ritika (student of life) (1146 Points)
12 May 2011hey due to sum problem m nt able to download audit amendments............can any one post the amendments here plzzzzzzzzzzzzzz.............frenz plz do the help...........!!!
with regards,
ritika
ritika
(student of life)
(1146 Points)
Replied 12 May 2011
m nt able to able to view the downloaded files......plz post the amendments
i am again attaching it. try to open with MS WORD
Devadas K S
(One life one Dream)
(3525 Points)
Replied 12 May 2011
Standard on Auditing (SA) 200*(Revised)
Overall Objectives of the Auditor
In conducting an audit of financial statements, the overall objectives of the auditor are:
(a) To obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, thereby enabling the auditor to express an opinion on whether the financial statements are prepared, in all material respects, in accordance with an applicable financial reporting framework and
(b) To report on the financial statements, and communicate as required by the SAs, in accordance with the auditor’s findings.
Definitions
For purposes of the SAs, the following terms have the meanings attributed below:
(a) Applicable financial reporting framework – The financial reporting framework adopted by management and, where appropriate, those charged with governance in the preparation and presentation of the financial statements that is
Responsibilities Relating to Fraud in an Audit of Financial Statements”.
The term “fair presentation framework” is used to refer to a financial reporting framework that requires compliance with the requirements of the framework and:
(i) Acknowledges explicitly or implicitly that, to achieve fair presentation of the financial statements, it may be necessary for management to provide disclosures beyond those specifically required by the framework or
(ii) Acknowledges explicitly that it may be necessary for management to depart from a requirement of the
framework to achieve fair presentation of the financial statements. Such departures are expected to be
necessary only in extremely rare circumstances. The term “compliance framework” is used to refer to a financial reporting framework that requires compliance with the requirements of the framework, but does not contain the acknowledgements in (i) or (ii) above.
Audit risk – The risk that the auditor expresses an inappropriate audit opinion when the financial statements are materially misstated. Audit risk is a function of the risks of material misstatement and detection risk.
Detection risk – The risk that the procedures performed by the auditor to reduce audit risk to an acceptably low level will not detect a misstatement that exists and that could be material, either individually or when aggregated with other misstatements.
Professional skepticism – An attitude that includes a questioning mind, being alert to conditions which may indicate possible misstatement due to error or fraud, and a critical assessment of audit evidence.
Reasonable assurance – In the context of an audit of financial statements, a high, but not absolute, level of assurance.
Overall Objectives of the Independent Auditor and the Conduct of an Audit
Risk of material misstatement – The risk that the financial statements are materially misstated prior to audit. This consists of two components, described as follows at the assertion level:
(i) Inherent risk – The susceptibility of an assertion about a class of transaction, account balance or disclosure to a misstatement that could be material, either individually or when aggregated with other misstatements, before consideration of any related controls.
(ii) Control risk – The risk that a misstatement that could occur in an assertion about a class of transaction, account balance or disclosure and that could be material, either individually or when aggregated with other misstatements, will not be prevented, or detected and corrected, on a timely basis by the entity’s internal control.
Conduct of an Audit in Accordance with SAs Complying with SAs Relevant to the Audit
The auditor shall comply with all SAs relevant to the audit. An SA is relevant to the audit when the SA is in effect and the circumstances addressed by the SA exist In exceptional circumstances, the auditor may judge it necessary to depart from a relevant requirement in an SA. In such circumstances, the auditor shall perform alternative audit procedures to achieve the aim of that requirement. The
need for the auditor to depart from a relevant requirement is expected to arise only where the requirement is for a specific procedure to be performed and, in the specific circumstances of the audit, that procedure would be ineffective in achieving the aim of the requirement. Failure to Achieve an Objective If an objective in a relevant SA cannot be achieved, the auditor shall evaluate whether this prevents the auditor from achieving the overall objectives of the auditor and thereby requires the auditor, in accordance with the SAs, to modify the auditor’s opinion or withdraw from the engagement. Failure to achieve an objective represents a significant matter requiring documentation in accordance with SA 230 (Revised) Ethical Requirements Relating to an Audit of Financial Statements
The Code establishes the following as the fundamental principles of professional ethics relevant to the auditor when conducting an audit of financial statements and provides a conceptual framework for applying those principles;
(a) Integrity;
(b) Objectivity;
(c) Professional competence and due care;
(d) Confidentiality; and
(e) Professional behavior.
Standard on Quality Control (SQC) 1 sets out the responsibilities of the firm for establishing policies and procedures designed to provide it with reasonable assurance that the firm and its personnel comply with relevant ethical requirements, including those pertaining to independence8. Revised SA 220 sets out the engagement partner’s responsibilities with respect to relevant ethical requirements. These include evaluating whether members of the engagement team have complied with relevant ethical requirements, determining the appropriate action if matters come to the engagement partner’s attention that indicate that members of the engagement team have not complied with relevant ethical requirements, and forming a conclusion on compliance with independence requirements that apply to the audit engagement9. Revised SA 220 recognises that the engagement team is entitled to rely on a firm’s systems in meeting its responsibilities with respect to quality control procedures applicable to the individual audit engagement, unless information provided by the firm or other parties suggests otherwise.
Audit Risk
Audit risk is a function of the risks of material misstatement and detection risk. The assessment of risks is based on audit procedures to obtain information necessary for that purpose and evidence obtained throughout the audit. The assessment of risks is a matter of professional judgment, rather than a matter capable of precise measurement. For purposes of the SAs, audit risk does not include the risk that the auditor might express an opinion that the financial statements are misstated
Overall Objectives of the Independent Auditor and the Conduct of an Audit
financial statements are materially misstated when they are not. This risk is ordinarily insignificant. Further, audit risk is a technical term related to the process of auditing; it does not refer to the auditor’s business risks such as loss from litigation, adverse publicity, or other events arising in connection with the audit of financial statements. Risks of Material Misstatement A34. The risks of material misstatement may exist at two levels:
♦ The overall financial statement level; and
♦ The assertion level for classes of transactions, account balances, and disclosures.
Risks of material misstatement at the overall financial statement level refer to risks of material misstatement that relate pervasively to the financial statements as a whole and potentially affect many assertions.
Risks of material misstatement at the assertion level are assessed in order to determine the nature, timing, and extent of further audit procedures necessary to obtain sufficient appropriate audit evidence. This evidence enables the auditor to express an opinion on the financial statements at an acceptably low level of audit risk. Auditors use various approaches to accomplish the objective of assessing the risks of material misstatement. For example, the auditor may make use of a model that expresses the general relationship of the components of audit risk in mathematical terms to arrive at an acceptable level of detection risk. Some auditors find such a model to be useful when planning audit procedures.
The risks of material misstatement at the assertion level consist of two components: inherent risk and control risk. Inherent risk and control risk are the entity’s risks; they exist independently of the audit of the financial statements. Inherent Limitations of an Audit
The auditor is not expected to, and cannot, reduce audit risk to zero and cannot therefore obtain absolute assurance that the financial statements are free from material misstatement due to fraud or error. This is because there are inherent limitations of an audit, which result in most of the audit evidence on which the auditor draws conclusions and bases the auditor’s opinion being persuasive rather than conclusive.
The inherent limitations of an audit arise from:
♦ The nature of financial reporting;
♦ The nature of audit procedures; and
♦ The need for the audit to be conducted within a reasonable period of time and at a reasonable cost.
The Nature of Financial Reporting
Other Matters that Affect the Inherent Limitations of an Audit
In the case of certain assertions or subject matters, the potential effects of the inherent limitations on the auditor’s ability to detect material misstatements are particularly significant. Such assertions or subject matters include:
♦ Fraud, particularly fraud involving senior management or collusion. See SA 240 (Revised) for further discussion.
♦ The existence and completeness of related party relationships and transactions. See SA 550 (Revised) 20 for further discussion.
♦ The occurrence of non-compliance with laws and regulations. See SA 250 (Revised) 21 for further discussion.
♦ Future events or conditions that may cause an entity to cease to continue as a going concern. See SA 570
Standard on Auditing (SA) 505 (Revised)
For purposes of the SAs, the following terms have the meanings attributed below:
a) External confirmation – Audit evidence obtained as a direct written response to the auditor from a third party (the confirming party), in paper form, or by electronic or other medium.
b) Positive confirmation request – A request that the confirming party respond directly to the auditor indicating whether the confirming party agrees or disagrees with the information in the request, or providing the requested information.
c) Negative confirmation request – A request that the confirming party respond directly to the auditor only if the confirming party disagrees with the information provided in the request.
d) Non-response – A failure of the confirming party to respond, or fully respond, to a positive confirmation request, or a confirmation request returned undelivered.
e) Exception – A response that indicates a difference between information requested to be confirmed, or contained in the entity’s records, and information provided by the confirming party.
External Confirmation Procedures
When using external confirmation procedures, the auditor shall maintain control over external confirmation requests, including:
(a) Determining the information to be confirmed or requested
(b) Selecting the appropriate confirming party;
(c) Designing the confirmation requests, including determining that requests are properly addressed and return information for responses to be sent directly to the auditor; and
(d) Sending the requests, including follow-up requests when applicable, to the confirming party.
Management’s Refusal to Allow the Auditor to Send a Confirmation Request
If management refuses to allow the auditor to send a confirmation request, the auditor shall:
(a) Inquire as to management’s reasons for the refusal, and seek audit evidence as to their validity and reasonableness;
(b) Evaluate the implications of management’s refusal on the auditor’s assessment of the relevant risks of material misstatement, including the risk of fraud, and on the nature, timing and extent of other audit procedures; and
(c) Perform alternative audit procedures designed to obtain relevant and reliable audit evidence. If the auditor concludes that management’s refusal to allow the auditor to send a confirmation request is unreasonable, or the auditor is unable to obtain relevant and reliable audit evidence from alternative audit procedures, the auditor shall communicate with those charged with governance in accordance with SA 260(Revised) 13.
The auditor also shall determine the implications for the audit and the auditor’s opinion in accordance Results of the External Confirmation Procedures Reliability of Responses to Confirmation Requests
If the auditor identifies factors that give rise to doubts about the reliability of the response to a confirmation request, the auditor shall obtain further audit evidence to resolve those doubts.
If the auditor determines that a response to a confirmation request is not reliable, the auditor shall evaluate the implications on the assessment of the relevant risks of material misstatement, including the risk of fraud, and on the related nature, timing and extent of other audit procedures.
Non-Responses In the case of each non-response, the auditor shall perform alternative audit procedures to obtain relevant and reliable audit evidence.
When a Response to a Positive Confirmation Request is Necessary to Obtain Sufficient Appropriate Audit
Evidence If the auditor has determined that a response to a positive confirmation request is necessary to obtain sufficient appropriate audit evidence, alternative audit procedures will not provide the audit evidence the auditor requires. If the auditor does not obtain such confirmation, the auditor shall determine the implications for the audit and the auditor’s opinion in accordance with SA 705. Exceptions
The auditor shall investigate exceptions to determine whether or not they are indicative of misstatements.
External Confirmations
Negative Confirmations
Negative confirmations provide less persuasive audit evidence than positive confirmations. Accordingly, the auditor shall not use negative confirmation requests as the sole substantive audit procedure to address an assessed risk of material misstatement at the assertion level unless all of the following are present:
(a) The auditor has assessed the risk of material misstatement as low and has obtained sufficient appropriate audit evidence regarding the operating effectiveness of controls relevant to the assertion;
(b) The population of items subject to negative confirmation procedures comprises a large number of small, homogeneous, account balances, transactions or conditions;
(c) A very low exception rate is expected; and
(d) The auditor is not aware of circumstances or conditions that would cause recipients of negative confirmation requests to disregard such requests. Evaluating the Evidence Obtained
The auditor shall evaluate whether the results of the external confirmation procedures provide relevant and reliable audit evidence, or whether performing further audit procedures is necessary.
Selecting the Appropriate Confirming Party
Responses to confirmation requests provide more relevant and reliable audit evidence when confirmation
requests are sent to a confirming party the auditor believes is knowledgeable about the information to be confirmed. For example, a financial institution official who is knowledgeable about the transactions or arrangements for which confirmation is requested may be the most appropriate person at the financial institution from whom to request confirmation.
Non-Responses
Examples of alternative audit procedures the auditor may perform include:
For accounts receivable balances – examining specific subsequent cash receipts, shipping documentation
and sales near the period-end.
For accounts payable balances – examining subsequent cash disbursements or correspondence from third parties, and other records, such as goods received notes.
Exceptions
Exceptions noted in responses to confirmation requests may indicate misstatements or potential
misstatements in the financial statements. When a misstatement is identified, the auditor is required by SA 240 (Revised) to evaluate whether such misstatement is indicative of fraud23. Exceptions may provide a guide to the quality of responses from similar confirming parties or for similar accounts. Exceptions also may indicate a deficiency, or deficiencies, in the entity’s internal control over financial reporting.
Some exceptions do not represent misstatements. For example, the auditor may conclude that differences in
responses to confirmation requests are due to timing, measurement, or clerical errors in the external confirmation procedures.
Standard on Auditing (SA) 501(Revised)
Objective
The objective of the auditor is to obtain sufficient appropriate audit evidence regarding the:
(a) Existence and condition of inventory;
(b) Completeness of litigation and claims involving the entity; and
(c) Presentation and disclosure of segment information in accordance with the applicable financial reporting framework.
Requirements
Inventory
When inventory is material to the financial statements, the auditor shall obtain sufficient appropriate audit evidence
regarding the existence and condition of inventory by:
(a) Attendance at physical inventory counting, unless impracticable, to:
(i) Evaluate management’s instructions and procedures for recording and controlling the results of the entity’s physical inventory counting;
(ii) Observe the performance of management’s count procedures
(iii) Inspect the inventory; and
(iv) Perform test counts; and
(b) Performing audit procedures over the entity’s final inventory records to determine whether they accurately reflect actual inventory count results.
If physical inventory counting is conducted at a date other than the date of the financial statements, the auditor shall, in addition to the procedures required by paragraph 4, perform audit procedures to obtain audit evidence about whether changes in inventory between the count date and the date of the financial statements are properly recorded. If the auditor is unable to attend physical inventory counting due to unforeseen circumstances, the auditor shall make or observe some physical counts on an alternative date, and perform audit procedures on intervening transactions.
If attendance at physical inventory counting is impracticable, the auditor shall perform alternative audit procedures to obtain sufficient appropriate audit evidence regarding the existence and condition of inventory.
Audit Evidence—Specific Considerations for Selected Items
The auditor shall modify the opinion in the auditor’s report in accordance with SA 7054.
When inventory under the custody and control of a third party is material to the financial statements, the auditor shall obtain sufficient appropriate audit evidence regarding the existence and condition of that inventory by performing one or both of the following:
(a) Request confirmation from the third party as to the quantities and condition of inventory held on behalf of the entity.
(b) Perform inspection or other audit procedures appropriate in the circumstances. Litigation and Claims The auditor shall design and perform audit procedures in order to identify litigation and claims involving the entity which may give rise to a risk of material misstatement, including:
(a) Inquiry of management and, where applicable, others within the entity, including in-house legal counsel;
(b) Reviewing minutes of meetings of those charged with governance and correspondence between the entity and its external legal counsel; and
(c) Reviewing legal expense accounts.
If the auditor assesses a risk of material misstatement regarding litigation or claims that have been identified, or when audit procedures performed indicate that other material litigation or claims may exist, the auditor shall, in addition to the procedures required by other SAs, seek direct communication with the entity’s external legal counsel. The auditor shall
do so through a letter of inquiry, prepared by management and sent by the auditor, requesting the entity’s external legal counsel to communicate directly with the auditor. If law, regulation or the respective legal professional body prohibits the entity’s external legal counsel from communicating directly with the auditor, the auditor shall perform alternative audit procedures
(a) management refuses to give the auditor permission to communicate or meet with the entity’s external legal counsel, or the entity’s external legal counsel refuses to respond appropriately to the letter of inquiry, or is prohibited from responding; and
(b) the auditor is unable to obtain sufficient appropriate audit evidence by performing alternative audit procedures; the auditor shall modify the opinion in the auditor’s report in accordance with SA 705.
Written Representations
The auditor shall request management and, where appropriate, those charged with governance to provide written representations that all known actual or possible litigation and claims whose effects should be considered when preparing the financial statements have been disclosed to the auditor and appropriately accounted for and disclosed in accordance with the applicable financial reporting framework.
Segment Information
The auditor shall obtain sufficient appropriate audit evidence regarding the presentation and disclosure of segment information in accordance with the applicable financial reporting framework by
Obtaining an understanding of the methods used by management in determining segment information, and:
(i) Evaluating whether such methods are likely to result in disclosure in accordance with the applicable financial reporting framework; and
(ii) Where appropriate, testing the application of such methods; and
(b) Performing analytical procedures or other audit procedures appropriate in the circumstances.
Standard on Auditing (SA) 620 (Revised) This SA does not deal with:
Standard on Auditing (SA) 620 (Revised)
(a) Situations where the engagement team includes a member with expertise in specialised area of accounting or auditing, which is dealt with in SA 220 (Revised)2; or
(b) The auditor’s use of the work of an individual or organisation possessing expertise in a field other than accounting or auditing, whose work in that field is used by the entity to assist the entity in preparing the financial statements(a management’s expert), which is dealt with in SA 500 (Revised)
The Auditor’s Responsibility for the Audit Opinion
The auditor has sole responsibility for the audit opinion expressed, and that responsibility is not reduced by the auditor’s use of the work of an auditor’s expert. Nonetheless, if the auditor using the work of an auditor’s expert, having followed this SA, concludes that the work of that expert is adequate for the auditor’s purposes, the auditor may accept that expert’s findings or conclusions in the expert’s field as appropriate audit evidence.
(a) Auditor’s expert – An individual or organisation possessing expertise in a field other than accounting or auditing, whose work in that field is used by the auditor to assist the auditor in obtaining sufficient appropriate audit
evidence. An auditor’s expert may be either an auditor’s internal expert (who is a partner or staff, including temporary staff, of the auditor’s firm or a network firm), or an auditor’s external expert.
(c) Management’s expert – An individual or organisation possessing expertise in a field other than accounting or auditing, whose work in that field is used by the entity to assist the entity in preparing the financial statements.
Nature, Timing and Extent of Audit Procedures
The nature, timing and extent of the auditor’s procedures with respect to the requirements in paragraphs 9-13 of this SA will vary depending on the circumstances. In determining the nature, timing and extent of those procedures, the auditor shall consider matters including:
(a) The nature of the matter to which that expert’s work relates;
(b) The risks of material misstatement in the matter to which that expert’s work relates;
(c) The significance of that expert’s work in the context of the audit;
(d) The auditor’s knowledge of and experience with previous work performed by that expert; and
(e) Whether that expert is subject to the auditor’s firm’s quality control policies and procedures. The Competence, Capabilities and Objectivity of the Auditor’s Expert
The auditor shall evaluate whether the auditor’s expert has the necessary competence, capabilities and objectivity for the auditor’s purposes. In the case of an auditor’s external expert, the evaluation of objectivity shall include inquiry regarding interests and relationships that may create a threat to that expert’s objectivity.
Evaluating the Adequacy of the Auditor’s Expert’s Work
The auditor shall evaluate the adequacy of the auditor’s expert’s work for the auditor’s purposes, including
(a) The relevance and reasonableness of that expert’s findings or conclusions, and their consistency with other audit Evidence
(b) If that expert’s work involves use of significant assumptions and methods, the relevance and reasonableness of those assumptions and methods in the circumstances; and
(c) If that expert’s work involves the use of source data that is significant to that expert’s work, the relevance, completeness, and accuracy of that source data. If the auditor determines that the work of the auditor’s expert is not adequate for the auditor’s purposes, the auditor shall
(a) Agree with that expert on the nature and extent of further work to be performed by that expert; or
(b) Perform further audit procedures appropriate to the circumstances.
Reference to the Auditor’s Expert in the Auditor’s Report
The auditor shall not refer to the work of an auditor’s expert in an auditor’s report containing an unmodified opinion unless required by law or regulation to do so. If such reference is required by law or regulation, the auditor shall indicate in the auditor’s report that the reference does not reduce the auditor’s responsibility for the audit opinion.
Standard on Auditing (SA) 520(Revised)
Objectives
The objectives of the auditor are:
(a) To obtain relevant and reliable audit evidence when using substantive analytical procedures; and
(b) To design and perform analytical procedures near the end of the audit that assist the auditor when forming an overall conclusion as to whether the financial statements are consistent with the auditor’s understanding of the entity.
Definition
For the purposes of the SAs, the term “analytical procedures” means evaluations of financial information through analysis of plausible relationships among both financial and non-financial data. Analytical procedures also encompass such investigation as is necessary of identified fluctuations or relationships that are inconsistent with other relevant information or that differ from expected values by a significant amount. The auditor’s choice of procedures, methods and level of application is a matter of professional judgment.
Requirements
Substantive Analytical Procedures
When designing and performing substantive analytical procedures, either alone or in combination with tests of details, as substantive procedures in accordance with SA 3304, the auditor shall(a) Determine the suitability of particular substantive analytical procedures for given assertions, taking account of the assessed risks of material misstatement and tests of details, if any, for these assertions; (b) Evaluate the reliability of data from which the auditor’s expectation of recorded amounts or ratios is developed, taking account of source, comparability, and nature and relevance of information available, and controls over preparation
Analytical Procedures
Develop an expectation of recorded amounts or ratios and evaluate whether the expectation is sufficiently precise to identify a misstatement that, individually or when aggregated with other misstatements, may cause
the financial statements to be materially misstated; and termine the amount of any difference of recorded amounts from expected values that is acceptable without further investigation as required by paragraph
Analytical Procedures that Assist When Forming an Overall Conclusion
The auditor shall design and perform analytical procedures near the end of the audit that assist the auditor when forming an overall conclusion as to whether the financial statements are consistent with the auditor’s understanding of the entity.
Investigating Results of Analytical Procedures
7. If analytical procedures performed in accordance with this SA identify fluctuations or relationships that are
inconsistent with other relevant information or that differs from expected values by a significant amount, the auditor
shall investigate such differences by:
(a) Inquiring of management and obtaining appropriate audit evidence relevant to management’s responses; and
(b) Performing other audit procedures as necessary in the circumstances.
ritika
(student of life)
(1146 Points)
Replied 12 May 2011
thanks dev......... thank u so much..............:))))))))
Devadas K S
(One life one Dream)
(3525 Points)
Replied 12 May 2011
@ Ritika
Thank Radhekrishna sir................
I just downloaded amendments from him and pasted here........
ritika
(student of life)
(1146 Points)
Replied 12 May 2011
thanks Radhekrishna sir thanks alot for the help.........
CA Hemang Shah
(PRACTICE)
(658 Points)
Replied 13 May 2011
niraj
(student)
(21 Points)
Replied 14 August 2011
hii..
can anyone please tell the simple examples of persuasive evidence and conclusive evidence???????
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