STANDARDS ON AUDITING

COMPILATION OF IMPORTANT SA’s

Why Auditing Standards are Important??

• Auditing Standards are mandatory to be by followed by practitioners

under the direction issued by the council of ICAI
• If not complied with Auditing Standards in performing Assurance
Engagement
• CA shall be held guilty of Professional misconduct under Schedule-II
of CA-Act, 1949
• As per the Section 143(9) of Companies Act-2013, Every auditor shall
comply with the auditing standards
Brief Historical Background of Auditing Standards

• Research Committee constituted by ICAI for developing Accounting & Auditing

1955 Practice

• Research Committee of ICAI issued “Statements on Auditing Practice” (SAP)

1964

• IAPC constituted by IFAC & issued “International Auditing Guidelines” (IAG)

1977 later known as ISA - International Auditing Standards

• “Auditing Practice Committee” (APC) constituted by ICAI for to spearhead the

1982 Framework of SAPs & GNs

• APC renamed as AASB (Auditing & Assurance Standards Board) SAP renamed
2002 as AAS (Auditing & Assurance Standards)

• Nomenclature of AASs known as Engagement & Quality Control Standards

2008 (SAs/SREs/SAEs/SRSs/SQC)
Audit Report Procedure
SA Description Reference

SA 300 Preliminary Engagement Activities Client continuance (SA 220)

Ethical requirement (SA 200 and SA 220)

Terms of Engagement etc (SA 210)

Planning Activities Audit Strategy

Scope, Timing & Direction
Audit Plan
N.T.E. of audit procedures
SA 315 Risk Assessment Procedures Understanding of Entity, its Environment &
Internal Control
SA 330 Performing Test of controls for Existence, Effectiveness & Continuity

Performing Test of details – Substantive Procedures Completeness, Validity, Accuracy,

Measurement, Valuation
SA 450 Evaluation of Misstatement, if identified

SA 700 Forming an opinion based on audit evidence

obtained
SA 705 Modifications to the Opinion in the Independent
Auditor’s Report"
SA 706 Emphasis of Matter Paragraphs and Other Matter
Paragraphs in the Independent Auditor’s Report
SA 200: Overall Objectives of the Independent Auditor and the
Conduct of an Audit in Accordance with Standards on Auditing
• This Standard establishes the independent auditor’s overall responsibilities when conducting an audit of
financial statements in accordance with SAs
• Ethical Requirements Relating to an Audit of Financial Statements — The auditor should apply the following
fundamental principles of professional ethics relevant when conducting an audit of financial statements; (a)
Integrity; (b) Objectivity; (c) Professional competence and due care; (d) Confidentiality; and (e) Professional
behavior
• Professional Skepticism— Professional skepticism includes being alert to, for example; (a) Audit evidence
that contradicts other audit evidence obtained;
(b) Information that brings into question the reliability of documents and responses to inquiries to be used
as audit evidence; (c) Conditions that may indicate possible fraud; (d) Circumstances that suggest the need
for audit procedures in addition to those required by the SAs
• Professional Judgment— Professional judgment is necessary in particular regarding decisions about:
(a) Materiality and audit risk; (b) The nature, timing, and extent of audit procedures used to meet the
requirements of the SAs and gather audit evidence; (c) Evaluating whether sufficient appropriate audit
evidence has been obtained, and whether more needs to be done to achieve the objectives of the SAs and
thereby, the overall objectives of the auditor; (d) The evaluation of management’s judgments in applying the
entity’s applicable financial reporting framework; (e) The drawing of conclusions based on the audit evidence
obtained, for example, assessing the reasonableness of the estimates made by management in preparing the
financial statements
• Sufficient Appropriate Audit Evidence and Audit Risk— To obtain reasonable assurance, the auditor shall
obtain sufficient appropriate audit evidence to reduce audit risk to an acceptably low level and thereby
enable the auditor to draw reasonable conclusions on which to base the auditor’s opinion
SA 200: Overall Objectives of the Independent Auditor and the
Conduct of an Audit in Accordance with Standards on Auditing
• Ø Sufficiency and Appropriateness of Audit Evidence — Audit evidence is necessary
to support the auditor’s opinion and report. It is cumulative in nature and is
primarily obtained from audit procedures performed during the course of the audit.
Sufficiency is the measure of quantity of audit evidence whereas appropriateness is
the measure of quality of audit evidence
• Ø Audit Risk — Audit risk is a function of the risks of material misstatement and
detection risk. The risks of material misstatement may exist at two levels:
(a) The overall financial statement level; and (b) The assertion level for classes of
transactions, account balances, and disclosures. For a given level of audit risk, the
acceptable level of detection risk bears an inverse relationship to the assessed risks
of material misstatement at the assertion level
• Conduct of an Audit in Accordance with SAs — The auditor shall comply with all SAs
relevant to the audit. An SA is relevant to the audit when the SA is in effect and the
circumstances addressed by the SA exist. The auditor shall have an understanding of
the entire text of an SA, including its application and other explanatory material, to
understand its objectives and to apply its requirements properly. The auditor shall
not represent compliance with SAs in the auditor’s report unless the auditor has
complied with the requirements of this SA and all other SAs relevant to the audit
SA 210: Agreeing the Terms of Audit Engagements
• Auditor and client should agree on terms of engagement. Agreed terms would need
to be recorded in an audit engagement letter or other suitable form of contract
• The form and content of audit engagement letter may vary for each client, but
would generally include reference to (a) objective and scope of the audit of financial
statements; (b) responsibilities of the auditor; (c) responsibilities of management;
(d) Identification of applicable financial reporting framework for the preparation of
financial statements; and (e) Reference to the expected form and content of any
reports to be issued by the auditor and a statement that there may be circumstances
in which a report may differ from its expected form and content. Other matters as
per the circumstances should also be included
• In case of recurring audits, auditor should consider whether circumstances require
the terms of engagement to be revised
• Where the terms of engagement are changed, auditor and client should agree on
the new terms. If auditor is unable to agree to a change of engagement and is not
permitted to continue the original engagement, the auditor should consider
withdrawing from the engagement and determine whether there is any obligation,
either contractual or otherwise, to report the circumstances to other parties, such as
those charged with governance, owners or regulators
SA 220: Quality Control for an Audit of Financial Statements

• Quality control policies and procedures should be implemented at both level —

of audit firm and on individual audits
• To implement quality control policies and procedures designed to ensure that all
audits are conducted in accordance with Standards of Auditing
• Objectives of quality control policies to be adopted will incorporate Professional
Requirements, Skills and Competence, Assignment, Delegation, Consultation,
Acceptance and Retention of Clients, Monitoring
• To be communicated to its personnel in a manner that provides reasonable
assurance that the policies and procedures are understood and implemented
• To implement those quality control procedures which are, in the context of
policies and procedures of the firm, appropriate to individual audit. To consider
professional competence of assistants performing work delegated to them when
deciding extent of direction, supervision and review appropriate for each
assistant. Assistants to whom work is delegated need appropriate direction,
supervision and review of audit work performed by them
SA 230: Audit Documentation
• Audit documentation that meets the requirements of this SA and the specific
documentation requirements of other relevant SAs provides (a) evidence of auditor’s
basis for a conclusion about the achievement of overall objective of audit; and (b)
evidence that the audit was planned and performed in accordance with SAs and
applicable legal and regulatory requirements
• Audit Documentation refers to the record of audit procedures performed, relevant audit
evidence obtained, and conclusions the auditor reached. Preparing sufficient and
appropriate audit documentation on a timely basis helps to enhance the quality of audit
and facilitates effective review and evaluation of audit evidence obtained and conclusions
reached before finalizing auditor’s report
• To document discussions of significant matters with management, those charged with
governance, and others, including the nature of significant matters discussed and when
and with whom the discussions took place
• Auditor may consider preparing and retaining a summary (Completion Memorandum)
that describes significant matters identified during the audit and how they were
addressed. SA 220 requires auditor to review audit work performed through review of
audit documentation. Standards on Quality Control (SQC) 1 require firms to establish
policies and procedures for timely completion of assembly of audit files. An appropriate
time limit within which to complete the assembly of final audit file is ordinarily not more
than 60 days after the date of auditor’s report. SQC 1 requires firms to establish policies
and procedures for retention of engagement documentation
• Retention period for audit engagements ordinarily is no shorter than ten years from the
date of auditor’s report, or, if later, the date of group auditor’s report
SA 240: The Auditor’s Responsibilities Relating to Fraud in an Audit
of Financial Statements
• Auditor is concerned with fraud that causes a material misstatement in financial statements
• Two types of intentional misstatements are relevant — misstatements resulting from
fraudulent financial reporting and misstatements resulting from misappropriation of assets
• Primary responsibility of prevention and detection of frauds is of the management as well as
those charged with governance. It is important that management, with oversight of those
charged with governance; place a strong emphasis on fraud prevention which may reduce
opportunities for fraud to take place and act as a deterrent
• Auditor is responsible for obtaining reasonable assurance that financial statement taken as a
whole are free from material misstatement, whether caused by fraud or error. While auditor
may be able to identify potential opportunities for fraud to be perpetrated, it is difficult for him
to determine whether misstatements in judgment areas such as accounting estimates are
caused by fraud or error
• Risk of auditor not detecting a material misstatement resulting from management fraud is
greater than for employee fraud, because management is frequently in a position to directly or
indirectly manipulate accounting records, present fraudulent financial information or override
control procedures designed to prevent similar frauds by other employees. Auditor is
responsible for maintaining an attitude of professional skepticism throughout the audit,
considering the potential for management override of controls and recognizing the fact that
audit procedures that are effective for detecting error may not be effective in detecting fraud
SA 240: The Auditor’s Responsibilities Relating to Fraud in an Audit
of Financial Statements
• Auditor shall identify and assess risks of material misstatement due to fraud at
financial statement level, and at assertion level for classes of transactions, account
balances and disclosures. Auditor must make appropriate inquiries of the
management. Auditor must discuss with those charged with governance as they
have oversight responsibility for systems for accounting risk, financial control and
compliance with the law
• When auditor identifies a misstatement, s/he should consider whether such a
misstatement may be indicative of fraud and if there is such an indication, s/he
should consider the implications of misstatement in relation to other aspects of the
audit, particularly the reliability of management representations
• When the auditor identifies a misstatement resulting from fraud, or a suspected
fraud, s/he should consider auditor’s responsibility to communicate that information
to management, those charged with governance and, in some circumstances, when
so required by laws and regulations, to regulatory and enforcement authorities also
• To obtain written representations from management
• To document the understanding of entity and its environment and the assessment of
risks of material misstatement, responses to assessed risks of material misstatement
and communications about fraud made to management, those charged with
governance, regulators and others
SA 250: Consideration of Laws and Regulations in an Audit of
Financial Statements
• To recognise that non–compliance by entity with laws and regulations may materially
affect financial statements. It is management’s responsibility to ensure that entity’s
operations are conducted in accordance with laws and regulations
• Auditor is not responsible for preventing non–compliance. The auditor is responsible for
obtaining reasonable assurance that the financial statements, taken as a whole, are free
from material misstatement, whether caused by fraud or error
• Risk of non detection of material misstatements is higher with regard to material
misstatements resulting from non–compliance with laws and regulations due to various
factors. To obtain a general understanding of legal and regulatory framework applicable
to the entity and how it is complying with that framework
• After obtaining general understanding, auditor should perform procedures to identify
instances of non–compliance with these laws and regulations where non–compliance
should be considered when preparing financial statements. Further, auditor should
obtain sufficient appropriate audit evidence about compliance with those laws and
regulations generally recognised by Auditor to have an effect on determination of
material amounts and disclosures in financial statements
SA 250: Consideration of Laws and Regulations in an Audit of
Financial Statements
• To obtain written representations that management has disclosed all known actual or
possible non–compliance with laws and regulations whose effects should be considered
when preparing financial statements. This SA does not apply to other assurance
engagements in which auditor is specifically engaged to test and report separately on
compliance with specific laws and regulations. Whether an act constitutes a non–
compliance can be determined only by a court of law
• The Standard envisages “engaging a legal advisor to assist in monitoring legal
requirements” instead of “establishing a legal department” as one of the policies to
ensure compliance with laws and regulations. The Standard, in larger entities, also
envisages existence of a separate “compliance function” in addition to internal audit
function and audit committee to supplement policies and procedures for ensuring
compliance with laws and regulations
SA 260: Communication with those Charged with Governance

• To communicate with those charged with governance, auditor’s responsibilities in

relation to financial statements audit, an overview of planned scope and timing of audit
and significant findings from the audit
• Such matters include: Overall scope of audit; selection of/ changes in significant
accounting policies; potential effect on financial statements of any significant risks and
exposures, such as pending litigation; adjustments to financial statements arising out of
audit that have a significant effect on entity’s financial statements; material uncertainties
related to events and conditions that may cast significant doubt on entity’s ability to
continue as a going concern, disagreements with management about matters that could
be significant to entity’s financial statements or auditor’s report; expected modifications
to auditor’s report. Auditors should communicate matters of governance interest on
timely basis
• Auditor’s communication may be made orally or in writing. In case of oral
communication, auditor should document their oral communications and response
thereof
SA 265: Communicating Deficiencies in Internal Control to those
Charged with Governance and Management

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

governance and management deficiencies in internal control that the auditor has
identified during the audit and that, in the auditor’s professional judgment, are of
sufficient importance to merit their respective attentions
• The auditor shall determine whether, on the basis of the audit work performed, the
auditor has identified one or more deficiencies in internal control. If the auditor has
identified one or more deficiencies in internal control, the auditor shall determine, on
the basis of the audit work performed, whether, individually or in combination, they
constitute significant deficiencies.
SA 299 (AAS 12): Responsibility of Joint Auditors
• Joint auditors should, by mutual discussion, divide audit work. Division of work would
usually be in terms of audit of identifiable units or specified areas. Division of work may
be with reference to items of assets or liabilities or income or expenditure or with
reference to periods of time
• If a Joint auditor comes across matters which are relevant to areas of responsibility of
other joint auditors and which deserve their attention, or which require disclosure or
discussion with, or application of judgment by, other joint auditors, he should
communicate the same to all other joint auditors in writing prior to finalization of audit
• Certain areas of work, owing to their importance or owing to the nature of work
involved, would often not be divided and would have to be covered by all joint auditors
• Each joint auditor is responsible only for the work allocated to them, whether or not
s/he has prepared a separate report on work performed by them
SA 299 (AAS 12): Responsibility of Joint Auditors
• All joint auditors are jointly and severally responsible in respect of the audit work which
is not divided amongst them, for the appropriateness of decisions taken by them
concerning the nature, timing or extent of the audit procedures to be performed by any
of the joint auditors, for examining that the financial statements of the entity comply
with disclosure requirements of relevant statute, for ensuring that audit report complies
with the requirements of relevant statute and in respect of matters which are brought to
the notice of joint auditors by any one of them and on which there is an agreement
among joint auditors
• Each joint auditor is entitled to assume that other joint auditors have carried out their
part of audit work in accordance with generally accepted audit procedures. Normally,
joint auditors are able to arrive at an agreed report. However, where the joint auditors
are in disagreement with regard to any matters to be covered by the report, each one of
them should express his own opinion through a separate report
SA 300: Planning an Audit of Financial Statements
• Planning an audit involves establishing the overall audit strategy for the engagement and
developing an audit plan. The objective of auditor is to plan the audit so that it will be
performed in an effective manner
• Once the overall audit strategy has been established, an audit plan can be developed to
address various matters identified in the overall audit strategy, considering the need to
achieve the audit objectives through efficient use of auditor’s resources
• To consider various matters in developing the overall plan like: terms of engagement;
nature and timing of reports; applicable legal or statutory requirements; accounting
policies adopted by the client; identification of significant audit areas; setting of
materiality levels, etc.
• To obtain a level of knowledge of client’s business that will enable them to identify
events, transactions and practices that, in their judgment, may have a significant effect
on financial information. Audit plan is more detailed than overall audit strategy that
includes the nature, timing and extent of audit procedures to be performed by
engagement team members
SA 300: Planning an Audit of Financial Statements
• Engagement partner and other key members of engagement team shall be involved in
planning the audit, including planning and participating in the discussion among
engagement team members so as to enhance effectiveness and efficiency of planning
process
• To plan the nature, timing and extent of direction and supervision of engagement team
members and review of their work. Auditor shall document overall audit strategy, audit
plan and any significant changes made during audit engagement to the overall audit
strategy or audit plan, and reasons for such changes
• Audit planning ideally commences at the conclusion of previous year’s audit, and along
with related programme, it should be reconsidered for modification as the audit of their
compliance and substantive procedures progress. For an initial audit, auditor may need
to expand the planning activities because the auditor does not ordinarily have previous
experience with the entity that is considered when planning recurring engagements
SA 315: Identifying and Assessing the Risks of Material Misstatement
through Understanding the Entity and its Environment

• To provide a basis for identification and assessment of risks of material misstatement at

the financial statement and assertion levels, the auditor shall perform risk assessment
procedures. Thus procedures shall include: Inquiries with management; Analytical
Procedures; Observation and Inspection
• Where Auditor has performed other engagements with the entity, auditor shall consider
whether information obtained is relevant for identifying the risk of material
misstatement. If Auditor intends to use his/her previous experiences with the entity, he
shall determine whether changes have occurred since previous audit that may affect its
relevance on current audit
• To obtain an understanding of the following: Industry, regulatory and other external
factors; Nature of entity; Selection and application of accounting policies; Objectives and
strategies and related business risks; Measurement and review of entity’s financial
performance; Internal control
• SA 315 sets out five components of Internal control: Control environment; Entity’s risk
assessment process; the information system, including related business processes,
relevant to financial reporting and communication; Control activities relevant to audit;
Monitoring of controls
SA 315: Identifying and Assessing the Risks of Material Misstatement
through Understanding the Entity and its Environment
• Usually, those controls which pertain to entity’s objective of preparing financial
statements are subject to risk assessment procedures
• Obtaining an understanding of entity and its environment including entity’s internal
control is a continuous, dynamic process of gathering, updating and analyzing
information throughout the audit
• To identify and assess risks of material misstatement at financial statement level, and at
assertion level for classes of transactions, account balances and disclosures
• Auditors are required to: Relate identified risks to what can go wrong at assertion level;
Consider potential magnitude of risks in the context of financial statements; Consider
the likelihood that risks could result in a material misstatement of financial statements
• Documentation should cover: Discussion among engagement team; Key elements of
understanding obtained; Sources of information; Risk assessment process; the identified
and assessed risks; Significant risks evaluated; Risks evaluated for which substantive
procedures done
• Auditor uses professional judgment to determine the extent of understanding required.
Auditors primary consideration is whether the understanding that has been obtained is
sufficient to meet the objective stated in the SA
SA 320: Materiality in Planning and Performing an Audit
• SA 320 deals with the auditor’s responsibility to apply the concept of materiality in
planning and performing an audit of financial statements
• In planning the audit, the auditor makes judgments about the size of misstatements that
will be considered material
• These judgments provide a basis for:
• Determining the nature, timing and extent of risk assessment procedures;
• Identifying and assessing the risks of material misstatement; and
• Determining the nature, timing and extent of further audit procedures
• For purposes of the SAs, performance materiality means the amount or amounts set by
the auditor at less than materiality for the financial statements as a whole to reduce to
an appropriately low level the probability that the aggregate of uncorrected and
undetected misstatements exceeds materiality for the financial statements as a whole. If
applicable, performance materiality also refers to the amount or amounts set by the
auditor at less than the materiality level or levels for particular classes of transactions,
account balances or disclosures
SA 320: Materiality in Planning and Performing an Audit
• The auditor shall revise materiality for the financial statements as a whole (and, if
applicable, the materiality level or levels for particular classes of transactions, account
balances or disclosures) in the event of becoming aware of information during the audit
that would have caused the auditor to have determined a different amount (or amounts)
initially
• The audit documentation shall include the following amounts and the factors considered
in their determination:
• Materiality for the financial statements as a whole
• If applicable, the materiality level or levels for particular classes of transactions, account
balances or disclosures
• Performance materiality and
• Any revision of above as the audit progressed
SA 330: The Auditor’s Responses to Assessed Risks
• The objective is to obtain sufficient appropriate audit evidence about assessed risks of
material misstatement, through designing and implementing appropriate responses to
those risks
• Auditor shall design and implement overall responses to address assessed risks of
material misstatement at financial statement level. To design and perform further audit
procedures whose nature, timing and extent are based on and are responsive to
assessed risks of material misstatement at assertion level
• In designing further audit procedures to be performed, the auditor shall:
a) Consider reasons for the assessment given to risk of material misstatement at the
assertion level for each class of transactions, account balance, and disclosure
b) Obtain more persuasive audit evidence – the higher the auditor’s assessment of
risk
• When the auditor obtains audit evidence about operating effectiveness of controls
during an interim period, the auditor shall:
SA 330: The Auditor’s Responses to Assessed Risks
a) Obtain audit evidence about significant changes to those controls subsequent to
the interim period; and
b) Determine additional audit evidence to be obtained for the remaining period
• Based on the audit procedures performed and audit evidence obtained, auditor shall
evaluate before conclusion of audit whether assessments of risks of material
misstatement at assertion level remain appropriate
• Auditor shall conclude whether sufficient appropriate audit evidence has been obtained.
In forming an opinion, auditor shall consider all relevant audit evidence, regardless of
whether it appears to corroborate or contradict assertions in financial statements
• If the auditor has not obtained sufficient appropriate audit evidence as to a material
financial statement assertion, the auditor shall attempt to obtain further audit evidence.
If the auditor is unable to obtain sufficient appropriate audit evidence, auditor shall
express a qualified opinion or a disclaimer of opinion
• If Auditor plans to use audit evidence about operating effectiveness of controls obtained
in previous audits, auditor shall document conclusion reached about relying on such
controls that were tested in a previous audit
SA 402: Audit Considerations Relating to an Entity Using a Service
Organization
• This SA specifically expands on how the user auditor applies SA 315 and SA 330
• The objectives of the auditor are (a) To obtain an understanding of the nature and
significance of services provided by the service organisation and their effect on the user
entity’s internal control relevant to the audit, sufficient to identify and assess the risks of
material misstatement; and (b) To design and perform audit procedures responsive to
those risks
• The user auditor should obtain an understanding of the services provided by a service
organization, including internal control
• The user auditor shall modify the opinion in the user auditor’s report in accordance with
SA 705 if the user auditor is unable to obtain sufficient appropriate audit evidence
regarding the services provided by the service organization relevant to the audit of the user
entity’s financial statements
• The user auditor shall not refer to the work of a service auditor in the user 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 user auditor’s report shall indicate that the
reference does not diminish the user auditor’s responsibility for the audit opinion
• If reference to the work of a service auditor is relevant to an understanding of a
modification to the user auditor’s opinion, the user auditor’s report shall indicate that such
reference does not diminish the user auditor’s responsibility for that opinion
SA 450: Evaluation of Misstatements Identified during the Audit

• The objective of the auditor is to evaluate the effect of identified misstatements on

the audit and the effect of uncorrected misstatements, if any, on the financial
statements
• To accumulate misstatements identified during the audit, other than those that are
clearly trivial
• To determine whether the overall audit strategy and audit plan need to be revised if
the nature of identified misstatements and the circumstances of their occurrence
indicate that other misstatements may exist that, when aggregated with
misstatements accumulated during the audit, could be material or the aggregate of
misstatements accumulated during the audit approaches materiality determined in
accordance with SA 320 (Revised)
• To communicate on a timely basis all misstatements accumulated during the audit
with the appropriate level of management, unless prohibited by law or regulations.
To request management to correct those misstatements
• Prior to evaluating the effect of uncorrected misstatements, the auditor shall
reassess materiality determined in accordance with SA 320, to confirm whether it
remains appropriate in the context of the entity’s actual financial results
SA 450: Evaluation of Misstatements Identified during the Audit

• To communicate with those charged with governance uncorrected misstatements

and the effect that they, individually or in aggregate, may have on the opinion in
auditor’s report, unless prohibited by law or regulation. Auditor’s communication
shall identify material uncorrected misstatements individually. Auditor shall request
correction of uncorrected misstatements. Auditor shall also communicate with those
charged with governance the effect of uncorrected misstatements related to prior
periods on the relevant classes of transactions, account balances or disclosures, and
the financial statements as a whole
• To request a written representation from management and, where appropriate,
those charged with governance whether they believe the effects of uncorrected
misstatements are immaterial, individually and in aggregate, to the financial
statements as a whole. A summary of such items shall be included in or attached to
the written representation
• The audit documentation shall include the amount below which misstatements
would be regarded as clearly trivial, all misstatements accumulated during the audit
and whether they have been corrected and the auditor’s conclusion as to whether
uncorrected misstatements are material, individually or in aggregate, and the basis
for that conclusion
SA 500: Audit Evidence

• Auditor is required to obtain sufficient appropriate audit evidence to enable them to

draw reasonable conclusions on which they can base their opinion on financial
information
• Auditor normally relies on evidence that is persuasive rather than conclusive in
nature. Auditor may obtain evidence on a selective basis by way of either
judgmental or statistical sampling procedures. Evidence is obtained through
performance of compliance and substantive procedures
• Compliance procedures are tests designed to obtain reasonable assurance that
internal controls on which audit reliance is placed are in effect. Substantive
procedures are designed to obtain evidence as to completeness, accuracy and
validity of data produced by accounting system
• Obtaining audit evidence from compliance procedures is intended to reasonably
assure the auditor in respect of assertions of existence, effectiveness and continuity.
Obtaining audit evidence from substantive procedures is intended to reasonably
assure the auditor in respect of assertions of existence, rights and obligations,
occurrence, completeness, valuation, measurement, presentation and disclosure
SA 500: Audit Evidence

• To test the reliability, few generalizations are useful such as external evidence is
more reliable than internal evidence, written evidence is more reliable than oral
evidence and self obtained evidence is more reliable than obtained through the
entity
• Auditor gains increased assurance when audit evidence obtained from different
sources is consistent. Various methods for obtaining audit evidence include
inspection, observation, inquiry and confirmation, computation and analytical
review
• Emphasis is to be laid on considering relevance and reliability of audit evidence
obtained during the course of audit, and focus is to be laid on designing and
performing audit procedures to obtain relevant and reliable audit evidence
SA 501: Audit Evidence — Specific Considerations for Selected Items

• This Standard on Auditing (SA) deals with specific considerations by the auditor in
obtaining sufficient appropriate audit evidence in accordance with SA 330, SA 500
(Revised) and other relevant SAs, with respect to certain aspects of inventory,
litigation and claims involving the entity, and segment information in an audit of
financial statements
• Inventories: Management ordinarily establishes procedures under which inventory
is physically counted at least once in a year to serve as a basis for preparation of
financial statements or to ascertain reliability of perpetual inventory system. When
inventory is material to financial statements, auditor should obtain sufficient
appropriate audit evidence regarding its existence and condition by attendance at
physical inventory counting unless impracticable. If unable to attend physical
inventory count on the date planned due to unforeseen circumstances, auditor
should take or observe some physical counts on an alternative date and where
necessary, perform alternative audit procedures to assess whether changes in
inventory between date of physical count and period end date are correctly
recorded
• 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:
SA 501: Audit Evidence — Specific Considerations for Selected Items

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;
c) Reviewing legal expense accounts

• Segment Information: Auditor considers segment information in relation to financial

statements taken as a whole, and is not required to apply auditing procedures that
would be necessary to express an opinion on segment information standing alone.
Audit procedures regarding segment information ordinarily consist of obtaining an
understanding of the methods used by management in determining segment
information and performing analytical procedures and other audit tests appropriate
in the circumstances
 SA 505: External Confirmations

• External confirmation is the process of obtaining and evaluating audit evidence through a direct
communication from a third party in response to a request for information about a particular
item
• Before making use of external confirmations, auditor should consider materiality, the assessed
level of inherent and control risk, and how the evidence from other planned audit procedures
will reduce audit risk to an acceptably low level
• To employ external confirmation procedures in consultation with the management. External
confirmations are mostly sought for account balances and their components but they are not
to be restricted to these items only
• The use of confirmation procedures may be effective in providing sufficient appropriate audit
evidence when auditor determines higher level of assessed inherent and control risk
• The request for confirmations is to be made either at the date of financial statements or at a
date close to it. Requests are to be designed to specific audit objectives
• Auditor’s understanding of client’s arrangements and transactions with third parties is
important in determining the information to be confirmed. Auditor may use positive or
negative external confirmation requests or a combination of both
• To consider whether there is any indication that external confirmations received may not be
reliable. To evaluate the conformity between results of external confirmation process together
with results from any other procedures performed. If Auditor seeks for an external
confirmation and management requests the auditor not to do so, auditor should consider
whether there are valid grounds for such a request and obtain evidence to support validity of
management’s requests
 SA 510: Initial Audit Engagements – Opening Balances

• In conducting an initial audit engagement, the auditor should obtain sufficient appropriate
audit evidence that closing balances of preceding period have been correctly brought
forward to current period or when appropriate, any adjustments have been disclosed as
prior period items in the current year’s Statement of Profit and Loss, the opening balances
do not contain misstatements that materially affect financial statements for the current
period and appropriate accounting policies are consistently applied
• To consider whether accounting policies followed in preceding period, based on which
opening balances have been arrived at, were appropriate and that those policies are
consistently applied. If the auditor concludes that the accounting policies have not been
consistently applied or properly accounted for, the auditor has to express either a qualified
or adverse opinion, as may be appropriate
• Ordinarily, current auditor can place reliance on closing balances contained in financial
statements for preceding period, except when during performance of audit procedures for
current period the possibility of misstatements in opening balances is indicated
• When financial statements of preceding period were not audited, auditor must adopt other
procedures such as for current assets and liabilities. Some audit evidence can ordinarily be
obtained as part of audit procedures performed during the current period and for non–
current assets and liabilities such as fixed assets, investments and long–term debt, the
auditor could ordinarily examine records underlying the opening balances
 SA 510: Initial Audit Engagements – Opening Balances

• To evaluate matters giving rise to modifications in prior period’s financial statements

for assessing the risk of material misstatement. If the prior period’s financial
statements were audited by a predecessor auditor and there was a modification to
the opinion, the auditor shall evaluate the effect of the matter giving rise to the
modification in assessing the risks of material misstatement in the current period’s
financial statements in accordance with SA 315
 SA 520: Analytical Procedures

• 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 audit that assist the auditor when forming an
overall conclusion as to whether the financial statements are consistent with
auditor’s understanding of the entity
• Auditor should apply analytical procedures at overall review stages of audit as well
as while applying substantive procedures
• Application of analytical procedures is based on the expectation that relationships
among data exist and continue in absence of known conditions to the contrary.
Presence of these relationships provides audit evidence as to completeness,
accuracy and validity of data produced by the accounting system. However, reliance
on results of analytical procedures will depend on auditor’s assessment of the risk
that analytical procedures may identify relationships as expected when, in fact, a
material misstatement exists
• When analytical procedures identify significant fluctuations or relationships that are
inconsistent with other relevant information or that deviate from predicted
amounts, the auditor should investigate and obtain adequate explanations and
appropriate corroborative evidence
 SA 530: Audit Sampling

• The auditor should design and select an audit sample, perform audit procedures
thereon, and evaluate sample results so as to provide sufficient appropriate audit
evidence
• The objective of the auditor when using audit sampling is to provide a reasonable
basis to draw conclusions about the population from which the sample is selected
• When designing an audit sample, auditor should consider the objectives of the audit
procedure and characteristics of the population when designing an audit sample. To
assist in efficient and effective design of sample, stratification may be appropriate.
Stratification is the process of dividing a population into sub–populations
• When determining sample size, auditor should consider sampling risk, tolerable
error, and expected error. Tolerable error is the maximum error in population that
the auditor would be willing to accept and still conclude that the result from sample
has achieved audit objective
• If Auditor expects error to be present in the population, a larger sample needs to be
examined to conclude that actual error in the population is not greater than planned
tolerable error. Auditor should select sample items in such a way that the sample
can be expected to be representative of the population
 SA 530: Audit Sampling

• This requires that all items in the population have an opportunity of being selected.
After having carried out those audit procedures on each sample item that are
appropriate to particular audit objective, auditor should analyse any errors detected
in the sample, project the errors found in the sample to the population and reassess
sampling risk
• Auditor should investigate the nature and cause of any deviations or misstatements
identified, and their possible effect on the objective of the particular audit
procedure or other areas of audit. In order to conclude that a misstatement or
deviation is an anomaly, the auditor is required to obtain a high degree of certainty
that the misstatement or deviation is not representative of the population
SA 540: Auditing Accounting Estimates, Including Fair Value Accounting
Estimates, and Related Disclosures
• Auditor should obtain sufficient appropriate audit evidence regarding
reasonableness of accounting estimates including fair value accounting estimate and
related disclosure in financial statements are adequate
• Accounting estimate means an approximation of a monetary amount in absence of a
precise means of measurement. Determination of an accounting estimate may be
simple or complex, depending upon the nature of item. Auditor should adopt one or
a combination of following approaches in the audit of an accounting estimate:
a) review and test process used by management to develop the estimate;
b) use an independent estimate for comparison with that prepared by
management; or
c) review subsequent events which confirm the estimate made
• Auditor should make a final assessment of reasonableness of estimate based on
auditor’s knowledge of the business and whether the estimate is consistent with
other audit evidence obtained during audit. When there is a difference between
auditor’s estimate of the amount best supported by available audit evidence and
the estimated amount included in financial statements, auditor should consider
whether the amount requires adjustment and report accordingly
SA 540: Auditing Accounting Estimates, Including Fair Value Accounting
Estimates, and Related Disclosures

• Auditor should adopt a risk–based approach to the responsibilities regarding

accounting estimates, including fair value accounting estimates and related
disclosures. A difference between the outcome of an accounting estimate and
amount originally recognized or disclosed in financial statements does not
necessarily represent a misstatement of financial statements

• Auditor should review the outcome of accounting estimates included in prior period
financial statements. Auditor should obtain written representations from
management whether management believes significant assumptions used by it in
making accounting estimates are reasonable

• Audit documentation should include the basis for auditor’s conclusions about
reasonableness of accounting estimates and their disclosure that give rise to
significant risks; and Indicators of possible management bias, if any
SA 550: Related Parties
This Standard on Auditing (SA) deals with the auditor’s responsibilities regarding
related party relationships and transactions when performing an audit of financial
statements
• Auditor has a responsibility to perform audit procedures to identify, assess and
respond to the risks of material misstatement arising from the entity’s failure to
appropriately account for or disclose related party relationships, transactions or
balances in accordance with the framework
• To perform procedures to obtain information relevant to identifying the risks of
material misstatement associated with related party relationships and
transactions
• The auditor shall inquire of management regarding: (a) The identity of entity’s
related parties, including changes from prior period (b) The nature of
relationships between the entity and these related parties; and (c) Whether the
entity entered into any transactions with these related parties during the period
and, if so, the type and purpose of the transactions
• To maintain alertness for related party information when reviewing records or
documents
SA 550: Related Parties
• To respond to the risks of material misstatement associated with related party
relationships and transactions
• To Identify significant related party transactions outside the Entity’s normal course
of business
• To evaluate that related party transactions were conducted on terms equivalent to
those prevailing in an Arm’s Length Transaction
• To ensure that the accounting and disclosure of identified related party relationships
and transactions are correct
• To obtain written representation from management for related party transactions
• Auditor shall communicate with those charged with governance significant matters
arising during the audit in connection with the entity’s related parties
• Auditor shall include in the audit documentation, names of identified related parties
and nature of related party relationships
SA 560: Subsequent Events
• Subsequent events are significant events occurring between balance sheet date and
the date of auditor’s report. Auditor should consider effect of subsequent events on
financial statements and on auditor’s report. Auditor should perform procedures
designed to obtain sufficient appropriate audit evidence that all events up to the
date of auditor’s report that may require adjustment of, or disclosure in financial
statements have been identified
• Procedures to identify events that may require adjustment of, or disclosure in
financial statements would be performed as near as practicable to the date of
auditor’s report
• When Auditor becomes aware of events which materially affect financial
statements, the auditor should consider whether such events are properly
accounted for in financial statements
• When the management does not account for such events that auditor believes
should be accounted for, auditor should express a qualified opinion or an adverse
opinion, as appropriate
SA 570: Going Concern
• Going concern assumption is a fundamental principle in the preparation of financial
statements. Management should assess entity’s ability to continue as a going
concern even if the applicable financial reporting framework does not include an
explicit requirement
• Auditor should evaluate appropriateness of management’s use of going concern
assumption in preparation of financial statements and conclude whether there is a
material uncertainty about entity’s ability to continue as a going concern that need
to be disclosed in financial statements
• When planning and performing audit procedures and in evaluating the results
thereof, auditor should perform further audit procedures when events or conditions
are identified that cast significant doubt on the entity’s ability to continue as a going
concern. Indications of risk that continuance as a going concern may be
questionable could come from financial statements, operational activities or from
other sources
• These may be financial indicators, operating indicators or other indicators. If, on the
presence of such indication, a question arises regarding appropriateness of going
concern assumption, auditor should gather sufficient appropriate audit evidence to
attempt to resolve, to the auditor’s satisfaction, the question regarding entity’s
ability to continue in operation for foreseeable future
SA 570: Going Concern
• After procedures considered necessary have been carried out, all information
required has been obtained, and effect of any plans of management and other
mitigating factors have been considered, auditor should decide whether the
question raised regarding going concern assumption has been satisfactorily resolved
• Auditor, on the basis of his/her judgment and audit evidence will report, as deemed
appropriate. In case where use of going concern assumption is appropriate but a
material uncertainty exists, then (i) if adequate disclosure is made in financial
statements, auditor should express an unmodified opinion but include an Emphasis
of Matter paragraph in the auditor’s report; (ii) if adequate disclosure is not made in
financial statements, auditor should express a qualified or adverse opinion, as
appropriate. In case where entity will not be able to continue as a going concern,
auditor should express an adverse opinion if financial statements have been
prepared on a going concern basis
• Auditor should communicate with those charged with governance when there are
identified events or conditions that may cast significant doubt on the entity’s ability
to continue as a going concern
SA 580: Written Representations
• Written representations are written statements used to corroborate the validity of the
premises, relating to management’s responsibilities, on which an audit is conducted;
and other audit evidence obtained with regard to specific assertions in financial
statements
• Written representations in this context do not include financial statements, the
assertions therein, or supporting books and records
• To request written representations from management with appropriate responsibilities
for financial statements and knowledge of matters concerned
• To request management to provide a written representation that it has fulfilled its
responsibility for the preparation and presentation of financial statements as set out in
the terms of the audit engagement; and in accordance with applicable financial
reporting framework; designing, implementing and maintaining of adequate internal
control system; and completeness of information made available to the auditor
• To determine relevant parties from whom general and specific written representations
are to be requested
• To evaluate the reliability of written representations and in case of doubt, should
reconsider the reliability of other written representations and, take appropriate action.
A management representation letter should be addressed to the auditor containing
relevant information and be appropriately dated and signed
SA 580: Written Representations
• A management representation letter should ordinarily be signed by members of
management who have primary responsibility for the entity and its financial aspects,
e.g., Managing Director, Finance Director. Auditor should disclaim an opinion on
financial statements when the requested general written representations are not
provided or are unreliable, and the auditor is unable to obtain sufficient appropriate
audit evidence
SA 600 (AAS 10): Using the work of Another Auditor
(Revised SA 600 on Special considerations – Audits of Group Financial Statements
(Including the Work of Component Auditors) is under consideration of the Board)
• When the principal auditor uses the work of another auditor, the principal auditor
should determine how the work of other auditor will affect the audit
• Auditor should consider professional competence of other auditor in the context of
specific assignment if the other auditor is not a Chartered Accountant. Auditor
should inform other auditor of matters such as areas requiring special
consideration, procedures for identification of inter–component transactions and
significant accounting, auditing and reporting requirements
• Auditor should consider significant findings of other auditor. There should be
proper co–ordination and communication between the two auditors
• When the principal auditor concludes that work of other auditor cannot be used
and s/he has not been able to perform sufficient additional procedures regarding
financial information of the component audited by other auditor, s/he should
express a qualified opinion or disclaimer of opinion because there is a limitation on
the scope of audit
• The principal auditor would not be responsible in respect of the work entrusted to
other auditors
SA 610: Using the work of Internal Auditors
• This SA deals with the external auditor’s responsibilities regarding the work of internal
auditors when the external auditor has determined, in accordance with SA 315, that
the internal audit function is likely to be relevant to the audit
• The objectives of the external auditor, where the entity has an internal audit
function that the external auditor has determined is likely to be relevant to the
audit, are to determine whether, and to what extent, to use specific work of the
internal auditors and if so, whether such work is adequate for the purposes of the
audit
• External auditor should determine whether and to what extent to use the work of
the internal auditors. In determining whether the work of the internal auditors is
likely to be adequate for purposes of the audit, the external auditor shall evaluate
the objectivity of the internal audit function, the technical competence of the
internal auditors, whether the work of the internal auditors is likely to be carried
out with due professional care and whether there is likely to be effective
communication between the internal auditors and the external auditor
• In order for the external auditor to use specific work of the internal auditors, the
external auditor shall evaluate and perform audit procedures on that work to
determine its adequacy for the external auditor’s purposes
SA 610: Using the work of Internal Auditors
• To determine the adequacy of specific work performed by the internal auditors for
the external auditor’s purposes, the external auditor shall evaluate whether the
work was performed by internal auditors having adequate technical training and
proficiency, the work was properly supervised, reviewed and documented,
adequate audit evidence has been obtained to enable the internal auditors to draw
reasonable conclusions, conclusions reached are appropriate in the circumstances
and any reports prepared by the internal auditors are consistent with the results of
the work performed and any exceptions or unusual matters disclosed by the
internal auditors are properly resolved
• When the external auditor uses specific work of the internal auditors, the external
auditor shall document conclusions regarding the evaluation of the adequacy of
the work of the internal auditors, and the audit procedures performed by the
external auditor on that work
SA 610: Using the work of Internal Auditors
• To determine the adequacy of specific work performed by the internal auditors for
the external auditor’s purposes, the external auditor shall evaluate whether the
work was performed by internal auditors having adequate technical training and
proficiency, the work was properly supervised, reviewed and documented,
adequate audit evidence has been obtained to enable the internal auditors to draw
reasonable conclusions, conclusions reached are appropriate in the circumstances
and any reports prepared by the internal auditors are consistent with the results of
the work performed and any exceptions or unusual matters disclosed by the
internal auditors are properly resolved
• When the external auditor uses specific work of the internal auditors, the external
auditor shall document conclusions regarding the evaluation of the adequacy of
the work of the internal auditors, and the audit procedures performed by the
external auditor on that work
 SA 620: Using the Work of an Auditor’s Expert
• This SA deals with the auditor’s responsibilities regarding the use of an individual or
organization’s work in a field of expertise other than accounting or auditing, when that
work is used to assist the auditor in obtaining sufficient appropriate audit evidence
• 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
• The objectives of the auditor are to determine whether to use the work of an auditor’s
expert and if using the work of an auditor’s expert, to determine whether that work are
adequate for the auditor’s purposes
• If expertise in a field other than accounting or auditing is necessary to obtain sufficient
appropriate audit evidence, the auditor shall determine whether to use the work of an
auditor’s expert
• The nature, timing and extent of the auditor’s procedures with respect to the requirement
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 the nature of the
matter to which that expert’s work relates, the risks of material misstatement in the
matter to which that expert’s work relates, the significance of that expert’s work in the
context of the audit, the auditor’s knowledge of and experience with previous work
performed by that expert and whether that expert is subject to the auditor’s firm’s quality
control policies and procedures
 SA 620: Using the Work of an 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
• The auditor shall agree, in writing when appropriate, on the following matters with the
auditor’s expert:
• The nature, scope and objectives of that expert’s work;
• The respective roles and responsibilities of the auditor and that expert;
• The nature, timing and extent of communication between the auditor and that expert,
including the form of any report to be provided by that expert; and
• The need for the auditor’s expert to observe confidentiality requirements
• The auditor shall evaluate the adequacy of the auditor’s expert’s work for the auditor’s
purposes, including:
• The relevance and reasonableness of that expert’s findings or conclusions, and their
consistency with other audit evidence;
 SA 620: Using the Work of an Auditor’s Expert
• 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
• 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
• 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
 SA 700 (Revised): Forming an Opinion and Reporting on Financial
Statements

• Auditor should form an opinion on the financial statements based on an evaluation of the
conclusions drawn from the audit evidence obtained; and express clearly that opinion
through a written report that also describes the basis for the opinion

• The auditor shall express an unmodified opinion when the auditor concludes that the
financial statements are prepared, in all material respects, in accordance with the
applicable financial reporting framework

• If the auditor concludes that, based on the audit evidence obtained, the financial
statements as a whole are not free from material misstatement; or is unable to obtain
sufficient appropriate audit evidence to conclude that the financial statements as a whole
are free from material misstatement, the auditor shall modify the opinion in the auditor’s
report in accordance with SA 705
 SA 700 (Revised): Forming an Opinion and Reporting on Financial
Statements

• Auditor’s report includes basic elements such as Title, Addressee, Opening or introductory
paragraph, Management’s Responsibility for the Financial Statements, Auditor’s
Responsibility, Auditor’s Opinion, Other Reporting Responsibilities, Signature of the
Auditor, Date of the Auditor’s Report and Place of Signature. If the auditor is required by
any law or regulation to use a specific layout or wording of the auditor’s report, the
auditor’s report shall refer to SA only if the auditor’s report includes, at a minimum, each
of the elements prescribed in this SA

• If an auditor is required to conduct an audit in accordance with the SAs issued by the ICAI,
but may additionally have complied with the International Standards on Auditing (ISAs) in
the conduct of the audit, the auditor’s report may refer to ISAs in addition to the national
auditing standards only if conditions specified in this SA are complied with
 SA 705 (Issued): Modification to the opinion in the Independent
Auditor’s Report
• Auditor is responsible to issue an appropriate report in circumstances when, in forming an
opinion in accordance with SA 700 (Revised), the auditor concludes that a modification to
the auditor’s opinion on the financial statements is necessary
• The objective of the auditor is to express clearly an appropriately modified opinion on the
financial statements that is necessary when the auditor concludes, based on the audit
evidence obtained, that the financial statements as a whole are not free from material
misstatement; or the auditor is unable to obtain sufficient appropriate audit evidence to
conclude that the financial statements as a whole are free from material misstatement
• The auditor shall express a qualified opinion when the auditor, having obtained sufficient
appropriate audit evidence, concludes that misstatements, individually or in the
aggregate, are material, but not pervasive, to the financial statements; or the auditor is
unable to obtain sufficient appropriate audit evidence on which to base the opinion, but
the auditor concludes that the possible effects on the financial statements of undetected
misstatements, if any, could be material but not pervasive
 SA 705 (Issued): Modification to the opinion in the Independent
Auditor’s Report
• The auditor shall express an adverse opinion when the auditor, having obtained sufficient
appropriate audit evidence, concludes that misstatements, individually or in the
aggregate, are both material and pervasive to the financial statements
• The auditor shall disclaim an opinion when the auditor is unable to obtain sufficient
appropriate audit evidence on which to base the opinion, and the auditor concludes that
the possible effects on the financial statements of undetected misstatements, if any, could
be both material and pervasive
• When the auditor modifies the opinion on the financial statements, the auditor shall, in
addition to the specific elements required by SA 700 (Revised), include a paragraph in the
auditor’s report that provides a description of the matter giving rise to the modification
• When the auditor expects to modify the opinion in the auditor’s report, the auditor shall
communicate with those charged with governance the circumstances that led to the
expected modification and the proposed wording of the modification
 SA 706 (Issued): Emphasis of Matter Paragraphs and Other Matter
Paragraphs in the Independent Auditor’s Report
• The objective of the auditor, having formed an opinion on the financial statements, is to
draw users’ attention, when in the auditor’s judgment it is necessary to do so, by way of
clear additional communication in the auditor’s report, to a matter, although appropriately
presented or disclosed in the financial statements, that is of such importance that it is
fundamental to users’ understanding of the financial statements; or as appropriate, any
other matter that is relevant to users’ understanding of the audit, the auditor’s
responsibilities or the auditor’s report
• If the matter refers to information presented or disclosed in the financial statements, the
auditor shall include an Emphasis of Matter paragraph (immediately after the Opinion
paragraph) in the auditor’s report provided the auditor has obtained sufficient appropriate
audit evidence that the matter is not materially misstated in the financial statements
• If the auditor considers it necessary to communicate a matter other than those that are
presented or disclosed in the financial statements that, in the auditor’s judgment, is relevant
to users’ understanding of the audit, the auditor’s responsibilities or the auditor’s report and
this is not prohibited by law or regulation, the auditor shall do so in a paragraph in the
auditor’s report, with the heading “Other Matter”, or other appropriate heading
• If the auditor expects to include an Emphasis of Matter or an Other Matter paragraph in the
auditor’s report, the auditor shall communicate with those charged with governance
regarding this expectation and the proposed wording of this paragraph
 SA 710 (Revised): Comparative Information– Corresponding Figures
and Comparative Financial Statements
• The objectives of the auditor are to obtain sufficient appropriate audit evidence about
whether the comparative information included in the financial statements has been
presented, in all material respects, in accordance with the requirements for comparative
information in the applicable financial reporting framework; and to report in accordance
with the auditor’s reporting responsibilities
• The frameworks and methods of presentation that are referred to in this SA are
corresponding figures where amounts and other disclosures for preceding period are
included as an integral part of current period financial statements and Comparative
Financial Statements where amounts and other disclosures for preceding period are
included for comparison with financial statements of current period
• Auditor should obtain sufficient appropriate audit evidence that the comparative
information meet the requirements of relevant financial reporting framework. This
involves verifying whether accounting policies used for corresponding figures are
consistent with those of current period and whether corresponding figures agree with
amounts and other disclosures presented in prior period
 SA 710 (Revised): Comparative Information– Corresponding Figures
and Comparative Financial Statements
• If the financial statements of the prior period were audited by a predecessor auditor and
the auditor is permitted by law or regulation to refer to the predecessor auditor’s report
on the corresponding figures and decides to do so, the auditor shall state in an Other
Matter paragraph in the auditor’s report that the financial statements of the prior period
were audited by the predecessor auditor; the type of opinion expressed by the
predecessor auditor and, if the opinion was modified, the reasons therefore; and the date
of that report. When auditor’s report on prior period, as previously issued, included a
qualified opinion or a disclaimer of opinion or an adverse opinion and concerned matter is
not resolved, auditor’s report should also be modified regarding corresponding figures
• When prior period financial statements are not audited, incoming auditor should state the
fact in auditor’s report in an Other Matter paragraph
• When comparative financial statements are presented, the auditor’s opinion shall refer to
each period for which financial statements are presented and on which an audit opinion is
expressed
 SA 720: The Auditor’s Responsibility in Relation to Other Information
in Documents containing Audited Financial Statements
• The objective of the auditor is to respond appropriately when documents containing
audited financial statements and auditor’s report thereon include other information that
could undermine the credibility of those financial statements and auditor’s report
• The auditor is not required to give his/ her opinion on other information, not having any
responsibility of determining whether or not other information is properly stated, if there
is no separate requirement in particular circumstance of the engagement. However, the
auditor reads other information because the credibility of audited financial statements
may be undermined by material inconsistencies between audited financial statements and
other information and if found, to determine whether the audited financial statements or
other information needs to be revised
• To make appropriate arrangements with management or those charged with governance
to obtain the other information prior to the date of the auditor’s report. If material
inconsistencies are identified prior to the date of the auditor’s report, and the revision of
audited financial statement is necessary and the management refuses to make the
revision, auditor is required to modify his/ her opinion. Further, if revision of other
information is necessary, and management refuses to make the revision, auditor is
required to communicate the matter to those charged with governance and also provide
paragraph in the auditor’s report on other matter; or withdraw from the engagement, if
permitted by laws or regulations
 SA 720: The Auditor’s Responsibility in Relation to Other Information
in Documents containing Audited Financial Statements
• If material inconsistencies are identified subsequent to the date of the auditor’s report,
and revision of audited financial statement is necessary, the auditor is required to perform
the procedures given in SA 560, “Subsequent Events”. If, on reading other information for
the purpose of identifying material inconsistencies, auditor becomes aware of an
apparent material misstatement of fact, auditor should discuss the matter with
management and if the management refuse to correct it, communicate the same to those
charged with governance and take further appropriate actions
 SA 800: Special Considerations — Audits of Financial Statements
Prepared in Accordance with Special Purpose Frameworks
• The objective of the auditor, when applying SAs in an audit of financial statements
prepared in accordance with a special purpose framework, is to address appropriately the
special considerations that are relevant to: (a) The acceptance of the engagement; (b) The
planning and performance of that engagement; and (c) Forming an opinion and reporting
on the financial statements
• In an audit of special purpose financial statements, the auditor shall obtain an
understanding of: (a) The purpose for which the financial statements are prepared; (b)
The intended users; and (c) The steps taken by management to determine that the
applicable financial reporting framework is acceptable in the circumstances
• The auditor shall determine whether application of other SAs requires special
consideration in the circumstances of the engagement. In the case of financial statements
prepared in accordance with the provisions of a contract, the auditor shall obtain an
understanding of any significant interpretations of the contract that management made in
the preparation of those financial statements. An interpretation is significant when
adoption of another reasonable interpretation would have produced a material difference
in the information presented in the financial statements
 SA 800: Special Considerations — Audits of Financial Statements
Prepared in Accordance with Special Purpose Frameworks
• In the case of financial statements prepared in accordance with the provisions of a
contract, the auditor shall evaluate whether the financial statements adequately describe
any significant interpretations of the contract on which the financial statements are based
• The auditor’s report on special purpose financial statements shall include an Emphasis of
Matter paragraph alerting users of the auditor’s report that the financial statements are
prepared in accordance with a special purpose framework and that, as a result, the
financial statements may not be suitable for another purpose
SA 805: Special Considerations– Audits of Single Financial Statements
and Specific Elements, Accounts or Items of a Financial Statement
• The objective of the auditor, when applying SAs in an audit of a single financial
statement or of a specific element, account or item of a financial statement, is to
address appropriately the special considerations that are relevant to: (a) acceptance of
the engagement; (b) planning and performance of that engagement; and (c) Forming
an opinion and reporting on the single financial statement or on the specific element,
account or item of financial statement
• SA 200 requires the auditor to comply with all SAs relevant to the audit. If the auditor
is not also engaged to audit the entity’s complete set of financial statements, the
auditor shall determine whether the audit of a single financial statement or of a
specific element of those financial statements in accordance with SAs is practicable
• SA 210 requires the auditor to determine the acceptability of the financial reporting
framework applied in the preparation of the financial statements. This shall include
whether application of the financial reporting framework will result in a presentation
that provides adequate disclosures to enable the intended users to understand the
information conveyed in the financial statement or the element, and the effect of
material transactions and events on the information conveyed in the financial
statement or the element
SA 805: Special Considerations– Audits of Single Financial Statements
and Specific Elements, Accounts or Items of a Financial Statement
• The auditor shall consider whether the expected form of opinion is appropriate in the
circumstances
• The auditor shall apply the requirements in SA 700, adapted as necessary in the
circumstances of the engagement
• If the auditor undertakes an engagement to report on a single financial statement or
on a specific element of a financial statement in conjunction with an engagement to
audit the entity’s complete set of financial statements, the auditor shall express a
separate opinion for each engagement. If the opinion in the auditor’s report on an
entity’s complete set of financial statements is modified, or that report includes an
Emphasis of Matter paragraph or an Other Matter paragraph, the auditor shall
determine the effect that this may have on the auditor’s report on a single financial
statement or on a specific element of those financial statements
SA 810: Engagements to Report on Summary Financial Statements
• SA 810 deals with the auditor’s responsibilities when undertaking an engagement to
report on summary financial statements derived from financial statements audited in
accordance with SAs by that same auditor
• The objectives of the auditor are to: (a) Determine whether it is appropriate to accept
the engagement to report on summary financial statements; (b) Form an opinion on
the summary financial statements based on an evaluation of the conclusions drawn
from the evidence obtained; and (c) Express clearly that opinion through a written
report that also describes the basis for that opinion
• The auditor shall, ordinarily, accept an engagement to report on summary financial
statements in accordance with this SA only when the auditor has been engaged to
conduct an audit in accordance with SAs of the financial statements from which the
summary financial statements are derived
• Before accepting an engagement to report on summary financial statements, the
auditor shall: (a) Determine whether the applied criteria are acceptable; (b) Obtain the
agreement of management that it acknowledges and understands its responsibility
• The auditor shall perform the prescribed procedures, and any other procedures that
the auditor may consider necessary, as the basis for the auditor’s opinion on the
summary financial statements
SA 810: Engagements to Report on Summary Financial Statements
• When the auditor has concluded that an unmodified opinion on the summary financial
statements is appropriate, the auditor’s opinion shall, unless otherwise required by law or
regulation, use one of the phrases enumerated in this SA
• The auditor’s report on the summary financial statements may be dated later than the date
of the auditor’s report on the audited financial statements. In such cases, the auditor’s
report on the summary financial statements shall state that the summary financial
statements and audited financial statements do not reflect the effects of events that
occurred subsequent to the date of the auditor’s report on the audited financial statements
that may require adjustment of, or disclosure in, the audited financial statements
• If the summary financial statements are not consistent, in all material respects, with or are
not a fair summary of the audited financial statements, in accordance with the applied
criteria, and management does not agree to make the necessary changes, the auditor shall
express an adverse opinion on the summary financial statements
• If the audited financial statements contain comparatives, but the summary financial
statements do not, the auditor shall determine whether such omission is reasonable in the
circumstances of the engagement
• If the auditor becomes aware that the entity plans to state that the auditor has reported on
summary financial statements in a document containing the summary financial statements,
but does not plan to include the related auditor’s report, the auditor shall request
management to include the auditor’s report in the document