audit reports under cos act 2013 and sa 700 revised april 15
TRANSCRIPT
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AUDIT REPORTS IN Cos Act 2013 FRF
ASHOK SETH, LucknowB. Sc, FCA, DISA (ICA)
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Standards for Reporting SA 700 (Revised) Forming an Opinion &
Reporting on FS SA 705 Modification to the Opinion in IAR SA 706 Emphasis of Matter Paragraphs in IAR SA 710 (Revised) Comparative Information SA 2400 (Review) Engagement to review FS SA 3400 The Examination of Prospective FS SA 4400 To perform Agreed upon Procedures SA 4410 Engagement to compile Financial
Information
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AS 700 (Revised) EFFECTIVE FROM
For ALL audits relating to accounting periods beginning on or after 1st April 2011.
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Forming an Opinion on the FS
Shall form an opinion whether FS are prepared in all material respects in accordance with applicable Financial Reporting Framework (FRF)
Contd.
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Forming an Opinion- Contd.
to form that opinion, the auditor shall conclude as to whether he has obtained reasonable assurance about whether the FS as a whole are free from material misstatement, whether due to fraud or error. That conclusion shall take into account: That the Auditor’s conclusions is
Contd.30 Aprrl 2015 CA Ashok Seth 5
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Forming an Opinion- Contd.
in accordance with SA 330, whether sufficient appropriate audit evidence has been obtained;
in accordance with SA 450, whether uncorrected misstatements are material, individually or in aggregate; &
The evaluations required by Para 12-15.
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Auditor shall evaluate whether
The FS adequately disclose the significant accounting policies selected and applied;
The accounting policies selected and applied are consistent with the applicable financial reporting framework and are appropriate;
The accounting estimates made by management are reasonable; Contd.
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Auditor shall evaluate whether- Contd. The information presented in the financial
statements is relevant, reliable, comparable and understandable;
The financial statements provide adequate disclosures to enable the intended users to understand the effect of material transactions and events on the information conveyed in the financial statements; and (Ref: Para. A4)
The terminology used in the financial statements, including the title of each financial statement, is appropriate
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FORM OF OPINION
Unmodified Opinion When FS in all material respects
prepared in accordance with FRF Modified Opinion- SA 705
If based upon the audit evidence FS as a whole are not free from material misstatement
If unable to obtain sufficient appropriate audit evidence
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for Audits Conducted in Accordance with S A
Title Addressee Introductory paragraph Management Responsibility for the FS Auditor’s Responsibility Auditor’s Opinion Other Reporting Responsibilities Date, Place and Signature of the Auditor
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Title & Addressee
Title (A15) “Independent Auditors Report”
Addressee (A16) As required by the circumstances Normally addressed to those for whom
the report is prepared Report on the Standalone Financial
Statements
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Introductory paragraph (A17 to A19)
SHALL: - Identify the entity State that the FS have ben audited Identify the title of each statement that
comprises FS Refer to summary of Significant
Accounting Policies and other explanatory information
Specify the date or period covered by each FS
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Management Responsibility for the FS
Use the term that is appropriate in legal or regulatory framework applicable May not be word “management” May be “those charged with governance” Board of Directors under Co Act
report shall include a section with the heading “Management’s [or other appropriate term] Responsibility for the FS Contd.
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AUDITOR’S RESPONSIBILITY
The shall include a section with the heading “Auditor’s Responsibility”.
The auditor’s report shall state that the responsibility of the auditor is to
express an opinion on the financial statements based on the audit.
Contd.
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Audit Report Shall also describe that: -
An audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of accounting estimates made by management, as well as the overall presentation of the financial statements
whether the auditor believes that the audit evidence the auditor has obtained is sufficient and appropriate to provide a basis for the auditor’s opinion
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Auditor’s Opinion- Section with the heading “Opinion” In an unmodified opinion in accordance with
a fair presentation framework, the auditor’s opinion shall, unless otherwise required by law or regulation, use one of the following phrases, (A26-A32) (a) The financial statements present fairly, in all
material respects, in accordance with [the applicable financial reporting framework]; or
(b) The financial statements give a true and fair view of in accordance with [the applicable financial reporting framework].
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Other Reporting Responsibilities
these other reporting responsibilities shall be addressed in a separate section in the auditor’s report that shall be sub-titled “Report on Other Legal and Regulatory Requirements,” or otherwise as appropriate to the content of the section. (A33-A34)
Contd.30 Aprrl 2015 CA Ashok Seth 17
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Signatures, Date, Place Shall be Signed The auditor’s report shall be dated no earlier
than the date on which the auditor has obtained sufficient appropriate audit evidence, including evidence that: (a) All the statements in the FS, including the
related notes, have been prepared; and (b) Those with the recognised authority have
asserted that they have taken responsibility for those FS
Location where the Report is signed
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Auditor’s Report Prescribed by Law or Regulation
When the differences between the legal or regulatory requirements and SAs relate only to the layout and wording of the auditor’s report and, at a minimum, each of the elements identified in paragraph 43(a)-(i) are included in the auditor’s report, the auditor’s report may refer to Standards on Auditing. Otherwise Auditor may not refer to SA
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Illustration -1 (Under Cos Act 2103 FRF) SA 700
The report is unmodified and include an Emphasis of Matter paragraph and Other Matter(s) paragraph
including the responsibility to report on internal financial controls pursuant to section 143(3)(i) of the Companies Act 2013
other reporting responsibilities required under the Cos Act 2013 and the Rules thereunder.
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Illustration -2 (Under Cos Act 2103 FRF) SA 700
The report is unmodified and include an Emphasis of Matter paragraph and Other Matter(s) paragraph
Does not include the responsibility to report on internal financial controls pursuant to section 143(3)(i) of the Companies Act 2013
other reporting responsibilities required under the Cos Act 2013 and the Rules thereunder.
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SA 705 When Modification Required
The auditor concludes that, based on the audit evidence obtained, the FS as a whole are not free from material misstatement; or (Ref: Para. A2-A7)
The auditor is unable to obtain sufficient appropriate audit evidence to conclude that the FS as a whole are free from material misstatement. (Ref: Para. A8-A12)
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SA 705- Modification to the Opinion in the IAR
Three Types of Modified Opinions: - Qualified Opinion (Subject to True & fair) Adverse Opinion (Not true & Fair) Disclaimer Opinion
Refer Para A1 for decision regarding which type of modified opinion is appropriate depends upon
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Decision Matrix
Nature of Matter Giving
Rise to theModification
Auditor’s Judgment about the Pervasiveness of the Effects or
Possible Effects on the FSMaterial but Not
PervasiveMaterial and
Pervasive
FS arematerially misstated
Qualified Opinion Adverse Opinion
Inability to obtain sufficient
appropriate audit evidence
Qualified Opinion Disclaimer of opinion
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Modified Opinion- Form & Content
Shall, include a Para in the report that provides a description of the matter giving rise to the modification.
Place this Para immediately before the opinion Para in the report & use the heading “Basis for Qualified Opinion”, “Basis for Adverse Opinion”, or “Basis for Disclaimer of Opinion”, as appropriate. (Ref: Para. A17)
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Modified Opinion- Form & Content- Contd.
material misstatement that relates to specific amounts in the FS (including quantitative disclosures), the auditor shall include in the basis for modification Para a description & quantification of the financial effects of the misstatement, unless impracticable. If it is not practicable to quantify the financial effects, the auditor shall so state in the basis for modification paragraph
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Modified Opinion- Form & Content- Contd. If there is a material misstatement of the FS
that relates to narrative disclosures, the auditor shall include in the basis for modification Para an explanation of how the disclosures are misstated Describe in the basis for modification Para the
nature of the omitted information; and Unless prohibited by law, include the omitted
disclosures, provided it is practicable to do so and the auditor has obtained sufficient appropriate audit evidence about the omitted information.
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Modified Opinion- Form & Content- Contd.
If the modification results from an inability to obtain sufficient appropriate audit evidence, the auditor shall include in the basis for modification paragraph, the reasons for that inability.
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Qualified Opinion- material misstatement
State that, except for the effects of the matter(s) described in the Basis for Qualified Opinion paragraph
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Qualified Opinion- Inability to obtain sufficient evidence
shall use the corresponding phrase “except for the possible effects of the matter(s)...” for the modified opinion.
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Adverse Opinion
State- because of the significance of the matter of the matter(s) described in the Basis for Adverse Opinion paragraph when reporting in a fair presentation
framework -The FS do not present fairly, (or give a true and fair view) in accordance with the applicable FRF; or
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Disclaimer Opinion- Inability to obtain sufficient evidence
shall state in the opinion paragraph that because of the significance of the matter(s)
described in the Basis for Disclaimer of Opinion paragraph, the auditor has not been able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion; and, accordingly,
the auditor does not express an opinion on the financial statements
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Description of Auditor’s Responsibility
When the Auditor Expresses a Qualified or Adverse Opinion the auditor shall amend the description
of the auditor’s responsibility to state that the auditor believes that the audit evidence the auditor has obtained is sufficient and appropriate to provide a basis for the auditor’s modified audit opinion.
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Description of Auditor’s Responsibility
When the Auditor Disclaims an Opinion due to an inability to obtain sufficient
appropriate audit evidence- shall amend the introductory paragraph of the report to state that the auditor was engaged to audit the FS. The auditor shall also amend the description of the auditor’s responsibility
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Contd. and the description of the scope of the
audit to state only the following: “Our responsibility is to express an opinion on the FS based on conducting the audit in accordance with SA issued by the ICAI. Because of the matter(s) described in the Basis for Disclaimer of Opinion paragraph, however, we were not able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion”.
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Illustration -3 (Under Cos Act 2103 FRF) SA 705
The report is having QUALIFIED OPINION with respect to the true and fair view of the financial statements on account of misstatement of inventories. The misstatement is deemed to be material but not pervasive to the financial statements
and include Other Matter(s) paragraph
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Illustration -4 (Under Cos Act 2103 FRF) SA 705
The report is having QUALIFIED OPINION with respect to the true and fair view of the financial statements as auditor was unable to obtain sufficient appropriate audit evidence. The misstatement is deemed to be material but not pervasive to the financial statements
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Illustration -5 (Under Cos Act 2103 FRF) SA 705
Has issued an Adverse opinion on the true and fair view of the financial statements on account of events that indicate a material uncertainty that may cast significant doubt on the Company’s ability to continue as a going concern which has not been disclosed in the financial statements (and notes thereto)
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Illustration -6 (Under Cos Act 2103 FRF) SA 705 Has given a disclaimer of opinion on the FS on
account of the fact that the auditor was unable to obtain sufficient appropriate audit evidence about multiple elements of the financial statements. That is, the auditor was unable to obtain audit evidence about the entity’s inventories and accounts receivable. The possible effects of this inability to obtain sufficient appropriate audit evidence are deemed to be both material and pervasive to the financial statements
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Emphasis of Matter Para and Other Matter Para- SA 706
Additional communication in the auditor’s report to draw users’ attention to a matter or matters presented or disclosed in the FS or other than those presented
that are of such importance that they are fundamental to users’ understanding of the FS
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When Auditor includes Emphasis of matter Paragraph Include it immediately after the Opinion
paragraph Use the heading “Emphasis of Matter”, or
other appropriate heading Include in the Para a clear reference to the
matter being emphasized and to where relevant disclosures that fully describe the matter can be found in the FS; and
Indicate that the auditor’s opinion is not modified in respect of the matter emphasized.
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THANK YOU
Please mail your comments to
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