Signature in audit report

This query is : Resolved

CA Khilesh (Querist)
Follow

23 May 2013 Can a practicing CA who is full time partner in partnership firm, (and who has not get his proprietorship firm registered with institute), sign audit report in his individual capacity.

Just like other newly qualified CA's do, that till they get their own firm registered they practice in individual capacity.

B K GUPTA

B K GUPTA (Querist)
Follow

23 May 2013 what kind of qualification a Statutory auditor can put regarding internal audit fuction of the management.

CA Khilesh

CA Khilesh (Querist)
Follow

23 May 2013 it totally depends upon the legal requirement if CARO 2003 is applicable than SA can qualify whether internal audit function is established or not and if operational does it commensurate with the size of company and nature of work company is in.

Upgrade to CAclubindia Pro. Subscribe Now!

CA Khilesh

CA Khilesh (Querist)
Follow

23 May 2013 if CARO is not applicable, but SA is of the opinion that due to lack of appropriate internal audit function there is substantial increase in overall audit risk he can qualify his report.

Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
Follow

10 August 2024 ### **1. Signing Audit Reports in Individual Capacity by a Practicing CA**

**Scenario:** A practicing Chartered Accountant (CA) who is a full-time partner in a partnership firm and has not registered their proprietorship firm with the Institute.

**Can the CA sign an audit report in their individual capacity?**

**Answer:**
- **Professional Requirements:** The CA cannot sign an audit report in their individual capacity unless they are registered as a sole proprietor with the Institute of Chartered Accountants of India (ICAI). The ICAI mandates that any practicing CA who signs audit reports must be part of a registered firm, either as a sole proprietor or a partner in a partnership firm.

- **Registration Requirement:** Even if the CA has a partnership firm, if they wish to practice in their individual capacity and sign audit reports, they must have a registered proprietorship firm. The CA’s ability to sign audit reports is tied to their firm's registration status.

- **Current Practice:** Many newly qualified CAs work under a partnership or a registered firm until they establish their own practice. They can’t sign audit reports in their individual capacity without a registered sole proprietorship firm.

### **2. Qualification by Statutory Auditor Regarding Internal Audit Function**

**Qualifying the Audit Report:**

The statutory auditor's role is to express an opinion on the financial statements of a company. If the internal audit function is relevant to the auditor’s opinion, the auditor may need to make specific qualifications related to it:

- **CARO 2003 (Companies (Auditor’s Report) Order, 2003):**
- **Applicability:** CARO 2003 applies to certain companies and requires the auditor to comment on various aspects of internal controls and internal audit functions.
- **Internal Audit Function:** Under CARO 2003, the auditor must report whether the internal audit system is established and whether it is adequate and operating effectively. If CARO 2003 applies, the auditor must address these points explicitly in the audit report.

- **SA (Standards on Auditing) Without CARO:**
- **General Requirements:** If CARO does not apply, the auditor still needs to evaluate the effectiveness of internal controls under general auditing standards, such as SA 315 (Identifying and Assessing the Risks of Material Misstatement Through Understanding the Entity and Its Environment).
- **Qualification Due to Internal Audit Issues:** The auditor should consider the impact of any deficiencies in the internal audit function on the overall audit risk. If the internal audit function is inadequate or nonexistent and it significantly affects the audit risk, the auditor may need to qualify their report. For instance, they might state that the absence of an adequate internal audit function increases the risk of material misstatement.

- **Report Qualification:** The auditor can add a qualification to their report if they believe that the internal audit function's deficiencies impact the financial statements' reliability. This qualification should be based on the specific facts and circumstances of the audit, including whether the internal audit function is operational and commensurate with the company's size and nature.

**Key Points:**
- **CARO Applicability:** If CARO applies, follow its specific requirements for reporting on internal audit functions.
- **Without CARO:** If CARO does not apply, use general auditing standards to assess internal controls and report any significant deficiencies that impact the audit opinion.

**Conclusion:**
- **Individual Capacity:** A practicing CA needs a registered firm to sign audit reports in their individual capacity.
- **Internal Audit Function:** The statutory auditor must assess the internal audit function and report qualifications based on legal requirements (CARO) or general auditing standards.