with sections 177 and 188 of Companies Act &
details have been disclosed in the F.S as required by applicable AS.

Audit Handbook 7. 23
 Clause (xiv): Internal Auditor
(a) Whether company has an internal audit system commensurate with the size and nature of its business.
(b) Whether Internal Auditors Report were considered by the statutory auditor.

Clause (xv): Non-Cash Transaction

Whether the company has entered into any non-cash transactions with directors or persons connected with
him and if so, whether the provisions of section 192 of Companies Act have been complied with.

Clause (xvi): NBFC

(a) Whether the company is required to be registered under section 45-IA of the RBI Act, and if so, whether
the registration has been obtained;
(b) Whether the company has conducted any Non-Banking Financial or Housing Finance activities without
a valid Certificate of Registration (CoR) from the RBI.
(c) Whether the company is a Core Investment Company (CIC) as defined in the regulations made by the RBI,
if so, whether it continues to fulfil the criteria of a CIC
(d) Whether Group has > 1 CIC as part of Group, if yes, indicate the number of CICs.

Clause (xvii): Cash Loss

(a) Whether the company has incurred cash losses in financial year and in the immediately preceding financial
year, if so, state the amount of cash losses.

Clause (xviii): Resignation by Statutory Auditor

Whether there has been any resignation of the statutory auditors during year, if so, whether the auditor has
taken into consideration the issues, objections or concerns raised by the outgoing auditors.

Clause (xix): Going Concern

On the basis of financial ratios, ageing & expected dates of realization of financial assets & payment of
financial liabilities, the auditor’s knowledge of BOD & management plans, whether auditor is of opinion that
no material uncertainty exists as on the date of audit report that company is capable of meeting its liabilities
existing at date of balance sheet as & when they fall due within a period of one year from balance sheet date.

Clause (xx): CSR Activities

Audit Handbook 7. 24
 (a) Whether, in respect of other than ongoing projects, the company has transferred unspent amount to a
Fund specified in Schedule VII to Companies Act within period of 6 month of the expiry of F.Y. in compliance
with section 135(5) of the said Act;
(b) Whether any amount remaining unspent under section 135(5), pursuant to any ongoing project, has been
transferred to special account in compliance with section 135(6).

Clause (xxi): Consolidated F.S.

Whether there have been any qualifications or adverse remarks by the respective auditors in CARO reports of
companies included in the CFS, if yes, indicate details of companies and paragraph numbers of CARO report
containing qualifications or adverse remarks.
For any Query, Directly message me on Telegram: [Link]

Some MCQ Points: CARO 2020

• All assets are verified at least once in every three years.
Clause (i)
•A
• 10
• If
Clause (ii)
• “Sanction of WC” means fresh sanction or renewed during the year (include fund based + non-fund based)
• WC limit include: cash credit, Overdraft, discount on bills, factoring, letter of credit, bank guarantee, etc.
• Advance against order would not consider but if paid excess of value of order then excess amt consider loan.
• E.g.: Company A has an opening loan of Rs. 100 and granted 3 more loans of Rs. 200, 300 & 400 during
Clause (iii)
year. Company extended tenure in respect of two loans (Rs. 100 & Rs. 200) when fell due for payment.

• It
a
tr
Clause (vii)
•
statutory dues, the auditor should state this fact while reporting under this clause.
• If company make lump-sum deposits of estimated amounts & adjust excess or deficit in following month’s

Audit Handbook 7. 25
 deposit. If method is consistently followed & difference is not significant, can considered as regularly deposit.
• balance
Clause (ix)
• disclose

Clause (x) • overed.

• e year)
Clause (xi)
• Auditor is not required to consider whistle-blower complaints pertaining to earlier years for this clause.
• Net Owned fund = Paid-up capital + free reserves - accumulated losses- Intangible assets of last audited FS.
Clause (xii)
• Proceeds from issue of preference share shall not include in calculating NOF.
Clause (xv) • Mergers under Court schemes entered with approvals of Court etc. not be considered non-cash transactions.
• This Part content not available in sample pages, you can purchase this book
Clause
• through google form.
(xvii)
• Check more detail about this book through youtube video:
CA Final: CA VikalpGupta
•
Clause
name of component & fact that CARO report of component not issued by auditor.
(xxi)
• Qualification/ Adverse remark given in Parent’s standalone CARO report also include in Reporting of C.F.S.

CARO Reporting: “In terms of the information & explanations sought by us & given by company and BOA & records
examined by us to the best of our knowledge and belief, we state that…………”

Audit Handbook 7. 26
 SA 800 Series

SA 800 Series

SA 800: Audit of Special SA 805: Audit of: SA 810: Report

Purpose F.S. (SPFS) • Single F.S. on Summary F.S.
• Specific elements of F.S.
Summary F.S: Contain less details
❖ Audit of Complete set of F.S. E.g. Single F.S: Cash Flow Statement than F.S.
SPFS: F.S. designed to meet financial E.g. Specific Elements: Inventory, F.A. Shall be done by same auditor
information need of specific users Can be General or Specific purpose F.S. of complete set of F.S.

• Consideration while accepting • Consideration while accepting • Consideration while accepting

such engagements such engagements such engagements
• Consideration while planning • Consideration while planning • Nature of procedures
and performing such audit and performing such audit performed by auditor
• Reporting Consideration • Reporting Consideration • Reporting Consideration
→ Alerting users of F.S. → Implication on Report with → Modification of Opinion
→ Restriction on use. respect to Complete set of F.S. • Audit Association

For entire 800 Series

SA 200 requires the auditor to comply with
→ Relevant ethical requirement, including independence related to F.S. audit engagement;
→ All SAs relevant to audit.
It also requires auditor to comply with each requirement of a SA unless, the entire SA is not relevant.
In exceptional circumstances, the auditor may judge it necessary to depart from relevant requirement in SA by
performing alternative audit procedures to achieve the aim of the requirement.

Audit Handbook 0
 SA 800: Audit of F.S. Prepared in accordance with Special Purpose Frameworks

Introduction
This SA deals with special consideration in the application of those SAs to audit of F.S. prepared as per SPF.
Examples of Special purpose framework:
• Cash basis of accounting & cash flow information prepared for creditors.
• Financial reporting provisions of contract, such as project grants or loan agreements.
• Financial reporting provisions established by regulator to meet the requirements of that regulator.

Consideration when Accepting such Engagements

The financial information needs of intended users are key factors in determining the acceptability of FRF.
Applicable FRF

Financial reporting standards Some Law or regulation may Financial reporting provisions
established by authorized or prescribe the FRF to be used of contract or sources other
recognized organization. by mgt for SPFS. than described above

Those standards will be presumed In absence of indication of Acceptability determined by considering

acceptable if org. follows contrary, such FRF is presumed whether framework attribute normally
transparent process and consider acceptable for SPFS. exhibited by acceptable FRF as per SA
views of relevant stakeholders. 210, matter of professional judgement.

What if FRF are supplemented by legislative / regulatory req.? Auditor determine whether
any conflict between FRF and additional req. exists and actions taken by auditor.

Consideration When Planning and Performing Such Audit

a) SA 200: It require auditor to comply with relevant ethical requirements, including independence and comply
cial

b) FS

0.
c) SA 260: Auditor to determine appropriate person within entity’s governance structure to communicate.

Audit Handbook 8. 1
 When complete set of GPFS is also prepared by entity, those persons responsible for oversight of preparation
of SPFS may not be same as TCWG responsible for oversight of preparation of GPFS.
d) If F.S. are prepared as per provisions of contract, auditor obtain understanding of significant interpretation
of contract that mgt while preparing F.S.

Reporting Considerations
When forming an opinion and reporting on SPFS, the auditor shall apply the requirements in SA 700.
In case of F.S. prepared as per provision of contract, evaluate whether F.S. adequately describe any significant
interpretation of contract on which F.S. are based. Interpretation is significant when adoption of another
reasonable interpretation would have produced a material difference in info presented in F.S.

In case of auditor’s report on SPFS:

→ Auditor’s report shall describe the purpose for which F.S. are prepared and intended users or refer to notes.
→ If Mgt has a choice of FRF in preparation of such FS, make reference to management responsibility for

reports, requirement of SA 720 apply to audit of SPFS.

→ Auditor may refer OM Para in auditor’s report on SPFS related to complete set of general purpose F.S. or
matter reported in SA 706. (E.g.: Auditor may refer in auditor’s report on SPFS related to MURG section
included in complete set of general purpose F.S.)

Alerting Readers that FS are prepared in accordance with a special purpose framework: (EOM Para)
SPFS may be used for purpose other than those for which they were intended. To avoid misunderstandings, the
auditor alerts users of auditor’s report that F.S. are prepared in accordance with SPFS and may not suitable
for another purpose.
Restriction on Distribution or use: (OM Para)
In addition to alert, auditor may consider it appropriate to indicate that the auditor’s report is intended solely
for specific users. This may be achieved by restricting the distribution or use of auditor’s report.
Include OM Para, if auditor has also audited FS of same entity prepared using General Purpose Framework.

Audit Handbook 8. 2
 SA 805: Audit of F.S. Prepared in accordance with Special Purpose Frameworks

Introduction
This SA deals with special considerations in the application of those SAs to an audit of single F.S. or specific
elements, accounts or items of F.S.
If F.S. are prepared as per special purpose framework, SA 800 series also applies.
Single F.S. or Specific elements of F.S. includes notes of summary of significant accounting policies & other info.

Consideration when Accepting such Engagements

→ SA 200 requires the auditor to comply with all the SAs relevant to audit. This requirement applies
irrespective of whether auditor is also engaged to audit the entity’s complete set of F.S. (Refer first page also)
→ SA 210 require the auditor to determine the acceptability of financial reporting framework applied in F.S.

a
C
s
c
Accordingly, auditor may need further evidence to corroborate audit evidence acquires from accounting record.

What if single F.S. or specific element cover disproportionate work?

E.g.: SA 570 are likely to be relevant in the circumstances of an audit of schedule of account receivables, but compliance of those
requirements may not practicable because of audit efforts required.
If auditor concludes that audit of single F.S. or specific element of F.S. in accordance with SAs not practicable,
the auditor may discuss with mgt whether another type of engagement might be more practicable.

Consideration When Planning and Performing Such Audit

When auditing single F.S. or specific elements of F.S.:
→ If it is in conjunction with audit of entity’s complete set of F.S., the auditor may use audit evidence obtained
as part of audit of entity’s complete set of F.S.
→ Auditor may not able to consider the F.S. or the elements in isolation. Consequently, the auditor may need
to perform procedures in relation to interrelated items to meet objectives.

Audit Handbook 8. 3
 → Materiality determined for single F.S. or specific elements may be lower than materiality determined for
entity’s complete set of F.S., this will affect the nature, timing and extent of audit procedures.

Reporting Consideration
→ Reporting consideration as discussed in SA 700 shall continue to apply.
→ The AFRF may not explicitly address the presentation of F.S. or the elements. Therefore, auditor considers
whether the expected form of opinion is appropriate in the light of AFRF.
→ What if auditor undertake engagement to report on Single F.S. or specific elements of F.S. in conjunction
with engagement to audit entity’s complete set of F.S.? Auditor shall express separate opinion on each.
→ Differentiation in presentation: An audit of Single F.S. or Specific element of F.S. may be published together
(but presentation different) with the entity’s audited complete set of F.S.

red.

Auditor’s Report on entity’s complete set of F.S. is modified or the report include an EOM or OM Para or
MURG or statement that describe uncorrected misstatement in Other info. (SA 720)
The auditor shall consider implications that these matters, may have for audit of single F.S. or of specific
element of a F.S. & for auditor’s report thereon.

If auditor conclude that it is necessary to express adverse opinion or disclaim an opinion on complete set of F.S.

SA 705 doesn’t permit the auditor to include in Auditor consider to express unmodified opinion on elements in
same auditor’s report an unmodified opinion on separate audit of specific elements, auditor shall only do so if:
a single F.S. or specific element of F.S. This is → The auditor is not prohibited by law or regulation;
because unmodified opinion would contradict the → Opinion is not published together with audit report
modified opinion on complete set of F.S. containing adverse or disclaim an opinion; &
→ Specific elements doesn’t constitute a major portion of
complete set of F.S.

In any case, auditor shall not express unmodified opinion on single F.S. if auditor expressed adverse or disclaim
an opinion on complete set of F.S. This is because Single F.S. is deemed to constitute major portion.
Auditor may refer modification of complete set of F.S in OM para, even if it doesn’t relate to such F.S or element.

Audit Handbook 8. 4
 Other Consideration
This SA requires auditor to consider implications of certain matters included in auditor’s report on the complete
set of F.S. for the audit of single financial statement or specific element of a F.S.
Factors that may be relevant in considering those implications include:
→ Nature of the matter(s) being described in auditor’s report on complete set of F.S. & extent to which it
relates to what is included in single financial statement or a specific element of a F.S..
→ Pervasi
→ Nature
→ Extent .S.
→ Time el

For E.g.: Qu or
spe
If qualification of auditor’s opinion on complete set of F.S. relates to classification of long-term debt, then it is
less likely implications for audit of single F.S. related to P&L, or if specific element of F.S. relates to AR.

Even when matters included in report on complete set of F.S. do not have implications for audit of Single F.S. or
specific elements of F.S., auditor may refer to matter in OM para as per SA 706. E.g. MURG

Note:
SA 800 & 805 do not override requirements of other SAs, nor do they aim to cover all special considerations
that may be relevant in the circumstances of engagement.

Audit Handbook 8. 5
 SA 810: Engagements to Report on Summary Financial Statements

Introduction
SA 810 deals with auditor’s responsibilities when undertaking an engagement to report on summary F.S.
derived
from F.S. audited in accordance with SA’s by that same auditor.
If auditor has not audited the F.S. from which summary F.S. are derived, then the auditor not have necessary
knowledge to discharge its responsibilities in relation to summary F.S.

Consideration while Accepting Engagement

Before accepting engagement to report on Summary F.S., the auditor shall:
→ It refers to criteria applied by management in preparation of summary F.S.
→ Factors that can affecting acceptability of applied criteria:
(a) Nature of Entity (b) Purpose of summary F.S.
Determine (c) Information needs of the intended users of F.S.
whether applied (d) Whether the applied criteria will result in summary F.S. that are not misleading.
criteria are
acceptable → If auditor conclude that applied criteria are unacceptable or unable to obtain agreement
ulatn.

ty.
Management → Include auditor’s report on summary F.S. in any document that contain summary F.S.
Responsibilities Factors that affects whether audited F.S. are available to users of summary F.S.:
• Summary F.S. describe clearly from whom or where F.S. are available.
• Audited F.S. are on public records.
• Mgt has established process by which users of Summary F.S. can access audited to F.S.
Opinion Agree with management on the form of opinion to be expressed on summary F.S.

Performing Procedures
Auditor shall perform following procedures as the basis of auditor’s opinion on summary F.S.:
→ Evaluate whether summary F.S. adequately disclose their summarized nature + identify audited F.S.
→ Evaluate whether summary F.S. are adequately disclosed applied criteria.

Audit Handbook 8. 6
 → Evaluate whether summary F.S. are prepared in accordance with applied criteria.
→ Evaluate summary F.S. contain necessary information and not misleading in the circumstances.
→ Evaluate whether audited F.S. are available to intended users of summary F.S. without undue difficulty.
→ When summary F.S. are not accompanied by audited F.S., evaluate whether describe clearly from whom
or where F.S. are available.
Reporting Consideration
Auditor has concluded unmodified opinion on summary F.S. is appropriate, Auditor opinion include following:
→ Summary F.S. are consistent, in material respect, with audited F.S. as per applied criteria; or
→ The summary F.S. are a fair summary of audited F.S. as per applied criteria.

If summary F.S. are not consistent or not fair summary of audited F.S. & mgt not agree to make necessary
changes, auditor shall express adverse opinion on summary F.S.

What if law or regulation prescribed wordings of opinion on summary F.S. that are different from above?
→
→ al
e
I R.

Modification to the Opinion, EOM Para or OM Para in Auditor’s Report on Audited F.S.
When audited F.S. contain Qualified Opinion or EOM/OM Para or MURG or KAM but auditor is satisfied
that summary F.S. are consistent as per applied criteria, then auditor’s report on summary F.S. also contain:
→ State that auditor’s report on audited F.S. contain qualified opinion, EOM/OM Para or MURG or KAM; &
→ Basis of qualified Opinion on audited F.S. & their effect on summary F.S., if any
→ Describe matter referred to EOM/ OM or MURG or uncorrected M.M. in Other Info. & their effect.

When audited F.S. contain Adverse Opinion or Disclaim an Opinion, then auditor’s report on summary F.S. also:
ion; &

Auditor’s Report on Summary F.S.

Audit Handbook 8. 7
 a) Title: clearly indicating repot of an independent auditor.
b) Addressee: This may be different from addressee of the auditor’s report on audited F.S.
c) Identification of the summary F.S., audited F.S. and refers to the auditor’s report on the audited F.S.
d) A clear expression of an opinion
e) If date of auditor’s report on summary F.S. is later than th date of auditor’s report on audited F.S., states
that summary F.S. and audited F.S. do not reflect the effects of events that’s occurred subsequent to the
date of auditor’s report on audited F.S.
f) A statement indicating that summary F.S. do not contain all disclosure & reading summary F.S. not
a substitute for reading the audited F.S.
g) Descript
h) Stateme
i) A parag
j) Auditor e
k)
Note:
• If there i .
alert rea
summar
• SA 710: I e
whether such omission is reasonable in circumstances.
• If supplementary info. or other info. in summary F.S., auditor need to comply relevant SAs (SA 700 & SA 720)
• If auditor becomes aware that entity plans to state the auditor has reported on summary F.S. in a
document containing summary F.S., but doesn’t plan to include audit report, auditor shall request mgt to
+ include audit report in document.
If mgt doesn’t do so, auditor shall carry out appropriate actions to prevent mgt from inappropriate
associating auditor with summary F.S. in that document.
• Auditor may engage on F.S. of entity but engage to report on summary F.S., if auditor become aware that
entity planning to make a statement in document that refers to auditor, auditor shall be satisfied that:
✓ Reference t
✓ Statement y F.S.
If above condition not met, auditor shall request mgt to change statement or not to refer auditor.

Audit Handbook 8. 8
 For any Query, Directly message me on Telegram: [Link]

Professional Ethics

Basic of Chapter

Fundamentals, Threats & Membership of Institute

Safeguards of Principles
Types of Membership Restoration of
NOCLAR Membership
Applicability Steps to responding Disabilities of Removal of Name
Difference of SA 250 vs NOCLAR Member (Sec 8) from Registrar
Penalty of falsely claiming
to member (Rs. 1000)

Chartered Accountant in Practice

Maintenance of
Significance Branch Office
of COP Member deemed to
be in Practice Member prohibited using
Cancellation and
restoration of COP other designation: Guilty
Management consultancy under Cl 7 P1S1
and Other Service

Schedules to the Act

First Schedule Second Schedule
Professional Misconduct Other Misconduct Professional Misconduct Other Misconduct

Part 1 Part 2 Part 3 Part 4 Part 1 Part 2 Part 3

CAiP CA in Service All CA All CA CAiP All CA All CA

Council General Guidelines, 2008: Chapter 1 to Chapter XVII

Recommended Self-Regulatory Measures
Recent Decision of Ethical Board of Standard (imp)

Audit Handbook 0
 Fundamental Principles - Code of Ethics of ICAI
(a) Integrity: Straightforward & honest
Not knowingly be associated with reports where he believes that info –
• Contains statement provided negligently or materially false or misleading statement.
• Omits required information where such info. is misleading.
(b) Objectivity: Not to compromise professional judgment due to bias, conflict of interest or undue influence of
Others.
(c) Professional Competence & Due Care:
• Attain & maintain professional knowledge & skill as required to ensure client received competent service.
• Act diligently as per technical & professional standards.
• Continue development enables professionals to develop & maintain the capabilities to perform.
• It requires a continuing awareness and understanding of relevant technical, professional development.
(d) Professional Behaviour: Comply with law & regulation & avoid any conduct that might discredit profession.

(e) Confidentiality:
Not disclose confidential information acquired as a result of professional and employment relationships
Outside the firm or within organization (including prospective and Ex- client/employer) without proper &
specific authority, unless there is a legal or professional duty or right to disclose.
➢ Circumstances where professional accountants might be required to disclose confidential information:
• Disclosure is required by law (Production of document in legal proceedings)
• Disclosure is permitted by law and is authorized by the client or the employing organization.
• When there is a professional duty or right to disclose, when not prohibited by law:
✓ comply with the requirements of Peer Review or Quality Review.
✓ respond to an inquiry or investigation by a professional or regulatory body.
✓ protect the professional interests of a professional accountant in legal proceedings.
✓ comply with technical and professional standards, including ethics requirements.
➢ In deciding whether to disclose confidential information, professional accountants should consider:
• Whether the interests of any party, including third parties whose interests might be affected.
• Whether all the relevant information is known and substantiated.
• The proposed type of communication, and to whom it is addressed.
• Whether the parties to whom the communication is addressed are appropriate recipients.

Audit Handbook 9. 1
 Notes:
• In situation of complying with one fundamental principle conflicts with complying with one or more other
fundamental principles: He should consult with Others within Organization/ TCWG / ICAI / Legal Council.
• If a professional accountant is in doubt about whether a form of proposed advertising is appropriate, then he
should consult with the Ethical Standards Board of ICAI.

Types of Threat and Safeguards

Threats to compliance with the fundamental principles:
Financial or other interest will inappropriately influence Accountant’s judgment or behavior.
Examples:
• Direct financial interest in client or close business relationship with client.
Self- Interest • Quoting a low fee to obtain a new engagement and the fee is so low that it might be difficult
Threats to perform the professional service.
• Access to confidential information that might be used for personal gain.
• Holding financial interest and receiving loan from that organization.
• Undue dependence on total fee from client.
Professional accountant not appropriately evaluate the results of a previous judgment made;
or an activity performed by the accountant.
Examples:
Self-Review • Issuing assurance report on effectiveness of financial systems after implementing systems.
Threats • Determining appropriate accounting treatment for business combination after performing
feasibility study supporting purchase decision.
• Having prepared original data used to generate records that are subject matter of engagement.
Professional accountant promote client’s or employing organization’s position to the point
that accountant’s objectivity is compromised.
Examples:
Advocacy • Promoting the interests of, or shares in, a client.
Threats • Acting as an advocate on behalf of a client in litigation or disputes.
• Lobbying in favor of legislation on behalf of a client.
• Manipulate information in prospectus to obtain favorable financing.
Familiarity Due to long or close relationship with a client, or employing organization, a professional
Threats accountant will be too sympathetic to their interests.

Audit Handbook 9. 2
 Examples:
• Close or immediate family member is related to client.
• Long association of Accountant/ audit team with client or individual making business decision.
• Director or officer of client, exert significant influence over matter, having recently served as EP.
Professional accountant deterred from acting objectively because of actual or perceived
pressures, including attempts to exercise undue influence.
Examples:
Intimidation • Threatened of dismissal from engagement due to disagreement about matter.
Threats • Pressured to agree with judgment of a client because client has more expertise on the matter.
• Being informed that promotion will not occur unless he agrees with inappropriate decision.
• Accepting gift from client & threatened that acceptance will be made public.

Addressing the threat on compliance on fundamental principles

If professional accountant determines that the identified threats are not at an acceptable level, accountant
shall eliminate or reduce the threat:
• Eliminating the circumstances, including interest which create threats.
• Declining specific professional activity.
• Applying safeguards to reduce threats to an acceptable level.

Safeguards to address threats: To reduce threats to an acceptable level

• Assigning additional time and qualified personnel to required tasks.
• Having an appropriate reviewer, who was not a member of team, review work performed as necessary.
• Using different partners and engagement teams with separate reporting lines for the non- assurance
services to an assurance client.
• Involving another firm to perform or re-perform part of the engagement.
• Separating teams when dealing with matters of a confidential nature.

Non- Compliance with Laws and Regulations (NOCLAR)

During course of providing service to a client for an employer, Professional accountant may come across an
instance of NOCLAR or suspected NOCLAR committed or about to be committed by client or employer, or by
TCWG, management or employees of client or employer.
NOCLAR comprises of acts of omission or commission, intentional or unintentional, which are contrary to the

Audit Handbook 9. 3
 prevailing laws or regulations.
NOCLAR does not address personal misconduct unrelated to the business activities of the client/ employing
organization & non-compliance by parties other than listed out of NOCLAR definition.

Applicability of Responding to NOCLAR in India:

Professional Accountants • Senior professional accountants in service, being employees of listed
in service entities which are KMP {directors, officers or senior employees}

Professional Accountants • Audit engagements of Listed entities in India having networth of Rs.
in practice 250 Cr or more

Examples Covered under NOCLAR

Fraud, Corruption & Bribery, Money laundering, Security Market & Trading, Data Protection, etc.

Steps to responding to NOCLAR

Obtain Understanding of Matter Addressing the matter Seeking Advice

Determine whether to Determine if further

Documentation Imminent Breach disclose to appropriate action is needed
authority
NOCLAR vs SA 250
NOCLAR SA 250
• Applicable on Professional Accountant in service & in • Applicable only to Audit, not other engagements.
practice. • It covers auditor’s responsibilities for laws having
• It covers non-compliance that cause substantial direct
effect on the determination of material amounts and
harm in financial or non-financial items. disclosures in F.S.
• It related to effect of non-compliance on investors, • Does not define stakeholders.
creditors, employees. •• No Provision of imminent breach
• If Professional Accountant become aware of imminent
breach of law or regulation, he shall determine whether
to disclose this immediately to appropriate authority
to prevent consequences of such imminent breach.

Audit Handbook 9. 4
 Membership of Institute
➢ Types of Members of the Institute
• Associate Member: Whose name has been entered in register, & entitled to use letter A.C.A. after his name.
• Fellow Member: Following type of members shall be registered as fellow of ICAI & entitled to use letter F.C.A.
after his name, on payment of fee along with application-
✓ Associate who is in continuous practice in India for at least 5 years
✓ Associate who possesses such qualification experience equivalent to 5 years of continuous practice.

➢ Disabilities of Membership (Section 8)

→ Not attained age of 21 years.
→ Unsound mind as adjudged by competent court.
→ Undischarged Insolvent.
→ Being discharged insolvent, has not obtained certificate from court, stating that insolvency was caused
by misfortune without any misconduct on his part.
→ Convicted by court whether in/outside India, of offence involving moral turpitude & punishable with
imprisonment or offence committed by him in his professional capacity unless, he has either been
granted pardon or CG has removed disability.
→ Removed from membership of institute due to guilty of misconduct

➢ Removal of Name from the Register (Section 20)

→ Who is dead.
→ From whom request received for removal.
→ Not paid prescribed fee.
→ Who is found to have any disabilities mentioned in Section 8.

➢ Restoration of Membership
If member is removed from Register for non-payment of fee, then on receipt of application & fee, he may
be entered again in Register.
Effective date of Restoration
• Application for restoration is made within same year of removal. From the date on which it was removed.
• Removal of name under order of Board of Discipline or
Restoration in accordance with such order.
Disciplinary Committee or Appellate Authority or High Court.

Audit Handbook 9. 5
 • In Other cases, From the date of Application receipt.

➢ Penalty for falsely claiming to be a member

Any person who-

Not being a member of ICAI: Being member of ICAI, but not having
• represents that he is member of ICAI COP, represents that he is in practice
• uses designation CA
shall be punishable on first conviction with fine upto Rs. 1000 & on subsequent conviction with imprisonment
upto 6 months or with fine upto Rs. 5,000 or with both
Failure to pay fine - rigorous imprisonment for 3 months.

Chartered Accountant in Practice

A practicing CA is a person who is a member of Institute & is holding COP and include such members of
Institute who are deemed to be in practice.
➢ Significance of Certificate of Practice (COP)
A member not in practice is precluded from accepting engagement to provide services prescribed for CA,
even though, it does not require special qualifications.

Council of the institute is of view that: (Imp)

Once the person become member of Institute, he is bound by provisions of CA act and its regulations. If he
appears before Income-Tax Tribunal as an Income-Tax representative after becoming a member of Institute,
he could so appear only in his capacity as a CA. If he suspended from practice then he is not entitled to
practice in some other capacity.
(E.g. A suspended CA designated himself as a Data Privacy Consultant appear before various authorities in other capacity
other than CAiP: Not Guilty)
A member of Institute can have no other capacity in which he can take up such practice, separable from
his capacity to practice as a CA.

➢ Cancellation and Restoration of COP

COP shall be liable for cancellation, if:
• Name of COP holder is removed from Register or

Audit Handbook 9. 6
 • COP was issued on basis of incorrect, misleading information or by mistake
• Member has ceased to practice
• Member has not paid annual fee for COP till 30th September
Council may restore COP with effect from the date on which it was cancelled, to a member whose certificate
has been cancelled due to non-payment of annual fee and whose application, together with the fee, is
received by Secretary before the expiry of the relevant year.

➢ Members- deemed to be in Practice (Section 2(2))

A Member of Institute shall be deemed “to be in practice” if he: (VACO)
→ offer or perform service involving preparation or auditing or Verification of financial transactions,
books, accounts records or hold himself out to the public as an accountant.
→ engage in practice of Accountancy
→ render professional service or assistance (Consultancy) of matter relating to accounting procedure or
recording, presentation or certificate of financial fact or data.
→ renders such Other services as, in the opinion of council, are rendered by CaiP.
(A member of Institute who is salaried employee of CA in Practice shall be deemed to be practice for limited purpose
of training of Article assistants)
Also, Service with armed forces also consider as deemed practice.
Pursuant to 2(2)(iv), the Council has passed a resolution permitting a Chartered Accountant in
practice to render entire range of “Management Consultancy and other Services”.
• Business Policy, Corporate planning, Organization development, growth & diversification. Big Work
• Financial management planning and financial policy determination Work related to
• Capital structure planning and advice regarding raising finance. Planning,
• Working capital management. Management,
• Inventory management, material handling and storage. Accounting &
• Price-fixation and other management decision making. Costing
• Management accounting systems, cost control and value analysis.
• Control methods and management information and reporting.
• Preparing project reports and feasibility studies
Preparing
• Preparing cash budget, cash flow statements, profitability statements, statements of Report, Budget,
sources and application of funds etc. statements
• Budgeting including capital budgets and revenue budgets.
•

Audit Handbook 9. 7
 • Personnel recruitment and selection (including development of human resources including
design and conduct of training programmes) Recruitment
and Incentives
• Setting up executive incentive plans, wage incentive plans etc.
• Management and operational audits Various Audits
(Apart from Stat./
• Quality Audit, Environment Audit, Energy Audit Internal and tax)
• Market research and demand studies
• Acting as Registered Valuer: Valuation of shares & business (Valuation of P&M not allowed)
• Acting as advisor or consultant to an issue of securities (including drafting of prospectus &
memorandum, filing documents to SEBI, advice regarding selection of broker & underwriters, etc).
CAiP not permitted to undertake Portfolio Management service, Underwriting, Broking (PUB) Consultant,
• Insurance Financial Advisory Services (including insurance brokerage) under IRDA Act, 1999. Advisor,
• Inv Insolvency
Professional,
• Ac Registrar, Valuer
• Ac
• Ac
• Sy
• Ad
within normal course of operations (clerical in nature). Eg: function of GST Practitioner

→ Regulation 191 of CA regulation 1988, a member shall be deemed to be in practice if he, in professional
capacity act as a liquidator, trustee, executor, administrator, arbitrator or receiver, representative of tax/
finance matter, takes up appointment by government, act as a secretary.
→ Sec 25: No company shall practice as a CA (exception Chapter XVII of Council Guidelines).
If LLP has company as a partner, then it can’t engage in practice.

➢ Member in practice prohibited from using designation other than CA

A member in practice cannot use designation other than CA but a member who is not in practice and does
not use the designation CA may use any other description (Guilty under Clause 7/ P1/ S1)

➢Maintenance of Branch Offices

→ If CAiP or Firm has more than 1 office in India, each office should be in separate charge of a member of
Institute (charge of office considers when he attends office>=182days)

Audit Handbook 9. 8
 → Failure on part of member/firm would constitute professional misconduct.
→ CA in-charge of branch of another firm should be associated with him/firm either as partner or as
paid assistant (must be whole-time employment)
Exemption is given to member practicing in hill areas subject to condition:
• Allowed to open temporary offices in plains area for not exceeding 3 months in year.
• Regular office need not be closed during this period.
• Name board of firm at temporary office should not be displayed other than above permitted period.
• Temporary office should not be mentioned in letterheads, visiting cards or docs as place of business.
• Before commencement of every winter, it shall be obligatory to inform ICAI about opening & closing
of temporary office by registered post.

Exemption may be granted to a member or a firm to have a second office without such second office
being under the separate charge
• Second office is located in the same premises, in which the first office is located or,
• Second office is located in the same city, in which the first office is located or,
• Second office is located within a distance of 50 km from the municipal limits of a city, in which first
office is located
→ There will be no bar to putting up of a name- board in the place of residence of a member with designation
of CA, provided it is a name-plate or a name-board of an individual member and not of the firm.
→ A member having two offices referred above shall have to declare, which of two office is his main office which
constitutes his professional address.

➢ KYC Norms in CA Practice

The Council of ICAI approved the following KYC Norms which are mandatory in nature and shall apply in
all assignments pertaining to attestation functions:
General Information (For all) Additional Regulatory Information (only Company)
Name and Address of Individual/ Partner/ Entity Company Identification No.
Copy of PAN No. Company PAN No.
Business Description Directors’ Names & Addresses
Copy of Last Audited Financial Statements Directors’ Identification Number
Name of Parent Company in case of subsidiary -
Engagement Information: Types of Engagement

Audit Handbook 9. 9
 Schedules to the Act

Schedule Part Applicability Clauses Types of Misconduct

I CA in Practice 12
First II CA in Service 2 Professional Misconduct
(19 Clauses) III All CA 3
IV All CA 2 Other Misconduct
I CA in Practice 10
Second All CA 4 Professional Misconduct
II
(15 Clauses) III All CA 1 Other Misconduct

First Schedule

PART 1 – Professional Misconduct in relation to CA’s in Practice

A CA in Practice (CAiP) is deemed to be guilty of Professional Misconduct if he:

Clause (1): allows any person to practice in his name as a chartered accountant unless such person is also
a chartered accountant in practice and is in partnership with or employed by him.
The above clause is intended to safeguard the public against unqualified accountant practicing under the
cover of qualified accountants.
(Read Clause 12 after that)

Clause (2): pays or allows or agrees to pay or allow, directly or indirectly, any share, commission or brokerage
in fees or profits of his professional business, to any person other than a member of the Institute
or partner or retired partner or legal representative of deceased partner, or member of any other
professional body or with such other persons having such qualification as may be prescribed, for
the purpose of rendering such professional services from time to time in or outside India.

→ Prescribed Qualification (Regulation 53A): ICSI (CS), ICWAI (CMA), Bar Council (Advocate), LLB, MBA,
Actuary, Engineering, Institute of Architect.
Examples:

Audit Handbook 9. 10
 • In case of cooperative society, Auditors deposit certain percentage of his audit fee to state govt. to meet admin
exp and other expenses: Not Guilty (Allowed in that case)
• Paying % of profit or audit fee to article assistant or to a person for office allowance: Guilty

→ Share of Profit/ Sale of Goodwill (sale of right to use firm name): In case of:
Partnership firm: Legal representative (LR) of deceased partner continue to receive share, if deeds provide.
Sole Proprietorship: Goodwill can be transferred to Other CAiP if:
• Sale completed within 1 year of death (permission of council required)
• In case of dispute of legal heir, inform ICAI about the dispute within year of death and name preserved
for 1 year from dispute settlement.
• No sharing of fees b/w Legal Representative & Purchaser of Goodwill on death of Proprietor.
• Goodwill Payments may be made in instalments, if sale agreement provides.

Clause (3): accepts or agrees to accept any part of the profits of the professional work of a person who is not
a member of the Institute.
Provided that nothing herein contained shall prohibiting member “from entering into profit sharing
or other similar arrangements, including receiving any share commission or brokerage in the fees”,
with a member of such professional body or other person having qualifications (Reg 53A).

Some Points:
• It is not prohibited for a member in practice to charge Referral Fees, being the fees obtained by a member in
practice from another member in practice in relation to referring a client to him.
• Accepting commission from registered valuer (not CA) for referring valuation assignment: Guilty
(Read Clause 10 after that)

Clause (4): enters into partnership, in or outside India, with any person other than CAiP or such other person
who is a member of any other professional body having such qualifications as may be prescribed
(Reg53A except MBA), including a resident who but for his residence abroad would be entitled to
registered as a member or whose qualifications are recognized by CG or Council for the purpose
of permitting such partnerships.

CAiP cannot form multi-disciplinary partnerships until Regulators of other professions also permit partnership

Audit Handbook 9. 11
 with CAs in practice.
E.g.: If a CA engage himself as partner of 2 business firms and MD in 2 companies and holding COP without
permission of ICAI: Guilty under clause (4) & clause (11)

Clause (5): Secures business either through a person who is not an employee of such Chartered Accountant or
who is not his partner or by means which are not open to CA, any professional business.
Provided that nothing herein contained shall be construed as prohibiting any agreement permitted
in terms of item (2), (3) and (4).

Clause (6): Solicits clients or professional work directly or indirectly by Circular, Advertisement, Personal
communication or Interview or by any other means.
Provided that nothing herein contained shall be construed as preventing or prohibiting:
• Any CA from applying or requesting or securing professional work from another CAiP.
• A member from responding to tenders or enquiries issued by various users of professional
services or organizations from time to time and securing professional work.
Exception: CAiP shall respond to tenders in area of service which are exclusively reserved for
CAs, such as audit and attestation service, only when minimum fee is prescribed in tender or

ould prescribe
Crux: Resp

Also allowed ost sheet must be maintained

by CA respo

→ Member should not adopt any indirect method to adventure their professional work with a view to gain
publicity and solicits clients or professional work.

→ Advertisement of Coaching/ Teaching activities: Not permitted to advertising their association (firm) with
Coaching/ teaching activities. However, he may put sign board mentioning the name of coaching/ teaching
institute, contact details and subject taught.
As regard size and type of sign board, Council guidelines as applicable to forms would apply.

Audit Handbook 9. 12
 → Advertisement and note in press: Not permitted to circulate letter to possible clients.
Exception:
• May advertise changes in partnerships or dissolution of a firm, or change in address and telephone
• number but limited to bare fact, appropriate area of distribution of newspaper/ magazine.
• Permitted to issue classified ad in the journal/ newsletter of ICAI regarding sharing professional work
or for seeking partnership or salaried employment of accountancy nature.
Me
• Ad
• Ad
• Ad

→ Advertisement for Silver, golden, platinum or centenary celebrations: Not permitted to advertise the events
organized by a CA Firm. However, it may be published in newspaper or newsletter.

→ Issue of Greeting Cards or Invitations: Not permitted to issue them indicating CA’s professional designation,
status & qualifications etc. However, he can mention only designation “CA” and firm name in greeting
cards & invitations (No advertisement) for marriage, religious ceremonies and office inauguration, provided
they are sent only to clients, relatives & friend of member concerned.

→ Publication of Books, Articles or Presentation (BAP): Not permissible for member to mention professional
attainment(s), whether of member or CA firm. However, he can mention designation “CA” and firm name.

→ Application for empanelment for allotment of professional work: Where existence of such panel is within
the knowledge of member, he can request to concerned organization to place his name on the panel. It is
permissible to quote fee on enquires being received from such bodies.
Not allowed to make roving enquiries for having name include in any such panel.

→ Sponsoring Activities: Not permitted to sponsor an event. However, he may sponsor an event conducted by
Programme Organizing Unit (POU) by prior approval of Continuing Professional Education (CPE)
Directorate of ICAI.
CAs sponsoring CSR activities may mention their individual name with prefix “CA”. However, mention of
Firm name or CA Logo is not permitted.

Audit Handbook 9. 13
 → Sharing Firm Profile with prospective client: Not permitted unless it is in response to Proposed client’s
specific query.

→ Accept introduced to him by

anothe t that it should come
throug

→ Represe ation wordings not

tantamount to canvassing or soliciting for his continuance as auditor.
The letter should merely set out in a dignified manner how he has been acting independently and
conscientiously through the term of office.

→ Educational Videos: May be uploaded on the internet by members, but no reference to CA firm, contact
details or website address.

→ Giving Public Interview: Allowed but ensure that it should not result into publicity. Details about members
or their firms are not given in a manner highlighting their professional attainments.
Any details given, must be given in response of specific question and factual nature.

→ Advertisement under Box number of newspapers is prohibited.

→ Television or Movie Credits: Exhibition of name (CA/ Firm) is not made differently as compared to other
entries in t

Examples:
• Canvassing
• Wrote letter to Govt Dept. pointing seniority/ superiority over any other member/ firm: Guilty
• CA sent letters to other CAs claimed to be pioneer in liaisoning with govt depts as expertise for getting clearances:
Guilty under clause (6)
• A CA wrote various letter to officers of army canteens giving details of him and his experience & norms for
charging audit fee: Guilty under clause (5) & (6)

Audit Handbook 9. 14
 Website Guidelines
→ Standard format of website, color or design are not prescribed by ICAI.
→ Should be on Pull model (instead of push model). Information contained in website should not circulated
on their own or email except on specific pull request.
→ Not issue material/ ad to solicit users to visit their website.
→ CA is permitted to mention their website on professional stationery, letter head, card or email.
Information that allowed to displayed on website:
✓ Member/ Trade/ Firm name
✓ Years of establishment (Not on letter head)
✓ ranch office), Telephone/ fax nos. & Email ID
✓ ifically “pull” request)
✓ nce to be displayed only on “pull” request)
✓
✓
✓ specific “pull” request)
✓ “pull” request)
✓ annot be given (Permissible, if required by regulator)
→ Onl ber is permitted (No other frame photo).
→ Me ards, professional updates, etc. on website.
Educational videos on professional topic are permissible.
→ Chat room can be provided for chatting among members and client with confidentiality.
→ Can provide Document Management facility with distinct login and password.
→ Firm can provide link of its social networking site.
→ Members/firms can provide online advice to their clients who specifically request for advice.
→ Website name should be similar to firm name & should be befitting the CA profession.
→ Website may provide link to Website of ICAI, its Regional Councils & Branches & Govt./ Regulatory
authorities/other Professional Bodies.
→ Website address is to be filed by the member on annual basis in annual form of Institute.

Online Third-party Platform: CA/ CA firms can provide consultation and advice through this platform.
→ It should not advertise professional achievements or status of CA, just mention he is CA.
→ Name of Firm with suffix “CA” or contact address of CA shouldn’t be provided/ permitted.

Audit Handbook 9. 15
 Publication of Name or Firm Name in Telephone or other Directories: CA/ CA firms may have entries made
in telephone directory either by making a special request or by mean of additional payments:
→ Entries should appear in CA category only.
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→ ished.
→

Application based Service provider Aggregators: Not permitted for CA to list themselves with online application
based service provider Aggregator.

Clause (7): Advertises his professional attainments or services, or uses any designation other than CA on
professional documents, visiting cards, letter heads or sign boards unless it be degree of university
established by law in India or recognized by the CG or a title indicating membership of the Institute
of CA’s or of any other institution that has been recognized by the CG or recognized by Council.

→ CAiP may advertise through write up stating service provided by him or his firm & particulars of
his firm subject to following Guidelines:
• No exaggerated claims for services offered or qualifications or experience.
• Not contain testimonials or endorsements or names of clients.
G or

→ Date of setting-up practice/firm: Not permitted on letter heads & professional documents.

→ Merchant Banker / Advisor to an issue: In companies offer documents or advertisement for capital issue,
name and address of CA acting as Advisor or consultant to issue could be indicated under caption
“Advisor/ Consultant to the Issue”. Further such member should not use the designation of “Merchant

Audit Handbook 9. 16
 Banker” or “Advisor/ Consultant to Issue” in their letter heads.

→ CAs who are Directors of Cos, Members of political parties, Municipal Councilor. position in clubs/ org, etc.
are not permitted to mention these positions.

→ Member cannot use designation such as Cost Accountant, Company Secretary, Cost Consultant, Advocate,
management consultant, IT Consultant, Corporate Lawyer, Cybersecurity Expert.
However, members are permitted to use letter indicating membership of other professional bodies/

→ Members are not permitted to use the initials “CPA”.

→ CAiP who are eligible may also practice as CS/ Cost Accountant/ Advocate (if permitted by Bar Council).
But he shall not use designation of such Institute simultaneously with “CA”. Such member be treated as
member in full-time practice.

→ Member can mention “Insolvency Professional” or “Registered Valuer” on his visiting card or letter head.

→ N ool &
lo in which
pr

→ Re uld be
li

→ Appearance of CAs on Electronic Media (including Internet): CAs may appear on TV, films, internet & radio
or give lectures & may give “their name & Firm name” & describe themselves as CAs. Special qualifications
or knowledge directly relevant to subject matter may also be given.
However, exaggerated claim or any kind of comparison is not permitted.

Audit Handbook 9. 17
 → Publicity is permitted for appointments to positions of local or national importance. Mention of
membership of institute is desirable but name of firm should not be permitted.

→ Organising Training, Seminars for his staff: May also invite the staff of other CA and clients to attend
the same. However, undue prominence should not be given to name of CA in any booklet.

→ Writing Articles or Letters to Press: May give their names and use description CAs.

→ Size of Sign Board: Use of glow signs or lights on large-sized boards as is used by traders or shopkeepers
is not permitted. Also, can have a name board at place of his residence with designation of a CA (Not firm).

→ Public Announcement with details of CA as Directors: Prospectus or public documents should not publish

but

→ Use of logo/monogram of any kind/form/style/design/colour etc. on any display material or media is

prohibited. Use/printing of member/firm name in any other manner tantamounting to logo/ Monogram.

→ Member are allowed to print QR Code on visiting card only if that code does not contain information
that are not permissible to print on visiting card.

→ Member is allowed to print names of all firms on personal letter head in which he is a partner.

Clause (8): accepts a position as auditor previously held by another chartered accountant or certified auditor
who has been issued certificate under Restricted Certificate Rules, 1932 without first communicating
with him in writing. (first communicate then accept)

→ Communication is mandatorily required for all type of audit/ report where previous auditor is CA.
If assignment done by other professional (not CA), it would be healthy practice to communicate.
→ Objective of incoming auditor to communicate with retiring auditor is to ascertain from him whether there
are any circumstances which warrant him not to accept the appointment.

Audit Handbook 9. 18
 → Professional reasons for not accepting an audit would be:
• Non-compliance of section 139 and 140 of Companies Act, 2013 (Clause 9)
• Non-payment of undisputed Audit fee by auditees other than in case of sick unit. (Clause 1 P2 S2)
• Issuance of qualified opinion
Audit fee include other expense incurred during audit & “sick unit” shall mean unit registered for at least
5 years, which has a
✓ In 1st two cases, if
✓ In 3rd case, he ma
justified. However,
should refuse to a

→ Incoming auditor must have positive evidence of delivery to retiring auditor:

• Communication by letter sent through “Registered Acknowledgment due”.
• By hand against written acknowledgment.
• Acknowledgement of communicate via email of retiring auditor registered with institute or last known
email. If acknowledgement not received on email, then sent through “Registered Post”.
• Unique Identification Number (UDIN) generated on Portal by retiring auditor.
*Letter posted under certificate of posting not considered valid.

→ If premise locked: It shall be deemed as having been delivered to retiring auditor.

→ Firm not found at registered address: If address is same registered with ICAI on date of dispatch, letter will
be deemed to delivered, unless retiring auditor proves otherwise.
→ If retiring auditor not reply within reasonable time: The Auditor can act, after waiting for reasonable
time for a reply.
→ Lack of time in acceptance of Govt Audits: If there is no time to wait for reply from outgoing auditor,
incomi mmediately after
he has e after receiving
info rec
→ Special mmunicates with
the me
→ Joint Auditor: As a matter of professional obligation, it is necessary for new auditor appointed to act
jointly with earlier auditor to communicate with such earlier auditor.

Audit Handbook 9. 19
 → This clause applicable in situation of replacing one auditor with other. Internal Auditor and Statutory
auditor are parallel positions and not replacing position. So, no communication needed.
→ If Previous Auditor is unavailable to accept payment of undisputed audit fees & it is not possible to
transfer payment electronically, Incoming Auditor may advise client to purchase Demand Draft for
undisputed Audit Fees & may accept Audit after verifying same.

Clause (9): accepts an appointment as auditor of a company without first ascertaining from it whether the
requirements of Section 139 & 140 of the Companies Act, 2013 (Sec 225 of Co. Act, 1956), in respect
of such appointment have been duly complied with.

→ It is obligation of Incoming auditor to ascertain from company that appropriate procedure of appointment
has been duly complied with so no shareholder or retiring auditor, on later date, may challenge validity
of appointment.
→ It would be not suffi ming
auditor should verif . is
not willing to allow i
(Read sec 139 &140 once)

→ ESB Guidelines in case of removal/ resignation of auditor:

• Where auditor resigns or does not offer himself reappointment as auditor:
Communicate to BOD with reason & send copy of such communication to Institute. Incoming auditor
obtain copy of communication & consider the same before accepting the appointment.
• Where auditor willing but not reappointed:
File with ICAI copy of statement that may sent to Management for circulation among shareholders.
Incoming auditor shall, before accepting appointment, obtain copy of such communication. Also,
applicable to removal of auditor by government/ other statutory bodies.

E.g.: If accepts an appointment as auditor of company in which his relative is director or KMP or substantial interest:
Guilty under Clause 9/P1/S1 & Clause 4/P1/S2

Clause (10): Charges or offers to charge, accepts or offers to accept of any professional employment fees which
are based on a percentage of profits or which are contingent upon the findings, or results of such

Audit Handbook 9. 20
 employment, except as permitted under any regulations.

Exceptions (Reg 192):

In Case Basis of Charging fees
Receiver or a Liquidator % of realization/ disbursement of assets (not on total assets)
Auditor of Co-operative society % of Paid capital/ WC/ Profit……. etc. as fixed by registrar
Valuer for direct tax & duties % of value of property valued
Management Consultancy service % of contingent findings or result of such work
Fund Raising Service % of fund raised
Debt Recovery Service % of debt recovered
Cost optimization service % of benefit derived
Insolvency Professional or Non-assurance service % basis

Some Point:
• Fee should not be regarded as being contingent if fixed by court or public authority.
• Getting loan sanctioned from bank not cover under fund raising service: Fee not charges on %

Clause (11): Engages in any business or occupation other than the profession of chartered accountant unless
permitted by the Council so to engage.
Provided that nothing contained herein shall disentitle chartered accountant from being a director of
company (Not being MD or WTD) unless he or his partners interested in such company as an auditor.

Exception: Chapter XVII of Council General Guidelines (Discussed in last)

Regulation 190 A: Resolution passed by Council

General Resolution: (No specific permission required from council)
• Employment under CAiP or firms of CA (Part time or full time)
• Private tutorship
• Part-time tutorship under coaching organization of ICAI.
• Attending classes & appearing for any examination.
• Valuation of papers, acting as paper-setter, head-examiner or moderator, for any examination.
• Authorship of books & articles (any books)

Audit Handbook 9. 21
 • Editorship of professional journals (e.g. Company audit journal)
• Holding of Life Insurance Agency License for limited purpose of getting renewal commission.
• Holdi
• Hono
• Actin
• Actin
• Actin
• Owni
• Promoter/ Promoter director/ Signatory to the memorandum and articles of association.

Specific Resolution (Special or prior approval of council required)

• Full or part-time employment in business concern provided that he/his relatives do not hold
“substantial interest” in such business (20% or more).
• Full-time or part-time employment in non-business concern.
• Office of MD or a WTD of a body corporate provided that the member and/or any of his relatives do
not h
• Intere
• Intere
• Part- conducted under ICAI
or Re
• Part-time or full-time tutorship under educational institution other than coaching org of ICAI.
• Editorship of journals other than professional journals.
• Other business for which Executive Committee may grant permission.

Notes:
→ However, it is open to council to refuse permission in individual case any of above category.
→ For both category, Direct Teaching hours should not exceed 25 hours per week to be able to undertake
attest functions (COP need to surrender if exceed)
→ CAiP in HUF doing business: can acquire interest as a member/ Karta of HUF doing family business, will
be within limit if he makes investments from funds of HUF only, provided, he is not actively engaged in
management of said business. (Active participation not allowed)
Must provide evidence to institute that interest in family business due to inheritance/succession/ Partition

Audit Handbook 9. 22
 & that business concern was not created by him.
→ Trad
→ Rece
→ As p olding company,
as it

Examples:
• CAiP engage in multiple activities of general resolution: Prior permission required.
• Full time or part time employment in a business in which he/his relative have substantial interest/ family
business: Not allowed (COP need to surrender)

CAiP – Director in a company?

He/ his partner/ firm is Not auditor of that Co.
Auditor of that Co.
NED (Normal director) WTD/ MD Check: He/ his relative has
substantial interest?
Not Allowed Allowed
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Allowed in case of

Clause (12): Allows a person not being a member of the institute in practice or a member not being his partner
to sign on his behalf or on behalf of firm, any balance sheet, profit and loss account, report or F.S.

In Below circumstances, Power to sign the documents, on which opinion or authentication is not required, may
be delegated. (Exception)
• Issue of audit queries or questionnaire or asking information during the course of audit.
• Letter forwarding draft observations/financial statements.
• Initiating and stamping of vouchers and of schedules prepared for the purpose of audit.
• Acknowledging and carrying on routine correspondence with clients.
• Issue of memorandum of cash verification and other physical verification or recording the results thereof
in the books of the clients.
• Issuing acknowledgements for records produced.
• Raising of bills and issuing acknowledgements for money receipts.

Audit Handbook 9. 23
 • Attending to routine matter in tax practice, subject to provision of Sec 288 of Income Tax Act.
• Any other matter incidental to office administration and routine work involved in practice of accountancy.

Example:
• If such Authority has been delegated by CA but authority not used, then also Guilty
• Ineligible Persons who are signing will be held guilty under Sec 26 of CA Act, 1949.
“Clause 1” “Clause 12”

CAiP + Partner or Employee CAiP + Partner only

PART 2 – Professional Misconduct in relation to CA’s in Service

A member of the Institute (other than a member in practice) shall be deemed to be guilty of
professional misconduct, if he being an employee of any company, firm or person: -

Clause (1): pays or allows or agrees to pay directly or indirectly to any person any share in the emoluments
of the employment undertaken by him.

Exception: sh ip for
pr

Clause (2): ac accountant

or broker engaged by such company, firm or person or agent or customer of such company, firm or
person by way of commission or gratification.

→ Should not accept any other amount from anyone for which he is not entitled from employer under
contractual agreement of service. (can accept reward from employer)
→ Member would be guilty irrespective that he was in full time/ part time employment or holding COP
along with employment.

PART 3 – Professional Misconduct in relation to Member of Institute

A member of the Institute, whether in practice or not, shall be deemed to be guilty of professional
misconduct, if he: -

Audit Handbook 9. 24
 Clause (1): not being a fellow of the Institute, acts as a fellow of the Institute.

Clause (2): does not supply the information called for, or does not comply with the requirements asked for,
by Institute, Council or any of its Committees, Director (Discipline), Board of Discipline, Disciplinary
Committee, Quality Review Board or the Appellate Authority.

Examples:
• CA had continued to train an articled clerk though his name was removed from the membership and he had
to how he was training as his

• bout his engagement in other

• Failure to furnish any information or failure to reply to bodies related to ICAI: Guilty

Clause (3): while inviting professional work from another chartered accountant or while responding to tenders
or enquiries or while advertising through a write up, or anything as provided for in items (6) and
(7) of Part I of this Schedule, gives information knowing it to be false.

PART 4 – Other Misconduct in relation to Member of Institute

A member of the Institute, whether in practice or not, shall be deemed to be guilty of Other Misconduct:

Clause (1): is held guilty by any civil or criminal court for an offence which is punishable with imprisonment
for a term not exceeding six months.

Clause (2): In the opinion of the Council, brings disrepute to the profession or the Institute as a result of his
action whether or not related to his professional work

Examples: (Guilty)
• CA retain books of accounts and documents of client & failed to return without reasonable cause.
• CA makes a material misrepresentation or advising unethical practice.
• CA use service of his article or audit assistant for purpose other than professional practice.

Audit Handbook 9. 25
 • Convicted by a competent court of law for any offence u/s 8 (v) of Chartered Accountants Act.
• Misappropriate mon or personal use.
• Not replying within horities.
• CA adopted coercive
• Concurrent auditor uses his position to obtain funds and failed to repay the same to bank.
• Cheque dishonored due to insufficient fund or withdrawn money which not belong to him.

Information asked by:

ICAI related Bodies Other Regulatory bodies

Not provided by CA Provided but false information Not provided or provided but
false information
Clause (2) P3 S1 Clause (3) P2 S2
Clause (2) P4 S1
Second Schedule
PART 1 – Professional Misconduct in relation to CA’s in Practice
A CA in Practice (CAiP) is deemed to be guilty of Professional Misconduct, if he:

Clause (1): Discloses Information acquired in the course of his professional engagement to any person other
than his client so engaging him without the consent of his client or otherwise than as required by
any law for the time being in force.

→ Client’ consent can be assumed if disclosure is required as a part of professional duty.

→ Whose Consent consider as valid? -
• Proprietary: By Proprietor or his constituted attorney.
• Partnership: By Any partner (except Sleeping partner).
• Company: By MD if such powers have been authorized by BOD, otherwise by board resolution.
→ No misconduct in case of legal compulsion as required by Evidence Act
→ A member is not permitted to submit client information before the Court as evidence on his own behest
unless court give specific direction.

Audit Handbook 9. 26
 Clause (2): Certifies or submits in his name or in the name of his firm, a report of an examination of F.S.
unless examination of such statements and related records has been made by him or by a partner
or an employee in his firm or by another chartered accountant in practice.
In case of Joint Auditor, the liability is limited to the area allotted to that auditor.

Clause (3): Permits his name or the name of his firm to be used in connection with an estimate of earnings
contingent upon future transactions in manner which may lead to the belief that he vouches for
the accuracy of the forecast.

→ A CA can participate in preparation & review of financial forecasts, provided he indicates in his report
sources of information, basis of forecasts & major assumptions made in arriving of forecasts as long
as he does not vouch for accuracy of forecasts.
→ SAE3400: Auditor may examine & report on Prospective Financial Information (PFI) to enhance credibility.
However, while making report, he needs to mentioned that his responsibility is to examine evidence
supporting the evidence & Other information of PFI.

E.g.: A CA issued 97 Projected F.S. without verifying basic documents and on the basis bank extended loan amount:
Guilty under Clause (3), (7), (8) of P1 S2.

Clause (4): Expresses his opinion on financial statements of any business or enterprise in which he, his firm,
or a partner in his firm has a substantial interest. (20% or more)

→ It Applied to all types of Attest functions by members

→ Management Consult ise.
→ In case of Stat. Audit ct, 2013.
→ Cooling off period: CA e of completion
of his tenure or resign
→ CA should not by him
• Accept the Auditor ship of a college, if he is working as part time lecturer in college.
• Accept the Auditor ship of a Trust, where his partner is either employee or trustee of the trust.
→ CAiP cannot permit to certify F.S of concern in which he is employee or under same management.
→ Member not to write Books of Accounts for auditee clients.

Audit Handbook 9. 27
 → Statutory auditor cannot to be Internal Auditor simultaneously.
→ Internal Auditor not to be Tax auditor or GST auditor simultaneously
→ Member not allowed to undertake the assignment of certification, where client is relative.

Clause (5): Fails to disclose a material fact known to him which is not disclosed in a financial statement, but
disclosure of which is necessary in making such financial statement where he is concerned with that
financial statement in a professional capacity.

Examples:
• Auditor identified some irregularity in operation of trust and commented in confidential report given to trustees
but not mentioned annual account of trust.: Guilty
• CA failed to report on non-creation of sinking fund as per Debenture Trust Deed & didn't clear that amounts
shown towards sinking fund were borrowed from managing agents of Co.: Guilty
• Auditor of EPF disclosed contraventions to Trustees of fund but not to members of fund: Guilty

Clause (6): Fails to report a material misstatement known to him to appear in a financial statement with
which he is concerned in a professional capacity

E.g.: CA appear before tax authorities on behalf of client, and submitted information found false & misleading:
Not Guilty, as CA acting on instruction of client based on data provided by client.

CAiP examining F.S. and knowing failed to disclose in report

ppearing in F.S

E.g.: L preciation charged on Fixed Assets

Clause (7): does not exercise due diligence, or is grossly negligent in the conduct of his professional Duties.

→ It is a vital clause which gets attracted whenever it is necessary to judge whether the accountant has
honestly and reasonably discharged his duties. The expression negligence covers a wide field and extends
from the frontiers of fraud to collateral minor negligence.

Audit Handbook 9. 28
 Examples: (Guilty under clause 7)
• Not completing audit work & not submitting audit report in due time.
• Failed to check a forged signature which he could have checked.
• Fail to confirm value of investment or mode of valuation of investments in shares.
• CA signed the accounts of Organization subject to separate notes to be written on a later date.
• Submitted stock audit report without visiting site, relied on management.
•
• hout

•
•
• Digital signed the form without verifying or shared password of digital signature.
• Certified circulation figures based on MIS Report without examining Books of accounts.
• Did not exercise reasonable skill & care & performed work in casual & haphazard manner.

Clause (8): Fails to obtain sufficient information which is necessary for expression of an opinion or its
exceptions are sufficiently material to negate the expression of an opinion.
Crux:
If Questions indicate- Failure to obtain sufficient information or signing without examination then always put
clause 2, 7, 8 of P1 S2.
• If auditor indicate qualified opinion where disclaimer was required: Guilty under Clause 8
• Relying on the work of internal auditor that the books of account and supporting vouchers had been
examined by the internal auditor of Company: Guilty under Clause 8

Examples: (Guilty under this schedule)

• Wrongly certified increase Paid-up capital in balance sheet of a Pvt Co. without proper evidence: Clause (7), (8), (9)
• Issued certificate of consumption of Raw material based on minutes of BOD. Clause (2) & (7)
• Issued 2 different certificate of same period for circulation of 2 newspaper. Clause (7) & (8)
• Material prior period adjustment made into a/c & auditor didn't exercise due diligence, wrong opinion issued
based on insufficient info & didn't follow SA - Clause (7), (8) & (9)
• Failing to give disclosure of Contingent Liability against corporate guarantee in FS: Clauses (6) & (7)

Audit Handbook 9. 29
 • Issued certificate of circulation of periodical without going into details: Clause (7) & (8)
• C
• Is
• A
• F es
of
• F
• Failed to bring attention of wrong stocks and turnover in P&L: Clause (7) & (8)
• Failed to detect big embezzlement leading to the loss to the exchequer: Clause (5), (7), (8)

Clause (9): Fails to invite attention to any material departure from generally accepted procedure of audit
applicable to circumstances

→ Due to some reason the auditor has not been able to perform the audit accordance with procedure, his
report should draw attention to the material departures from such procedures.
→ Fa s not
ex
→ A
→ FRN & Membership number need to mentioned in all reports & certificates.
→ UDIN is mandatory on all Corporate/Non-Corporate Audit, Attest & Assurance Functions.

Examples: (Guilty)
• Checked the Cash Book totals but not the Bank Column totals, had verified all the transactions in the Bank
Columns but not the contra-entries, didn't check Bank reconciliations: Clause (7), (8), (9)
• CA didn't conduct sample checking of bank a/c & didn't do vouching & depended on work of Article Assistant:
Clause (7), (8) & (9)

Clause (10): fails to keep moneys of his client other than fees or remuneration or money meant to be expended
in a separate banking account or to use such moneys for purposes for which they are intended
within a reasonable time

→ Moneys received by CA, in his capacity as trustee, executor, liquidator, etc. must be put in separate bank

Audit Handbook 9. 30
 account immediately.
→ He has duty to utilse such funds only as per instruction of clients or purpose intended by client.

CAiP received money from client

Advance against the service to render For the purpose of Client

Does not fall under Clause (10): N.A. Expected to be used within Not to be used within reasonable
reasonable time. time.
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E.g. Payment of Statutory dues, stamp pape

PART 2 – Professional Misconduct in relation to member of Institute

A member of the Institute, whether in practice or not, shall be deemed to be guilty of professional
misconduct, if he: -

Clause (1): contravenes any of the provisions of this Act or the regulations made there under or any guidelines
issued by the Council

→ A CA is not guilty if payment of stipend is not made every month (but monthly rate required).
Examples (Guilty)
• Contravention of any rules related to articles in firm (like fake registration of articles when there is no vacancy,
permit article to serve article ship under another CA without informing ICAI, non- payment of stipend, etc.)
• Took loan from a firm in which article and his father were both interested.
• Issued certificate of CA without holding COP.
• Accepted audit even if undisputed fee wasn’t paid to earlier auditor.
• CA describe himself as Investment Consultant public accountant in Pvt circular of client.

Clause (2): being an employee of any company, firm or person, discloses confidential information acquired in
the course of his employment except as and when required by any law for the time being in force
or except as permitted by the employer.

Audit Handbook 9. 31
 Clause (3): Includes in any information, statement, return or form to be submitted to the Institute, Council or
any of its Committees, Director (Discipline), Board of Discipline. Disciplinary Committee, Quality
Review Board or the Appellate Authority any particulars knowing them to be False.

Examples: (Guilty)
• CA who was an employee in a firm applied for admission of fellow of Institute stating that he was a partner
but he was not.
• Member given wrong statement or statement on oath knowing to be false before committee.
• CA
emp
• In a er
in fi
• CA in full time employment in Co, while filling bank empanelment form, gave declaration that he was not in any
occupation/business/vocation etc.

Clause (4) Defalcates or embezzles money received in his professional capacity. (Read with Cl 10/ P1/S2)

PART 3 – Other Misconduct in relation to Member of Institute

A member of the Institute, whether in practice or not, shall be deemed to be guilty of Other Misconduct:

Clause (1): if he is held guilty by any civil or criminal court for an offence which is punishable with
imprisonment for a term exceeding six months

Council General Guidelines 2008

Where member can be held guilty of professional misconduct under Clause (1)/P2/S2 unless specified.

Chapter V: Maintenance of Books of Accounts

A CAiP or Firm of CA, shall maintain & keep in respect of his professional practice, proper books of accounts
including the following:
(i) Cash Book (ii) Ledgers
Examples:
• CA doesn’t maintain BOA for his professional earnings on ground that income less than limit prescribed under

Audit Handbook 9. 32
 u/s 44AB of Income Tax: Guilty
• A CA maintain notes in his mobile & on the base of records, file ITR: Guilty

Chapter VI: Tax Audit assignments under Section 44 AB of the Income-tax Act, 1961
→ A Member shall not accept, more than specified number of tax audit assignments under Section 44AB
of Income tax Act (60 audits) & for Firm, 60 tax audit assignments per partner in a F.Y.
→ Audits u/s 44AD, 44ADA & 44AE of Income Tax Act shall not be counted for 60 tax audits.
→ Any partner is also partner of any another firm, the assignments taken for all the firms together
related to partner shall not exceed aggregate.
→ One Partn of firm.
→ The numbe e of assignment.
→ Part time
→ Audit of one or more branch / Audit of head office & branch office consider as one Audit.

Chapter VII: Appointment of Auditor in case of non-payment of undisputed fees

Reference of this chapter must be given in solution (Guilty under Clause 1/ P2/ S2)

Chapter VIII: Specified number of audit assignments

→ A CAiP shall not hold more than “specified no. of assignments” of companies under section 141.
→ 30 audit assignments per member or partner in firm excluding One person & Dormant Company.
Condition of Chapter VI also apply: Point (3), (4), (5), (6), (7)

Chapter IX - Appointment as Statutory auditor

A CAiP s ditor of PSU’s/ Govt Companies/ Listed Companies
and othe year if he accepts any other assignment in regard
of same company “on remuneration in total exceeds fee payable for statutory Audit” of same company.

Other assignments include management consultancy service but exclude:

• Audit under any other statute.
• Certificate work require to be done by statutory auditor.
• Any representation before authority.

Audit Handbook 9. 33
 Only accepts if
Remuneration for other service to statutory Fee of Statutory Audit
auditor + their associate concern Doesn’t exceed

Chapter X - Appointment of auditor when he is indebted to concern

A member in practice or partner or firm or relative of member or partner shall not accept appointment as
auditor of concern while indebted to concern of Rs. 5,00,000 or give guarantee or provide security in connection
with indebtedness of any third person to concern, for amount exceeding Rs. 1,00,000.
→ Recovery of fee on progressive basis cannot be covered under indebted.

Chapter XV- Network Guidelines

Meaning of network: a firm or entity belongs to Network
→ A large structure that aimed at cooperation and entities within structure share:
• Profit or cost or common ownership, control or management or common quality control policies or
common business strategies or use of common brand name or significant part of professional resource
(sys
→ Even tho ts
stationer
→ Sharing
→ Shared resources limited to common audit methodology or manual, with no exchange of personnel or
clients or market information: Not Network
→ It only aimed for facilitating the referral of work: Not Network

Form of Network
→ Mutual entity which will act as a facilitator for the constituents of the Network.
→ As a partnership firm subject to not exceed 20 partners.
→ LLP (subject to provision of CA Act) or Company (for management consultancy service).
A Firm is allowed to join only 1 network. Firm having common partners shall join only 1 Network.

Approval of Name of Network

Institute shall approve or reject the name of Network within 30 days from the date of receipt of form:
→ the words “& Affiliates” shall be used after the name of the network.

Audit Handbook 9. 34
 → the words “& Co.” / “& Associates” shall not be used.
→ Institute may withdraw the said name any time even it was approved earlier.
→ Mere approval of name shall not entitle Network to carry on practice in its own name.

Registration of Network or Change in constitution of Network:

→ Institute shall reserve the approved name for 3 months from the date of approval.
→ Network shall get itself registered with the Institute within 3 months.
→ Registration of Network with Institute is mandatory.
→ In case of change in constituent due to any entry or exit from Network, communicate to institute within
30 days from the date of change.

Listing of Network with entities outside India

→ Duly authorized representative(s) of the Indian firm shall file a declaration for listing of such network
within 30 days of entering into the network
→ Permitted to join network with entities outside India provided that they join only 1 network & firms
having common partners shall join only 1 such network.

Ethical Compliance of Network

It is necessary for network to comply with all applicable ethical requirement prescribed by the ICAI.:
→ If one firm of the network is the statutory auditor of an entity then the associate or the said firm
directly/indirectly shall not accept any assignment which are prohibited for statutory auditor firm.
→ Guidelines of ceiling on Non-Audit fees is applicable in relation to a Network:
• Network firm who is also doing statutory audit: discussed under Chapter IX of CGG
• For other firms of the same Network, shall be 3 times of fee payable for statutory audit.
→

Chapter XVI- Logo Guidelines

→ 'CA' in blue colour with a tri-colour tick mark (upside down) with white background.
→ India also added in the logo.
→ No alteration of font (colour, bold/unbold, size). Moreover, no change in spacing & dimensions.

Audit Handbook 9. 35
 A transition time of 1 year has been provided
Chapter XVII- Guidelines for Corporate Form of Practice (Exception of Clause 11)
Council has allowed member in practice to hold office of MD, WTD or Manager of body corporate that is
engaged exclusively in rendering Management Consultancy and Other Service.
→ Member can retain full time COP & also no restriction on quantum of equity holding.
→ Entitled to do attest functions & train article assistants.
→
→

assignments, which are prohibited for the statutory auditor firm.

→ Management Consultancy Company shall comply with clauses (6) & (7) of Part-I of the First
Schedule to the Chartered Accountants Act, 1949.

Recommended Self – Regulatory Measures

Self-Regulatory Measures are recommendatory
Branch Auditor
Branch audits of company should not be conducted by its statutory auditors consisting of ten or more
members, but should be conducted by the local firms of auditors consisting of less than ten members.
Not applicable: if Branch records are maintained at head office OR significant operations are carried out at
branch office itself.

Joint Audit
In Large Companies, associating a practicing firm with less than five members as one of the Joint auditors
should be encouraged.

Ratio Between Qualified and Unqualified Staff

CA firm should have at least 1 member for every 5 non-qualified members of staff in every audit (excluding
article assistants, typist, peon & other person).

Recommended Minimum Scale of Fees

→ Institute recommended scale of Fees is to be charged as per the work performed for various professional

Audit Handbook 9. 36
 assignments.
→ Charging excessive fee or low fees for assignment doesn’t constitute any misconduct.
→ Disclosure requirement of Fee- (Not applicable to Govt Co. or when total fee of firm <= Rs. 20L)
Disclosure is required where for 2 consecutive years, total fees from an audit client & related entities
represent more than:
• In case of PIE: 20% {PIE- Listed entities, Banks, Insurance etc.}
• In case of Non-PIE: 40%

Recent Decisions of Ethical Standards Board

✓ CAiP is permitted to become member of 'Board of Mgt' in Primary (Urban) Co-operative Banks.
✓ CAiP is permitted to become professional director in Board of Management of a Co-operative Bank.
✓ Firm may register itself on Udyog Aadhar, a web portal of MSME.
✓ CA can setup practice in IFSC/ Gift City.
✓ Can render professional services to IFSC Units from offices outside IFSC.
✓ Internal auditor of Company can purchase shares of such company.
✓ CAiP can act as Authorized representative of Foreign Co., provided he is not auditor of said Co.
✓ 2 or more CAiP are permitted to have joint training session for their clients on GST, & share fees collected.
✓ CAiP can provide services through kiosk, only if professional services provided are permitted.
✓ CA in service is allowed to take e-return registration if it does not conflict with employment obligation.
However, he cannot certify return.
✓ CAiP may be equity research adviser, but he cannot publish retail report, as it is other business.
✓
✓
✓ s not
This Part content not available in sample pages, you can purchase this book through google form.
✓Check more detail about this book through youtube video:
✓CA Final: CA VikalpGupta
✓
✓ t not

✓ vt (MCC)
✓ CAiP can accept assignment of Mystery Audit.

Audit Handbook 9. 37
 ✓ CAiP can mention position as promoter/Director on portal of Company. He cannot mention his professional
attainments and his firm name. There should be no violation of Clause 6&7 of P1 of S1.
✓ CAiP can charge fee on a percentage of utilization amt of educational institute for certifying amount spent
out of grants.
✓ CA/CA Firm can act as internal auditor of Co. & statutory auditor of its employees PF Fund.

 CAiP cannot act as Trademark or Patent Attorney (Advice for IP Rights is permitted).
 CAiP being a statutory auditor cannot prepare BRSR study to Audit Clients. He may provide advisory
services on the same or can be “Assurance provider of BRSR Core”.
 CAiP is not permitted to accept statutory audit of society wherein immediate family member i.e., spouse











 CAiP cannot hold Custom Broker License.
 Statutory Auditor of bank cannot accept Stock/ Inspection Audit of such bank.
 Firm appointed as Internal Auditor of PF trust of Govt company cannot be statutory Auditor.
 Concurrent Auditor of bank ‘X’ cannot appoint as statutory auditor of bank ‘Y’, which is sponsored by ‘X’.
 CAiP being statutory Auditor of a Bank cannot accept assignment of ASM of a customer of the same
Bank simultaneously.
 CAiP cannot be appointed as an Internal Auditor and Procurement officer simultaneously in an Org.
 Internal Auditor not to undertake Tax Audit.

Audit Handbook 9. 38
 Disciplinary Proceedings
‘Receipt of compliant along with fee or Information of misconduct’ by Disciplinary Directorate (DD)
(Prima Facie Opinion)
Guilty Not- Guilty

First Schedule Second Schedule Board of

Discipline (BOD)
Board of Disciplinary
Discipline (BOD) Committee (DC)
Accept Reject
Guilty Not-Guilty
Close Matter • Advice DD for further
Investigate
• Reprimand • Reprimand • May proceed, if matter
• Remove name • Remove name Permanently of 1st Schedule
upto 3 months or any duration • Refer to DC, if matter
• Fine upto 1 lac. • Fine upto 1 lac. of 2nd Schedule

→ If not found guilty: Matter closed

→ Confirm, modify or set aside order.
→ Remit case to BOD/ DC to reconsider.
→ Appeal can be made by member or Director (Discipline)
within 90 days to Appellate Authority.

For any Query, Directly message me on Telegram: [Link]

Audit Handbook 9. 39
 Review of Financial Information

Basic Information
→ Review is related to F.S. prepared on basis of historical F.S. (GPFS or SPFS) just like an audit.
→ Review is a limited assurance engagement. It provides lower level of assurance than audit. It involves fewer
procedures & gathers sufficient & appropriate evidence on basis of which limited conclusions can be drawn.

Mistake to avoid in review engagement:

x
SAAE SAE x
Opinion Conclusion x
Auditor Practitioner
Only in SRE 2400
Standards on Review Engagements
SRE 2400: Engagements to Review Historical Financial Statements
SRE 2410: Review of Interim Financial Information Performed by the Independent Auditor of the Entity

SRE 2400: Engagements to Review Historical Financial Statements

Introduction
SRE 2400 deals with practitioner’s responsibilities to perform a review of historical F.S, when he is not auditor
of the entity’s F.S.
Practitioner performs primarily inquiry and analytical procedures to obtain SAE as basis for conclusion on the
F.S. as a whole.

Compliance with Ethical Requirements and Engagement Level Quality Control

Practitioner shall comply with relevant ethical requirements, including independence & EP is responsible for
overall quality of each review engagement.

Factors a
Unless re
(a) Prac
• T t L&R
require F.S. audited)
• A review engagement would be appropriate in the circumstances.
(b) Practitioner has reason to believe that relevant ethical requirements will not be satisfied.

Audit Handbook 20. 1

 (c) Practitioner has cause to doubt management’s integrity, affecting proper performance of review.
(d) Practitioner’s preliminary understanding indicates that information needed to perform the review engg. is
likely to be unavailable or unreliable.
(e) Management or TCWG impose a limitation on the scope of practitioner’s work.

Pre-conditions for accepting Review Engagement & Agreeing the term of engagement (Similar to SA 210)
If practitioner is not satisfied with any matters of preconditions for accepting review engagement, practitioner
shall discuss the matter with mgt or TCWG.
If changes cannot satisfy the practitioner, he shall not accept proposed engagement unless required by L&R.
If engagement doesn’t comply with this SRE, accordingly practitioner shall not include any reference in report.

Performing a Review Engagement

Performing the review engagement after its acceptance in accordance with SRE2400:
a) Materiality in a Review of F.S. (Similar to SA 320)
b) Obtaining Understanding of the Entity
c) Designing and Performing Procedures
In obtaining SAE for conclusion on F.S as a whole, the practitioner shall design and perform inquiry &
analytical procedures. Practitioner may consider effective or efficient to design & perform other procedures.

Inquiry: It may include matters such as accounting estimates, identification of RP, complex transactions
subsequent events, mgt’s assessment of going concern, obtain non-financial data etc.
Analytical Procedures: Practitioner shall consider whether data from entity’s accounting system & records
are adequa
Why inquir
→ Evidence ntent.
However,
• Und ue
speci
→ Performi nment,
to be able to identify areas where material misstatements are likely to arise in F.S.

Performing analytical procedures assist the practitioner to:

Audit Handbook 20. 2

 → Obtaining understanding of entity & its environment, & identify areas where M.M. are likely to arise.
→ Identifying inconsistencies or variances from expected trends, values in F.S.
→ Providing corroborative evidence to inquiries or analytical procedures already performed.
→
→ Serving as additional procedures when practitioner believe that F.S. may be material misstated.

d) Procedures to Address Specific Circumstances

Practitioner shall remain alert for information that may indicate the existence of related party
Related Parties
relationships or transactions that mgt has not previously identified or disclosed.
Fraud & non- If there is indication that fraud or non-compliance with laws or regulations occurred in entity,
compliance practitioner shall communicate matter to appropriate level of management or TCWG.
with L&R Also, consider the effect of mgt’s assessment related to it. (NOCLAR not applicable to review engg.)
Review of F.S. include consideration of entity’s ability to continue as a GC. During review,
practitioner
becomes aware of events or conditions that may cast significant doubt about entity’s ability to
continue as a GC, practitioner shall:
• Inquire mgt about plans for future actions affecting entity’s ability to continue as GC & about
Going Concern feasibility of those plans. Also, whether outcome of those plans will improve the situation.
• Evaluate results of inquiries, to consider whether mgt’s responses provide a sufficient basis to:
✓ Continue to present the financial statements on the going concern basis or
✓ Conclude whether F.S. are materially misstated or misleading toward going concern
• Consider management’s responses in light of all relevant information.
Using Work of It may be necessary for practitioner to use work performed by other practitioners, or expert
Others possessing expertise in a field other than accounting or assurance.

e) Additional procedures when the practitioner becomes aware that the F.S may be materially misstated
If practitioner becomes aware of matters that causes to believe that F.S. may be materially misstated, he
sh
→
→
Ad t
ca
→ Additional inquiry or analytical procedures, e.g., performed in greater detail or focused on affected item.
→ Other types of procedures, e.g., substantive test of details or external confirmations.

Audit Handbook 20. 3

 f) Written Representations
The practitioner shall request management to provide a WR that:
• Mgt has fulfilled its responsibility for preparation of F.S. in accordance with AFRF & provided all the
relevant info and access to info as agreed in the terms of engagement.
• All transactions have been recorded and are reflected in the F.S.

The practitioner shall also request mgt’s WR that mgt has disclosed to practitioner:
→ Identity of the entity’s related parties and their relationships and transactions.
→ Significant facts relating to any frauds or suspected frauds known to management.
→ Known actual or possible non-compliance with laws and regulations
→ All information relevant to use of the going concern assumption in the F.S.
→ All events occurring subsequent to the date of F.S & for which AFRF requires adjustment or disclosure.

Practitioner shall disclaim a conclusion on F.S., or withdraw from engagement, as appropriate, if:
• Practitioner conclude that there is doubt about integrity of mgt such that WR are not reliable; or
• Management does not provide the required representations in respect of its responsibilities.

What if practitioner not able to obtain SAE through inquiry and analytical Procedures?
If practitioner considers that evidence obtained from the procedures performed is not SAE to form conclusion
then practitioner may: Extend the work performed or Perform other procedures to be necessary.

Forming the Practitioner’s Conclusion

Practitioner shall also consider the impact of: During C.Y.
Uncorrected Misstatements P.Y. review of F.S.
Qualitative aspects of entity’s accounting practices including bias
Unmodified Conclusion
Practitioner shall express an unmodified conclusion in the practitioner’s report on F.S. as a whole when he has
obtained limited assurance to be able to conclude that
“nothing has come to practitioner’s attention that causes to believe that F.S. do not give true & fair view as
per AFRF.”

Audit Handbook 20. 4

 Modified Conclusion
The practitioner shall express a modified conclusion in his report:
Conditions are similar to SA 705 (Qualified, Adverse & Disclaim Conclusion)

Draft of Qualified Conclusion

“Based on our review, except the effects of matter described in Basis for Qualified Conclusion para, nothing has
come to our attention that causes us to believe that F.S do not give a true & fair view in accordance with AFRF.
Draft of Adverse Conclusion
“Based on our review, due to significance of the matter described in Basis for Adverse Conclusion Para, the F.S.
do not give a true and fair view, in accordance with the AFRF”.
Draft of Disclaim Conclusion
Due to the significance of matter described in Basis for Disclaimer of Conclusion Para, the practitioner is unable
to obtain SAE to form a conclusion on the F.S. and
Accordingly, the practitioner does not express a conclusion on the F.S.

Form & Content of Report

It contains some different elements from SA 700 which are:
(a) “A description of a review of financial statements and its limitations”, and the following statements:
•
• &

(b)
(c) If

Documentation
• The NTE of procedures performed to comply with SRE & applicable legal and regulatory requirements.
• Results obtained from procedures, and practitioner’s conclusions formed on the basis of those results.
• Significant matters arising during the engagement, the practitioner’s conclusions reached thereon.
EOM & OM Para can be used in the same manner as used in Audit Report

Audit Handbook 20. 5

 SRE 2410: Review of Interim F.S. Performed by Independent Auditor of Entity

Introduction
What is Interim Financial Information?
It is prepared & presented as per AFRF which comprise a complete or condensed set of F.S. for a period that is
shorter than the entity’s F.Y.

Objective of an Engagement
To review interim financial information is to enable the auditor to express a conclusion whether anything has
come to auditor’s attention that causes to believe that it is not prepared as per AFRF.

Understanding the Entity and its Environment including its Internal Control
It relates to preparation of both annual & interim financial information, to plan & conduct engagement.
Some of the procedures performed by the auditor to update the understanding include:
→ Reading the most recent prior period interim financial information.
→ Reading the documentation of preceding year’s audit & reviews of prior interim period of current year.
→ Inquiring of management about the results of management’s assessment of the risk of fraud.
→ Inquiring of management about the effect of changes in the entity’s business activities.
→ Inquiring of management about any significant changes in internal control.
→ Considering results of any internal audit performed & subsequent actions taken by management.
→ Considering significant financial accounting and reporting matters.
→ Considering materiality with reference to the AFRF.

Inquiries, Analytical and other Review procedures

Auditor ordinarily performs the following procedures:
→ Reading the minutes of meetings of shareholders, TCWG, & other appropriate committees to identify
matters that may affect the interim financial information.
→ Considering effect, of matters giving rise to modification of previous year audit or review report.
→ Communicating, with other auditors who are performing review of entity’s significant components.
→ Inquiring members of management responsible for financial & accounting matters, & others as following:
• Whether the interim financial information has been prepared & presented in accordance with AFRF.
• Whether there have been any changes in accounting principles or in the methods.
• Whether any new transactions that involve the application of a new accounting principle.
•

Audit Handbook 20. 6

 • Whether the interim financial information contains any known uncorrected misstatements.
• Significant changes in commitments and contractual obligations.

→ A
th
→ Re
th

Some
• Re
However, review as per SRE 2410 ordinarily limited to making inquiries, analytical & other review procedure.
• Review of Interim F.I. ordinarily does not require inquiries about litigation or claims (sending letter to
lawyer) unless there is material misstatement.
• Enquire whether mgt has identified all events up to the date of review report that may require adjustment
to or disclosure in the interim financial information.
• Inquire whether mgt has changed its assessment of entity’s ability to continue as a going concern. When
auditor become aware of such event or conditions that may cast significant doubt, auditor should:
✓ Inquire of management as to its plans for future actions, feasibility of these plans & Outcomes.
✓ Consider the adequacy of disclosure about such matters in the interim financial information.

Management’s Representation
→ It acknowledges its responsibility for design & implementation of internal control to prevent & detect fraud.
→ hfp
The interim financial information is prepared and presented in accordance with AFRF.
→ It has disclosed to auditor all significant facts relating to any frauds known to management.
→ It has disclosed to the auditor all known actual or possible non-compliance with laws and regulations.
→ It has disclosed to auditor the results of its assessment of the risks of material misstatement about fraud.

Communication
When a matter comes to auditor’s attention that causes the auditor to believe that it is necessary to make
material adjustment to interim F.I. to be prepared as per AFRF, he should communicate this matter to
appropriate level of mgt. If Mgt doesn’t respond within reasonable time, auditor should inform to TCWG.

Audit Handbook 20. 7

 What if TCWG do not respond appropriately within a reasonable period? The auditor should consider:
a) Whether to modify the report; or
b) Possibility of withdrawing from the engagement &
c) Possibility of resigning from appointment to audit the annual financial statements.

Other Considerations
Departure from the AFRF
If auditor believe that interim financial information may be materially affected by a departure from AFRF &
mgt does not correct interim financial information, auditor modifies the review report. (Qualified or Adverse)

Limitation on scope
Auditor does not accept an engagement if auditor’s preliminary knowledge indicates that auditor would not
able to complete review because there will be a limitation on scope of auditor’s review imposed by mgt.
If, l
of G
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in Check more detail about this book through youtube video:
If CA Final: CA VikalpGupta rt.

G
If nt
d
modifies the review report by adding an EOM paragraph. (In SA570 it is MURG para with unmodified opinion)
If not adequate disclosed in Interim F.I., auditor should express a qualified or adverse conclusion, as appropriate.

Other (imp)
The terms of engagement include management’s agreement that where any document containing interim F.I.
indicates that such info. has been reviewed by entity’s auditor, review report will also be included in the doc.
If mgt has not include review report in the document, auditor considers seeking legal advice.

ed review report in
the document, auditor considers seeking legal advice & possibility of resigning from appointment to audit the
annual F.S.

Audit Handbook 20. 8

 Content of Written Report
(a) An appropriate title
(b) An addressee, as required by the circumstances of the engagement
(c) Identification of interim financial information reviewed and date and period covered by interim F.I.
(d) A statement that management is responsible for preparation & presentation of interim F.I. as per AFRF.
(e) A statement that auditor is responsible for expressing a conclusion on interim financial information.
(f) A statement that review of interim financial information was conducted as per SRE 2410 & a statement
that such review consists of making inquiries, primarily of persons responsible for financial & accounting
matters, and applying analytical and other review procedures.
(g) A statement that review is substantially less in scope than an audit conducted as per SAs & consequently
does not enable auditor to obtain assurance that auditor would become aware of all significant matters.
(h) A conclusion as to whether anything has come to auditor’s attention that causes to believe that interim

(i)
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An
→
→ Comparing ratios & indicators for current interim period with those of entities in the same industry.
→ Comparing current interim financial information with anticipated results, such as budgets or forecasts.
→ Comparing amounts, or ratios developed from recorded amounts, to expectations developed by auditor.

It is presumed that users of interim financial information will have access to latest audited F.S., such as is case
with listed entities.
In other circumstances, auditor discusses with management to include a statement that it is to be read with
latest audited F.S. In absence of info, auditor considers whether interim financial information is misleading in
circumstances, and the implications for review report.

Audit Handbook 20. 9