CA FINAL - AUDIT

ICAI MODULE INDEX

CA Divyesh Vaghela

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CONTENTS

MODULE – 1

Chapter 1: Quality Control

Chapter 2: General Auditing Principles and Auditors Responsibilities
Chapter 3: Audit Planning, Strategy and Execution
Chapter 4: Materiality, Risk Assessment and Internal Control
Chapter 5: Audit Evidence
Chapter 6: Completion and Review
Chapter 7: Reporting

MODULE – 2

Chapter 8: Specialised Areas

Chapter 9: Related Services
Chapter 10: Review of Financial Information
Chapter 11: Prospective Financial Information and Other Assurance Services
Chapter 12: Digital Auditing & Assurance
Chapter 13: Group Audits
Chapter 14: Special Features of Audit of Banks & Non-Banking Financial Companies

MODULE – 3

Chapter 15: Overview of Audit of Public Sector Undertakings

Chapter 16: Internal Audit
Chapter 17: Due Diligence, Investigation & Forensic Accounting
Chapter 18 : Emerging Areas: Sustainable Development Goals (SDG) & Environment, Social
And Governance (ESG) Assurance
Chapter 19: Professional Ethics & Liabilities of Auditors

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DETAILED CONTENTS MODULE - 1

CHAPTER 1: QUALITY CONTROL

LEARNING OUTCOMES .......................................................................................................... 1.1

CHAPTER OVERVIEW ............................................................................................................. 1.2

Contents:
1. Audit Quality................................................................................................................... 1.3
2. SQC 1 Quality Control for Firms that perform Audits and Reviews of historical
Financial Information, and other Assurance and related Services Engagements .............. 1.3
2.1 Elements System of Quality Control...................................................................... 1.3
3. SA 220 Quality Control for an Audit of Financial Statements: ......................................... 1.14
3.1 Leadership Responsibility for Quality of Audits ................................................... 1.14
3.2 Relevant Ethical Requirements........................................................................... 1.15
3.3 Acceptance and Continuance of Client Relationships and Audit Engagements .... 1.16
3.4 Assignment of Engagement Teams .................................................................... 1.16
3.5 Engagement Performance .................................................................................. 1.16
3.6 Engagement Quality Control Review................................................................... 1.16
3.7 Monitoring.......................................................................................................... 1.18
3.8 Documentation ................................................................................................... 1.18
4. SQC 1 Vs. SA 220 Key Differences in Nature, Scope and Applicability .......................... 1.19
5. Mechanisms for Review of Quality Control .................................................................... 1.20
5.1 Peer Review Board ............................................................................................ 1.20
5.2 Quality Review Board ......................................................................................... 1.20
5.3 National Financial Reporting Authority (NFRA) ................................................... 1.21
KEY TAKEAWAYS ................................................................................................................. 1.24
TEST YOUR KNOWLEDGE .................................................................................................... 1.26

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CHAPTER 2: GENERAL AUDITING PRINCIPLES & AND AUDITORS RESPONSIBILITIES

LEARNING OUTCOMES .......................................................................................................... 2.1

CHAPTER OVERVIEW ............................................................................................................. 2.2
Contents:
1. General Auditing Principles and Auditor’s Responsibilities ............................................... 2.3
2. SA 240 “The Auditor’s Responsibilities Relating to Fraud in an Audit of
Financial Statements” ..................................................................................................... 2.4
2.1 The objectives of the auditor in accordance with SA 240 ....................................... 2.4
2.2 How Fraudulent Financial Reporting may be caused by Entities? .......................... 2.6
2.3 How Misappropriation of Assets may be Accomplished by Entities? ...................... 2.7
2.4 Whose Primary Responsibility is to Prevent and Detect Fraud? ............................. 2.7
2.5 Responsibilities of the Auditor .............................................................................. 2.8
2.6 Maintaining Professional Skepticism ................................................................... 2.14
2.7 Discussion among the Engagement Team .......................................................... 2.15
2.8 Risk Assessment Procedures and related activities be geared towards
obtaining information for use in identifying risk of Material Misstatement
due to Fraud ...................................................................................................... 2.15
2.9 Responses to the Assessed Risks of Material misstatement due to Fraud
at the Financial Statement Level......................................................................... 2.15
2.10 Audit Procedures Responsive to Assessed risks of Material Misstatement
due to Fraud at the Assertion Level .................................................................... 2.16
2.11 Audit Procedures Responsive to Risks related to Management override of
Controls ............................................................................................................. 2.16
2.12 Evaluation of Audit Evidence .............................................................................. 2.17

2.13 Circumstances in which auditor is unable to continue the engagement ................ 2.17
2.14 Management Representations ............................................................................ 2.18
2.15 Communications to Management and with those charged with Governance ......... 2.19

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2.16 Communications to Regulatory and Enforcement Authorities ............................... 2.19
2.17 Documentation ................................................................................................... 2.19
3. SA 250 Consideration of Laws and Regulations in an Audit of Financial Statements ...... 2.21
3.1 Effect of Laws and Regulations of Financial Statements of an Entity ................... 2.21
3.2 Objectives of auditor in accordance with SA 250 ................................................. 2.22
3.3 Responsibility of Management for Compliance with Laws and Regulations .......... 2.22
3.4 Responsibility of the Auditor ............................................................................... 2.23
3.5 Audit Procedures when Non-Compliance is Identified or Suspected .................... 2.26
3.6 Reporting of Identified or Suspected Non-Compliance ........................................ 2.27
3.7 Documentation.................................................................................................... 2.28
4. SA 260 Communication with Those Charged with Governance ...................................... 2.28
4.1 Objectives of Auditor in Accordance with SA 260 ................................................ 2.30
4.2 Matters to be Communicated by the Auditor........................................................ 2.30
4.3 Communication of Auditor’s Independence in Case of Listed Entities .................. 2.34
4.4 Documentation ................................................................................................... 2.35
5. SA 299 Joint Audit of Financial Statements ................................................................... 2.35
5.1 Objectives in accordance with SA 299 ................................................................ 2.36

5.2 Audit planning, Risk Assessment and Allocation of Work .................................... 2.36
5.3 Responsibility and Co-ordination among Joint Auditors ....................................... 2.37
5.4 Audit Conclusion and Reporting ......................................................................... 2.39
5.5 Communication with Those Charged with Governance ........................................ 2.39
6. SA 402 Audit Considerations Relating to an Entity Using a Service Organisation ........... 2.40
6.1 Objectives of user auditor in accordance with SA 402 ......................................... 2.42

6.2 Type 1 report and Type 2 report ......................................................................... 2.42

6.3 Obtaining an Understanding of the Services ....................................................... 2.43
6.4 Using Type 1 or Type 2 Report ........................................................................... 2.45

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6.5 Responding to the Assessed Risks of Material Misstatement .............................. 2.45

6.6 Tests of Controls ................................................................................................ 2.46
6.7 Fraud, Non-compliance with laws and Regulations and uncorrected misstatements in
relation to activities at the service organisation ....................................................... 2.47
6.8 Reporting by the user auditor ............................................................................... 2.47

KEY TAKEAWAYS ................................................................................................................. 2.49

TEST YOUR KNOWLEDGE .................................................................................................... 2.51

CHAPTER 3: AUDIT PLANING, STRATEGY & EXECUTION

LEARNING OUTCOMES .......................................................................................................... 3.1

CHAPTER OVERVIEW ............................................................................................................. 3.2
Contents:
1. Commencing An Audit .................................................................................................... 3.3
1.1 Benefits/Advantages of Planning in an Audit of Financial Statements .................... 3.4
1.2 Nature and Extent of Planning .............................................................................. 3.4
1.3 Planning - A Continuous Process ......................................................................... 3.4
1.4 Overall Audit Strategy and Audit Plan - Responsibility of the Auditor ..................... 3.5
1.5 Acceptance and Continuance of Client Relationships and Audit Engagements ...... 3.5
1.6 Contents of an Audit Plan ..................................................................................... 3.6

1.7 Changes to Planning Decisions ............................................................................ 3.7

2. Overall Audit Strategy ..................................................................................................... 3.8
2.1 Factors while establishing Overall Audit Strategy .................................................. 3.8

2.2 Benefits of Overall Audit Strategy ......................................................................... 3.8

2.3 Considerations in Establishing the Overall Audit Strategy ..................................... 3.9
2.4 Documenting the Audit Plan ............................................................................... 3.11
2.5 Relationship between the Overall Audit Strategy and the Audit Plan .................... 3.12

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3. Audit Programme ......................................................................................................... 3.13
3.1 Formulating an Audit Programme ....................................................................... 3.13
3.2 Drawing up the audit programme ........................................................................ 3.14
4. Audit Execution ............................................................................................................ 3.16
4.1 Execution Planning ............................................................................................ 3.17
4.2 Risk and Control Evaluation ............................................................................... 3.17
4.3 Testing .............................................................................................................. 3.17
4.4 Reporting ........................................................................................................... 3.17
4.5 Other Important Considerations .......................................................................... 3.18
KEY TAKEAWAYS ................................................................................................................. 3.56
TEST YOUR KNOWLEDGE .................................................................................................... 3.58

CHAPTER 4: MATERIALITY, RISK ASSESSMENT AND INTERNAL CONTROL

LEARNING OUTCOMES .......................................................................................................... 4.1

CHAPTER OVERVIEW ............................................................................................................. 4.2
Contents:
1. Materiality & Risk Assessment ....................................................................................... 4.3
1.1 Identification of Risks ........................................................................................... 4.4
1.2 Audit Risk Components ........................................................................................ 4.4
1.3 Steps for Risk Identification ................................................................................ 4.10
2. Risk-Based Audit Approach .......................................................................................... 4.12
2.1 Audit Risk Analysis ........................................................................................... 4.13

2.2 General Steps in the Conduct of Risk Based Audit .............................................. 4.13
3. Internal Control System - Nature, Scope, Objectives and Structure ................................ 4.18
3.1 Nature of Internal Control ................................................................................... 4.20

3.2 Scope of Internal Controls .................................................................................. 4.20

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3.3 Objectives of Internal Control System ................................................................. 4.21

3.4 Structure of Internal Control ............................................................................... 4.22
4. Components of Internal Controls ................................................................................... 4.24
4.1 Control Environment .......................................................................................... 4.25
4.2 Entity’s Risk Assessment Process ...................................................................... 4.26
4.3 Control Activities ................................................................................................ 4.28
4.4 Information System, Including the Related Business Processes, Relevant to Financial
Reporting, and Communication .......................................................................... 4.29
4.5 Monitoring of Controls ........................................................................................ 4.30
5. Review of the System of Internal Controls ..................................................................... 4.33
6. Internal Control Assessment & Evaluation ..................................................................... 4.36
6.1 Techniques of Evaluation of Internal Control ....................................................... 4.37
7. Reporting To Clients on Internal Control Weaknesses ................................................... 4.48
8. Frameworks of Internal Control ..................................................................................... 4.52
8.1 International Internal Control Frameworks .......................................................... 4.53
KEY TAKEAWAYS ................................................................................................................. 4.60
TEST YOUR KNOWLEDGE .................................................................................................... 4.62

CHAPTER 5: AUDIT EVIDENCE

LEARNING OUTCOMES .......................................................................................................... 5.1

CHAPTER OVERVIEW ............................................................................................................. 5.2
Contents:

1. SA 500 Audit Evidence ................................................................................................... 5.3

2. SA 501 Audit Evidence- Specific Considerations for Selected Items ................................ 5.5
3. SA 505 External Confirmations ....................................................................................... 5.7

4. SA 510 Initial Audit Engagements-Opening Balances ...................................................... 5.8

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5. SA 530 Audit Sampling ................................................................................................... 5.9
6. SA 550 Related Parties ................................................................................................ 5.11
KEY TAKEAWAYS ................................................................................................................. 5.26
TEST YOUR KNOWLEDGE .................................................................................................... 5.29

CHAPTER 6: COMPLETION & REVIEW

LEARNING OUTCOMES .......................................................................................................... 6.1

CHAPTER OVERVIEW ............................................................................................................. 6.2
Contents:
1. SA 560 Subsequent events ............................................................................................. 6.4
2. SA 570 Going Concern ................................................................................................... 6.6
3. SA 580 Written representations ...................................................................................... 6.8
KEY TAKEAWAYS ................................................................................................................. 6.22
TEST YOUR KNOWLEDGE .................................................................................................... 6.23

CHAPTER 7: REPORTING

LEARNING OUTCOMES .......................................................................................................... 7.1

CHAPTER OVERVIEW ............................................................................................................. 7.2

Contents:
1. Introduction .................................................................................................................... 7.3
2. The Auditor’s Report on Financial Statements ................................................................. 7.4

3. SA 700 Forming an Opinion and Reporting on the Financial Statements .......................... 7.4
3.1 Purpose ............................................................................................................... 7.5
3.2 Basic Elements of the Auditor’s Report ................................................................. 7.6

3.3 Auditor’s Report Prescribed by Law or Regulation .............................................. 7.18

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3.4 Auditor’s Report for Audits Conducted in Accordance with both Standards on
Auditing Issued by ICAI and International Standards on Auditing or Auditing
Standards of Any Other Jurisdiction .................................................................... 7.20
3.5 Supplementary Information Presented with the Financial Statements .................. 7.20
4. SA 701 Communicating Key Audit Matters in the Independent Auditor’s Report ............. 7.21

4.1 Purpose ............................................................................................................. 7.22

4.2 Scope ................................................................................................................ 7.22
4.3 Determining Key Audit Matters ........................................................................... 7.23

4.4 Communicating Key Audit Matters ...................................................................... 7.24

5. SA 705 Modifications to the Opinion in the Independent Auditor’s Report....................... 7.25
5.1 Types of Modified Opinions ................................................................................ 7.25
5.2 Objective ........................................................................................................... 7.26
5.3 Circumstances When a Modification to the Auditor’s Opinion is Required ............ 7.26
5.4 Determining the Type of Modification to the Auditor’s Opinion ............................. 7.26

5.5 Consequence of an Inability to Obtain Sufficient Appropriate Audit Evidence

Due to a Management-Imposed Limitation after the Auditor Has
Accepted the Engagement ................................................................................. 7.31
5.6 If the auditor decides to withdraw ....................................................................... 7.31
5.7 Other Considerations Relating to an Adverse Opinion or Disclaimer of Opinion ... 7.32
5.8 Form and Content of the Auditor’s Report When the Opinion is Modified ............. 7.32
5.9 Communication with Those Charged with Governance ........................................ 7.39
6. SA 706 Emphasis of Matter Paragraphs and other Matter Paragraphs in the
Independent Auditor’s Report ....................................................................................... 7.39

6.1 Objective ........................................................................................................... 7.39

6.2 When to give emphasis of Matter Paragraphs in the Auditor’s Report? ................ 7.40
6.3 When the auditor includes an Emphasis of Matter paragraph in the
auditor’s report, the auditor shall ........................................................................ 7.40

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7. Distinction Between Notes on Accounts and Qualifications ............................................ 7.46
8. Distinction Between Audit Report and Certificate ........................................................... 7.48
9. Communication To Management and those Charged with Governance .......................... 7.48
9.1 When All of Those Charged with Governance Are Involved
in Managing the Entity ........................................................................................ 7.48

9.2 Matters to be Communicated .............................................................................. 7.49

9.3 Planned Scope and Timing of the Audit .............................................................. 7.49
9.4 Significant Findings from the Audit ..................................................................... 7.49

10. Reporting Requirements in Case of Comparative Information ........................................ 7.50

10.1 Audit Procedures for Comparative Information .................................................... 7.50
10.2 Audit Reporting .................................................................................................. 7.51

11. SA 720 The Auditor’s Responsibilities Relating to Other Information .............................. 7.52
11.1 Objective ........................................................................................................... 7.53
11.2 Obtaining the Other Information.......................................................................... 7.54
11.3 Responding When a Material Inconsistency Appears to Exist or Other
Information Appears to be Materially Misstated ................................................... 7.55
11.4 Responding When the Auditor Concludes that a Material Misstatement
of the other Information Exists ............................................................................ 7.55
11.5 Responding When a Material Misstatement in the Financial Statements
Exists or the Auditor’s Understanding of the Entity and Its Environment Needs
to be updated ..................................................................................................... 7.56
11.6 Reporting ........................................................................................................... 7.57
11.7 Reporting Prescribed by Law or Regulation ........................................................ 7.57
12. Duties of Auditors ......................................................................................................... 7.58
12.1 Reporting under CARO 2020 .............................................................................. 7.66
13. Illustrative Audit Reports ............................................................................................... 7.73
KEY TAKEAWAYS ................................................................................................................. 7.91
TEST YOUR KNOWLEDGE .................................................................................................... 7.94

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DETAILED CONTENTS MODULE - 2

CHAPTER 8: SPECIALISED AREAS

LEARNING OUTCOMES .......................................................................................................... 8.1

CHAPTER OVERVIEW ............................................................................................................. 8.2
Contents:
1. Introduction ................................................................................................................. 8.3
2. SA 800- Special Considerations - Audits of Financial Statements
Prepared in Accordance with Special Purpose Frameworks .......................................... 8.4
2.1 What is Special Purpose framework? .............................................................. 8.4
2.2 Considerations When Accepting Such Engagement ......................................... 8.5
2.3 Considerations When Planning and Performing such Audit ............................. 8.6
2.4 Description of the Applicable Financial Reporting Framework .......................... 8.7

2.5 Alerting Readers that the Financial Statements Are Prepared in

Accordance with a Special Purpose Framework ............................................... 8.7
2.6 Restriction on Distribution or Use .................................................................... 8.8
3. SA 805-Special Considerations—Audits of Single Financial Statements
and Specific Elements, Accounts or Items of a Financial Statement .............................. 8.8
3.1 What is a Single Financial Statement? ............................................................ 8.9
3.2 What is Element of a Financial Statement?...................................................... 8.9
3.3 Considerations When Accepting Such Engagement ........................................ 8.9
3.4 Considerations When planning and performing the Audit ............................... 8.11

3.5 Form of Opinion ............................................................................................ 8.11

3.6 Forming an Opinion and Reporting Considerations ........................................ 8.13
4. SA 810- Engagements to Report on Summary Financial Statements ........................... 8.16

4.1 What do Summary Financial Statements Reflect? .......................................... 8.16

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4.2 Engagement Acceptance .............................................................................. 8.16
4.3 Nature of Procedures to be Performed by Auditor .......................................... 8.19
4.4 Form of Opinion ............................................................................................ 8.20
4.5 Auditor’s Report on Summary Financial Statements....................................... 8.21
4.6 Modifications to the Opinion, Emphasis of Matter Paragraph or other Matter
Paragraph in the Auditor’s Report on the Audited Financial Statements ......... 8.22
4.7 Restriction on Distribution or Use or Alerting Readers to
the Basis of Accounting................................................................................. 8.23

4.8 Comparatives ............................................................................................... 8.24

4.9 Unaudited Supplementary Information Presented with Summary
Financial Statements .................................................................................... 8.24
4.10 Other Information in Documents Containing Summary
Financial Statements ................................................................................... 8.24
4.11 Auditor Association ....................................................................................... 8.25
4.12 Timing of Work and Events Subsequent to the Date of the Auditor’s
Report on the Audited Financial Statements .................................................. 8.25
KEY TAKEAWAYS ................................................................................................................. 8.29
TEST YOUR KNOWLEDGE .................................................................................................... 8.31

CHAPTER 9: RELATED SERVICES

LEARNING OUTCOMES .......................................................................................................... 9.1

CHAPTER OVERVIEW ............................................................................................................. 9.2
Contents:
1. Introduction ................................................................................................................. 9.3
2. SRS 4400 Engagements to Perform Agreed-upon
Procedures regarding Financial Information .................................................................. 9.4
2.1 Objective in Accordance with SRS 4400 .......................................................... 9.4
2.2 Audit vs. Agreed-upon Procedures .................................................................. 9.5

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2.3 General Principles of an Agreed-upon Procedures Engagement ...................... 9.6

2.4 Reporting........................................................................................................ 9.8
2.5 Documentation ............................................................................................... 9.9
3. SRS 4410 Compilation Engagements ........................................................................... 9.9
3.1 Objectives in accordance with SRS 4410....................................................... 9.11
3.2 Scope of Compilation Engagements .............................................................. 9.11
3.3 Ethical Requirements .................................................................................... 9.11
3.4 Engagement Acceptance and Continuance.................................................... 9.12
3.5 Performing the Engagement .......................................................................... 9.13
3.6 Communication with Management and Those Charged with Governance ....... 9.14
3.7 The Practitioner’s Report .............................................................................. 9.14
3.8 Engagement Level Quality Control ................................................................ 9.16
3.9 Documentation ............................................................................................. 9.16
KEY TAKEAWAYS ................................................................................................................. 9.19
TEST YOUR KNOWLEDGE .................................................................................................... 9.20

CHAPTER 10- REVIEW OF FINANCIAL INFORMATION

LEARNING OUTCOMES ........................................................................................................ 10.1

CHAPTER OVERVIEW ........................................................................................................... 10.2
Contents:
1. Introduction ............................................................................................................... 10.3
1.1 Standards on Review Engagements .............................................................. 10.3

2. SRE 2400 Engagements to Review Historical Financial Statements ............................ 10.4

2.1 Objectives in a review of financial statements in accordance
with SRE 2400 .............................................................................................. 10.5
2.2 Compliance with Ethical Requirements and Engagement
Level Quality Control .................................................................................... 10.5

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2.3 Preconditions for Accepting a Review Engagement ....................................... 10.6
2.4 Agreeing to the Terms of Engagement .......................................................... 10.8
2.5 Emphasis of Matter and Other Matter Paragraphs in the
Practitioner’s Report ................................................................................... 10.25
2.6 Other Reporting Responsibilities ................................................................ 10.25

2.7 Documentation ........................................................................................... 10.26

2.8 Audit Vs. Review ........................................................................................ 10.27
3. SRE 2410 Review of Interim Financial Information Performed
by the Independent Auditor of the Entity ................................................................... 10.28
3.1 Objective of an Engagement to Review Interim Financial Information in
Accordance with SRE 2410 ......................................................................... 10.28
3.2 Agreeing the Terms of the Engagement....................................................... 10.29
3.3 Understanding the Entity and its Environment
including its Internal Control ........................................................................ 10.29
3.4 Inquiries, Analytical and other Review procedures ....................................... 10.31
3.5 Evaluation of Misstatements........................................................................ 10.35
3.6 Management representations ...................................................................... 10.35
3.7 Auditor’s Responsibility for Accompanying Information ................................ 10.36
3.8 Communication ........................................................................................... 10.37
3.9 Reporting the Nature, Extent and Results of the Review of Interim
Financial Information .................................................................................. 10.38
3.10 Departure from the Applicable Financial Reporting Framework .................... 10.39
3.11 Limitation on Scope .................................................................................... 10.40
3.12 Going Concern and Significant Uncertainties ............................................... 10.41
3.13 Other Considerations .................................................................................. 10.41
3.14 Documentation ........................................................................................... 10.42
KEY TAKEAWAYS ............................................................................................................... 10.46
TEST YOUR KNOWLEDGE .................................................................................................. 10.47

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CHAPTER 11: PROSPECTIVE FINANCIAL INFORMATION AND OTHER ASSURANCE

SERVICES

LEARNING OUTCOMES ........................................................................................................ 11.1

CHAPTER OVERVIEW ........................................................................................................... 11.2
Contents:
1. Introduction .............................................................................................................. 11.3
1.1 Standards on Assurance Engagements ......................................................... 11.4
2. SAE 3400 The Examination of Prospective Financial Information ................................ 11.4
2.1 Scope of SAE-3400 ...................................................................................... 11.6
2.2 Nature of Assurance Regarding Prospective Financial Information ................. 11.6
2.3 Responsibility of Preparation and Presentation of Prospective
Financial Information .................................................................................... 11.6

2.4 Duties of Member who is Examining the Prospective

Financial Information .................................................................................... 11.7
2.5 Nature of Assurance regarding Prospective Financial Information .................. 11.8
2.6 Acceptance of Engagement: Precautions to be taken by Auditor
Before Accepting such an Engagement: ........................................................ 11.8
2.7 Examination Procedures ............................................................................... 11.9
2.8 Presentation and Disclosure.......................................................................... 11.9
2.9 Report on Examination of Prospective Financial Information ........................ 11.10
2.10 Documentation ........................................................................................... 11.12

3. SAE 3402 Assurance Reports on Controls at a Service Organisation ........................ 11.13

3.1 Scope of SAE 3402..................................................................................... 11.13
3.2 Objectives of Service Auditor in Accordance with SAE 3402 ........................ 11.15
3.3 Type 1 Report & Type 2 Report ................................................................... 11.15
3.4 How such an Engagement is Proceeded with?............................................. 11.16
3.5 Reporting.................................................................................................... 11.18

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3.6 Documentation ........................................................................................... 11.21
4. SAE 3420 Assurance Engagements to Report on the Compilation of Pro
Forma Financial Information Included in a Prospectus .............................................. 11.22
4.1 Objectives in Accordance with SA 3420 ....................................................... 11.23
4.2 Compilation of Pro forma financial information ............................................. 11.23

4.3 Nature of the Practitioner’s Responsibility ................................................... 11.23

4.4 Steps involved in such an engagement........................................................ 11.24
4.5 Documentation ........................................................................................... 11.30
KEY TAKEAWAYS .............................................................................................................. 11.33
TEST YOUR KNOWLEDGE .................................................................................................. 11.34

CHAPTER 12: DIGITAL AUDITING AND ASSURANCE

LEARNING OUTCOMES ........................................................................................................ 12.1

CHAPTER OVERVIEW ........................................................................................................... 12.2
Contents:
1. Digital Audit .............................................................................................................. 12.4
1.1 What is a Digital Audit? ................................................................................. 12.4
1.2 Key Features of a Digital Audit ..................................................................... 12.4
1.3 Advantages of Digital Audit .......................................................................... 12.5
1.4 Consideration and Challenges of Digital Audit: .............................................. 12.6

2. Auditing Digitally ....................................................................................................... 12.7

2.1 What is the concept of auditing digitally? ....................................................... 12.7
2.2 Key Features or Advantages of Auditing Digitally: .......................................... 12.8

2.3 Considerations in Auditing Digitally ............................................................... 12.9

3. Understand The IT Environment .............................................................................. 12.10
3.1 Key Areas for an Auditor to Understand IT Environment ............................. 12.11

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4. Identifying the Risks Arising from Usage of IT ........................................................... 12.12

4.1 How to identify the IT Risks? ....................................................................... 12.12
4.2 Risks arising from use of IT: ........................................................................ 12.13
4.3 Know how to identify the IT dependencies impacting the Audit .................... 12.14
5. Assessing Cyber Risks (Including Remote Audit) ..................................................... 12.16
5.1 What is Cyber Risk ..................................................................................... 12.16
5.2 Stages of Cyber Risks ................................................................................ 12.18
5.3 Cyber Security Framework .......................................................................... 12.20
5.4 Control considerations for Cyber Risks ........................................................ 12.23
5.5 Remote Audit ............................................................................................. 12.25
6. Emerging Technologies in Audit .............................................................................. 12.27
7. Automated Tools in Audit ........................................................................................ 12.30
7.1 Internet of Things ........................................................................................ 12.31
7.2 AI (Artificial intelligence) ............................................................................. 12.32
7.3 Blockchain .................................................................................................. 12.33
7.4 Robotic Process Automation ....................................................................... 12.36
8. Control Considerations or Objectives of Auditing Digitally ......................................... 12.44

8.1 Key Steps for Auditors in a Changing Technology Environment .................. 12.45
9. Next Generation Audit ............................................................................................. 12.46
10. Conclusion .............................................................................................................. 12.50
KEY TAKEAWAYS ............................................................................................................... 12.52
TEST YOUR KNOWLEDGE .................................................................................................. 12.53

CHAPTER 13: GROUP AUDITS

Learning Outcomes............................................................................................................... 13.1

Chapter Overview ................................................................................................................. 13.2
1. Introduction ............................................................................................................... 13.3

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1.1 Consolidation of Financial Statements - Mandatory under
Companies Act, 2013. ................................................................................... 13.5

2. Responsibility of Parent ............................................................................................. 13.7

3. Responsibility of the Auditor of the Consolidated Financial Statements ....................... 13.8
4. Audit Considerations .................................................................................................. 13.9

5. Auditing the Consolidation........................................................................................ 13.12

6. Special Considerations ............................................................................................ 13.16
6.1 Permanent Consolidation Adjustments ........................................................ 13.16

6.2 Current Period Consolidation Adjustments................................................... 13.17

7. Management Representations .................................................................................. 13.24
8. Reporting................................................................................................................. 13.24

8.1 When the Parent’s Auditor is also the Auditor of all its Components ............. 13.25
8.2 When the Parent’s Auditor is not the Auditor of all its Components ............... 13.25
8.3 When the Component(s) Auditor Reports on Financial Statements
under an Accounting Framework Different than that of the Parent ................ 13.26
8.4 When the Component(s) Auditor Reports under an Auditing
Framework Different than that of the Parent ................................................ 13.27

8.5 Components Not Audited ............................................................................ 13.27

KEY TAKEAWAYS .............................................................................................................. 13.32
TEST YOUR KNOWLEDGE .................................................................................................. 13.34

CHAPTER 14: SPECIAL FEATURES OF AUDIT OF BANKS & NON-BANKING FINANCIAL

COMPANIES

UNIT 1 – SPECIAL FEATURES OF AUDIT OF BANKS .......................................................... 14.1

LEARNING OUTCOMES ........................................................................................................ 14.1

UNIT OVERVIEW ................................................................................................................... 14.2
1. Introduction ............................................................................................................... 14.4

2. Legal Framework ....................................................................................................... 14.6

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3. Form and Content of Financial Statements ................................................................. 14.7

3.1 Audit of Accounts & Appointment of Auditor .................................................. 14.7
4. Conducting an Audit................................................................................................... 14.9
4.1 Special Considerations in IT Environment.................................................... 14.13
4.2 Internal Audit and Inspection ....................................................................... 14.15
5. Internal Control in Certain Selected Areas ................................................................ 14.16
6. Compliance with CRR and SLR requirements ........................................................... 14.20
7. Verification of Assets ............................................................................................... 14.23
8. Verification of Capital & Liabilities ............................................................................ 14.44
8.1 Stress Testing ............................................................................................ 14.45
8.2 BASEL III framework ................................................................................... 14.45
9. Auditor's Report ....................................................................................................... 14.57
9.1 Format of Audit Report ................................................................................ 14.57
9.2 Long Form Audit Report .............................................................................. 14.59
9.3 Other Reporting Requirements .................................................................... 14.60
9.4 Reports and certificates .............................................................................. 14.60
10. Concurrent Audit ...................................................................................................... 14.61
10.1 Scope of Concurrent Audit .......................................................................... 14.62
10.2 Concurrent Audit System in Commercial Banks ........................................... 14.62
10.3 Coverage of Business/Branches.................................................................. 14.63
10.4 Types of Activities to be Covered ................................................................ 14.63
10.5 Appointment of Concurrent Auditors and Accountability ............................... 14.66
10.6 Remuneration of Concurrent Auditor ........................................................... 14.66
10.7 Reporting Systems...................................................................................... 14.66
11 Audit Committee ...................................................................................................... 14.67
KEY TAKEAWAYS .............................................................................................................. 14.71
TEST YOUR KNOWLEDGE .................................................................................................. 14.72

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DETAILED CONTENTS MODULE - 3

CHAPTER 15: OVERVIEW OF AUDIT OF PUBLIC SECTOR UNDERTAKINGS

LEARNING OUTCOMES ........................................................................................................ 15.1

CHAPTER OVERVIEW ........................................................................................................... 15.2

Contents:
1. Introduction .................................................................................................................. 15.4
2. Framework for Government Audit ................................................................................. 15.5
3. Objective and Scope of Public Enterprises Audit ........................................................... 15.9
3.1 Elements of PSU Audits ................................................................................... 15.10
3.2 Principles of PSU Audits .................................................................................. 15.12
4. Financial Audit ........................................................................................................... 15.13
5. Compliance Audit ....................................................................................................... 15.13

6. Performance Audit ...................................................................................................... 15.16

6.1 Objectives of Performance Audit ...................................................................... 15.19
6.2 Planning for Performance Audit ........................................................................ 15.21

7. Comprehensive Audit ................................................................................................. 15.26

8. Propriety Audit ........................................................................................................... 15.28
8.1 Definition and Principles ................................................................................... 15.28
9. Audit Report of the Comptroller and Auditor General ................................................... 15.31
KEY TAKEAWAYS ............................................................................................................... 15.34
TEST YOUR KNOWLEDGE .................................................................................................. 15.35

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CHAPTER 16: INTERNAL AUDIT

LEARNING OUTCOMES ........................................................................................................ 16.1

CHAPTER OVERVIEW ........................................................................................................... 16.2
Contents:
1. Internal Audit ................................................................................................................ 16.3
2. Management Functions and Scope of Internal Auditing ................................................. 16.8
3. Integrity, Objectivity and Independence of Internal Auditor........................................... 16.12
4. Qualities of Internal Auditor ........................................................................................ 16.14
5. Performing Internal Audit Engagement ........................................................................ 16.15
6. Internal Audit Report .................................................................................................. 16.17
6.1 Follow up ......................................................................................................... 16.20
7. Relationship between Internal and External Auditors ................................................... 16.21
7.1 Determining whether, in which areas, and to what extent the
work of the Internal Audit function can be used ................................................. 16.22
7.2 Determining the Nature and Extent of work of the
Internal Audit function that can be used ............................................................ 16.23
7.3 Determining whether in which areas, and to what extent Internal
Auditors can be used to provide direct assistance ............................................ 16.23

7.4 If the External Auditor uses Internal Auditors to provide direct assistance on
the audit, the External Auditor shall include in the Audit Documentation ............ 16.24
8. Internal Audit as a Management Function .................................................................. 16.25

9. Audit Trail .................................................................................................................. 16.26

KEY TAKEAWAYS ............................................................................................................... 16.27
APPENDIX ........................................................................................................................... 16.29

TEST YOUR KNOWLEDGE .................................................................................................. 16.30

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CHAPTER 17-DUE DILIGENCE, INVESTIGATION & FORENSIC AUDIT

LEARNING OUTCOMES ........................................................................................................ 17.1

CHAPTER OVERVIEW ........................................................................................................... 17.2
Contents:
1. Due Diligence Review................................................................................................... 17.3
2. Importance of Due Diligence ......................................................................................... 17.4
3. Classification of Due Diligence ...................................................................................... 17.5
4. Work Approach to Due Diligence ................................................................................ 17.13
5. How to Conduct Due Diligence ................................................................................... 17.14
6. Contents of a Due Diligence Report ............................................................................ 17.15
7. Investigation ............................................................................................................... 17.16
7.1 Audit versus Investigation ................................................................................ 17.16
8. Steps in Investigation.................................................................................................. 17.18
9. Special Issues in Investigations .................................................................................. 17.22
10. Special Aspects in Connection with Business Investigations ........................................ 17.24
11. Types of Investigation ................................................................................................. 17.32
11.1 Investigation on behalf of an incoming partner .................................................. 17.33
11.2 Investigation for valuation of shares in private companies ................................. 17.35

11.3 Investigation on behalf of a bank/Financial Institution proposing to advance

loan to a Company ........................................................................................... 17.37
11.4 Investigation of Frauds ..................................................................................... 17.40

11.5 Investigation on behalf of an Individual or Firm proposing to buy

a Business ...................................................................................................... 17.56
11.6 Investigation in connection with review of Profit/Financial Forecasts.................. 17.57
12. Forensic Accounting ................................................................................................... 17.57
13. Forensic Accountant Professional ............................................................................... 17.63

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14. Process of Forensic Accounting ................................................................................. 17.64
15. Forensic Accounting and Investigation Report ............................................................. 17.66
16. Overview of Forensic Accounting and Investigation Standards (FAIS)…………. .......... 17.69
KEY TAKEAWAYS ............................................................................................................... 17.72
TEST YOUR KNOWLEDGE .................................................................................................. 17.73

CHAPTER 18: SUSTAINABLE DEVELOPMENT GOALS (SDG) &

ENVIRONMENT, SOCIAL AND GOVERNANCE (ESG) ASSURANCE

LEARNING OUTCOMES ........................................................................................................ 18.1

CHAPTER OVERVIEW ........................................................................................................... 18.2

Contents:
1. Introduction ................................................................................................................. 18.3
2. Sustainable Developments Goals ................................................................................. 18.6
3. Global Trends in Sustainable Reporting ....................................................................... 18.7
4. Integrated Reporting ..................................................................................................... 18.9
5. Global Scenario in Various Countries .......................................................................... 18.11

5.1 United States ................................................................................................... 18.11

5.2 United Kingdom ............................................................................................... 18.12
6. Evolution of ESG in India ............................................................................................ 18.14

7. Initiatives By ICAI ....................................................................................................... 18.16

7.1 Business Responsibility and Sustainability Report (BRSR) ............................... 18.17
8. Role of Auditor - Consideration of Climate Related Risks in
an Audit of Financial Statements ................................................................................. 18.27
9. Conclusion ................................................................................................................. 18.29
KEY TAKEAWAYS ............................................................................................................... 18.32

TEST YOUR KNOWLEDGE .................................................................................................. 18.33

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CHAPTER 19: PROFESSIONAL ETHICS & LIABILITIES OF AUDITORS

LEARNING OUTCOMES ........................................................................................................ 19.1

CHAPTER OVERVIEW ........................................................................................................... 19.2
Contents:
1. Introduction .................................................................................................................. 19.3
2. Overview of the Code of Ethics ..................................................................................... 19.4
2.1 Fundamental Principles ................................................................................... 19.6
2.2 Threats, Evaluation of Threats and Safeguards ............................................... 19.11
2.3 Non-Compliance with Laws and Regulations (NOCLAR) ................................. 19.16
3. Membership of the Institute ......................................................................................... 19.21
3.1 Disabilities for the Purpose of Membership ....................................................... 19.21
3.2 Types of Members of the Institute ..................................................................... 19.22
3.3 Removal of Name from the Register ................................................................. 19.23
3.4 Restoration of Membership............................................................................... 19.23
3.5 Penalty for Falsely Claiming to be a Member etc. ............................................. 19.24
4. Chartered Accountants in Practice .............................................................................. 19.24
4.1 Significance of the Certificate of Practice .......................................................... 19.25
4.2 Cancellation and Restoration of Certificate of Practice ..................................... 19.26
4.3 Members - deemed to be in Practice ................................................................ 19.27
4.4 Companies not to Engage in Accountancy ........................................................ 19.32
4.5 Member in Practice Prohibited from using a designation other than
Chartered Accountant ..................................................................................... 19.33
4.6 Maintenance of Branch Offices ......................................................................... 19.34
4.7 KYC Norms for CA in Practice .......................................................................... 19.37

5. Chartered Accountants in Service ............................................................................... 19.39

6. Disciplinary Procedure ................................................................................................ 19.39

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7. Types of Misconduct- Professional or Other Misconduct .............................................. 19.41
7.1 Professional Misconduct .................................................................................. 19.41
7.2 Other Misconduct ............................................................................................. 19.41
8. Schedules to the Act................................................................................................... 19.42
8.1 The First Schedule ........................................................................................... 19.43
8.2 The Second Schedule: ..................................................................................... 19.91
9. Council Guidelines ................................................................................................... 19.111
9.1 Council Guidelines for Advertisement, 2008 .................................................... 19.129
10. Recommended Self-Regulatory Measures................................................................. 19.137
10.1 Branch Audits ................................................................................................ 19.137
10.2 Joint Audit...................................................................................................... 19.138
10.3 Ratio Between Qualified and Unqualified Staff ................................................ 19.138
10.4 Disclosure of Interest by Auditors in other Firms ............................................. 19.138
10.5 Recommended Minimum Scale of Fees .......................................................... 19.138
KEY TAKEAWAYS ............................................................................................................. 19.143
ANNEXURE – 1 .................................................................................................................. 19.144
ANNEXURE – 2 .................................................................................................................. 19.150

TEST YOUR KNOWLEDGE ................................................................................................ 19.159

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