Transcript for:
CA Final Advanced Auditing Revision Marathon Notes

let's begin the ca final Advanced auditing revision Marathon for the new scheme May 2024 or November 2024 exams onwards F this marathon is going to be in three parts and right now that you're watching is part number one and by the way please watch this introduction don't hurry up yourself directly going to the time stamp of the standard okay at least watch revision comfortably with a cool mindset don't make hurry up yourself okay now this uh you know I'm going to upload this entire revision approximately for 27 28 hours it will come 28 probably so part one right now that you're watching is approximately 12 hours where we are having we are covering 14 standards we are covering 14 standards I don't know how many of you have seen this weightage section wise skill wise there's a document which Institute have released in that in that they have clearly mentioned you know the entire weightage is broadly divided into five categories and what are the important chapters so that if you study them you can damn sure secure 60 plus if not 60 plus at least 55 plus you can for sure secure getting it just 34 syllabus if you study so if you look at so one chapter one to chapter 11 in The Institute book are completely dealing with standards totally we are having 46 standards 35 standards on auditing three special purpose framework related standards on auditing one standard on quality control two review standard two related Services three Assurance standards likewise we have totally 46 standards and we are discussing all the 46 standards in our revision class so 1 to 11 and finally if you look at the 19th which is ethics chapter these 1 to 11 nothing but complete standards engagement and quality control standards we call it as and ethics if at all as for the Institute book 11 121+ 19 totally 12 chapters if you study 75 to 80 marks of the paper without any doubt you can attempt without any doubt you can attempt anyhow anyhow uh so that point clearly I spoke in audit strategy video there's a video CA final audit stry May 24 you just type this you will find the video which latestly uploaded in the month of March 20 24 so part one we are going to cover 14 standards and these are the standards I'm covering before you proceed further kindly kindly listen to it there are certain important instructions you must follow in order to get maximum benefit out of this revision class don't watch new standards directly like what are the new standards right now this is part one right in part two we are covering 22 standards approximately within that review standard specialized areas related services Assurance standards we are covering getting it so they are all being covered in part two so directly you will also find my part two video on the YouTube You'll directly open there many of the students directly start watching the newly added standards without understanding basic things how these standards work in all these standards the preface says standards on auditing you have to be strong yet without that you cannot understand these standards first cross check yourself whether you are very strong in standards and auditing or not if at all you're not standard if if at all you don't understand as a whole standards and auditing I challenge 24 you cannot understand fully I challenge 85 810 you cannot understand fully if at all you're not good at standards and a okay 4,000 series 3,000 series to some extent you can understand even if at all you're not good at remaining standards but there is a there is a clever way there is a clear way why I have there's a clearcut log why I have uploaded in this I have discussed this entire revision class in this particular order so first to finish all of you part one that in the same order getting it like whatever the video you're watching in the same order you proceed further don't skip directly to some some particular topic watch in the same a invest your 25 hours of time I will promise you you have never listened to audit like this we are discussing in this class each and every topic we also discussed how exams exams how questions will come in exams how on each and every topic an McQ can come a descriptive question can come you will not find that many combination of questions even in a full-fledged question Mar also that Assurance I can give you and in the part two once you finish part one then go to the part two and finish the remaining standards anyhow for part two also there is an introduction like this getting it and follow time stamp order that's what I told watch at standard speed some of you right now watching at 1.25 1.5 playback speed kindly reduce it to standard speed one already this is a revision class which itself means we already are taking it fast your objective is understand and absorbing that is your objective your objective is not finishing the video your objective is listening and understanding something out of it main you know always remember your objective to achieve that objective what you have to do listen at standard speed and in this in this particular Marathon I have used my smart notes for CF final which is a notes getting it you will find my smart notes in our website for CSM there is a website like this okay so in this PDF resources CF final if you go so if you open CF final you will find here all our booklets PDF you can download and take print whoever want so our main materials question Mar McQ booklet and finally you know even smart notes also we have given if at all you want to place an hard copy just open this books just open this book click on the word smart notes okay you will find like this 450 this is inclusive of career charge you can place order but I what I recommend you you know whatever book you are very comfortable with stick to that book only whenever you're watching revision classes on the YouTube stick to the same book what you're following preferably preferably but I'm telling you my book is no doubt is 100% similar to IC book getting it though it is a smart notes we cover full content in this for sure getting it so if at all while watching this class you felt very connected with the book also then you can place an order otherwise if at all you feel uh you can study on your own whatever the material that you're using absolutely you can use that remember through this revision class what I'm going to give you is an absolute Clarity that you didn't had earlier in audit and I'm I'm very on a humble note I'm telling you you will get a Clarity on audit CF final like never before and even have taken so seriously these record this time revision class so seriously I've record you know it's a face to face class which have taken recently in CF in Chennai face to face the same session is recorded and we are uploading for you okay why late continue watching further all the very best continue watching with fundamentals okay so let's begin with fundamentals of audit see there are some fundamental terms that you need to understand before we discuss the actual subject there are some fundamental terminology that we must have a decent Clarity on initial I'll go little slow gradually I increase the speed until you all come in my face okay so I'm not focusing on definition of audit because we all know the definition of audit but in this definition there are some key terms which you need to understand one is financial information this is a very important key term audit is an independent examination of financial information what do you mean by financial information financial information can be expressed as it can be divided into two parts books of accounts and financial statements this is what auditor typically examines so the auditor typically examines books of accounts and financial statements books of accounts includes the supporting documents and vouchers books of accounts by definition includes supporting documents and vouchers bills invoices whatever you see company Act definition of books this is what they Define in company act they have defined books of accounts definition you see so all sums of money received and expended and matters in relation there to what do you mean by matters in relation there to suppose if you make a purchase that related purchase we have so much of documentation like uh it may be in electronic form or it may be in physical form some medium and small scale concerns they still maintain records in physical format accounts in electronic format of course they use some tally or QuickBooks something they'll be using getting it but some vouchers and all invoices and all it will be in the still physical format okay so all that purchase voucher purchase invoices Goods received note EV Bill okay all these are called as matters related there to getting it they're supporting documents so by definition books of accounts include supporting documents and vouchers auditor has to examine this and auditor has to examine ultimately the financial statements for the financial statements the background is what books of accounts the auditor has to typically examines this entire financial statements books of accounts supporting documents nothing but financial information getting it and then has to give an opinion see we are just we just have to give an opinion that's it so opinion means we have two types of opinions one is positive opinion and negative opinion on any context you take we give broadly two types of opinions one either positive or negative so on any particular aspect it may be a mobile phone it may be a bike or it may be a car or it may be anything air conditioner whatever auditor is giving opinion on financials that's it getting it but the types of opinions are broadly two it can be either a positive opinion or a negative opinion we call the mass unmodified opinion and a modified opinion in audit we just refer them as what unmodified opinion and modified opinion we'll go into that little while later so auditor has to verify the financial information of any entity let's now refer it as company The Entity actual auditing standards you see they don't use the word company anywhere they use the word entity at every place in auditing entire standard you don't find a word company at all in entire auditing standards 46 not just auditing entire all 46 standards you find the word entity but we popularly discuss the audit subject or accounting standard subject in the context of company form of organizations so we use the word now on wordss company for better understanding look at a company like tataa Motors or even Reliance company you take Reliance Industries they're having in the 22 23 more than or I can say near to 10 lakh CR the turnover is close to 10 lakh CR getting it so they have presented so many incomes they have given so many expenses in the profit and loss so many assets and liabilities information in the balance sheet and the Auditors are signing it so what Auditors are certifying there the above information is true and F so tell me if somebody ask me whether this phone is good or bad getting it first I need to operate it yes no first I need to operate it how much time sufficient time so that that I can give an opinion getting it you see in YouTube and all you find so many reviewers giving reviews on phones and bikes One reviewer spends five minutes on a phone another reviewer spends 15 minutes some reviewers will be doing a review on a phone after spending for one week getting it so they'll be specifically saying I've been using this for more than two weeks and now I'm giving a review detailed review now how much time sufficient to time getting it what is sufficient depends on Person to Person entity to entity company to company getting it year on year last year in the audit I might have spent 30 days this year I might have spend I might be spending some 50 days next year I might be spending some 120 days who knows so we have to verify we have to examine the financial information until we get complete information that we want and that information in auditing is called as audit evidence getting it see we want information you asking me whether the balance sheet Fe is right or wrong you're simply asking me is this balance sheet right or wrong shareholders are asking me sir can we take a decision on this balance sheet pnl company prepared the balance sheet p and give us so can we take a decision so you please tell whether it is right or wrong because directors prepared it so the numbers know 10 lakh CR they saying some number so is it right or wrong let me verify so I will verify to whatever extent possible for me until I am satisfied until I am satisfied until I get convinced in information until I get sufficient and appropriate audit evidence getting it I will verify getting it this is what exactly we learn in sa 500 auditor has to obtain sufficient appropriate evidence what is sufficient appropriate evidence nothing but Reliance is showing 10 lakh CR turnover so I ask break up April month how much may month how much all that I'll take randomly but some dates on each and every date some invoices were there I will randomly take 150 invoices the total company total invoice some 10 lakh 15 lakh invoices might have been there I will take randomly some 150 invoices and I will verify which remember I verify random invoices random is whatever I ask they have to give me any invoice number I ask they'll give me the background vouchers documents everything likewise I tested the entity I tested the company 150 times on sales only getting it 150 times I tested on sales whatever invoice number I'm rising they're just like that giving the information just like that proving that it is correct it is genuine after I verified 150 long number of invoices I am tired I'm convinced that yes sales are true and fair getting it this is what exactly auditor do you know most of the opinions that we give are unqualified opinions most of the opinions in most of the companies you take any listed company for the matter 90% more than 90 I can say unqualified opinions or or maybe you might have done articles you might have given audit reports where you just copy pasted you never observed yes or no just looked at the date changed the date and give correct but you see the opinion is unqualified why we are giving unqualified because we are unable to give qualified opinion we are unable to give adverse opinion we are unable to give disclaimer we are unable to give modified opinion that's why we are ending up giving unqualified unqualified opinion we are giving not by choice but by chance because we don't have any other option now tell me if you want to give adverse opinion on any financials they'll ask you why you want to give adverse opinion you have to show them mistake right you have to show them pervasive level of misstatement if you cannot show them if you cannot argue with the company if can you say no I want to give adver opinion only no whatever it is I don't want to bother I want to give aders opinion you have to give reason no why you give aders opinion you have to give reason also remember in auditing in audit report there is something called basis for opinion per in that per whatever opinion you give you should give reason also what reason you will mention you don't have any reason to give adverse opinion you don't have any reason to give qualified opinion you don't have any reason so since you do not have any reason for giving modified opinion you're ending up giving unqualified you tried your best to identify frauds to identify mistakes to identify material misstatements in the financials but you failed to detect getting it this is what naturally happens in audit and so we are giving qualified opinion unqualified opinion means saying that the financials are right saying that the financial statements are true and fair you can take a decision based on that getting it now these financial statements are two types these financial statements are two types one general purpose financial statements special purpose financial statements one is general purpose financials another one special purpose financials if the financial statements are prepared using special purpose framework we call them as special purpose financial statements if the financial statements are prepared using general purpose framework we call it as general purpose financial statements special purpose financial statements audit they were specifically discussed under 800 C remember under 800 series they clearly mention one word One uh if you look at the heading of 800 alone it it it do not directly say audit of special purpose financial statements it uses the word at the beginning special considerations special considerations for audit of special purpose financial statements initial letter The First beginning letter in 800 special considerations which means 800 indirectly says the audit of special purpose financial statements you can use all the auditing standards in addition to that what are the special items that you should focus on what are the special items that you should focus on when you are doing an audit of special purpose financials for audit of special purpose financials also entire 35 auditing standards will apply I'm telling you even suppose you are appointed to do audit of special purpose financial statements audit you have to give an audit report ultimately no the audit report format is same 700 format how do you plan the audit take SA 800 principle how do you decide materiality 320 principle all the auditing standards that we learned 35 standards that we know they are all majority applicable even for special purpose financial statements audit in addition to that since it is special purpose financial statements what special things that you should consider what are the additional elements that you should focus on that is what specifically covered in 800 The Heading is reflect that so A heading clearly says for special purpose audit don't think that this is the only standard this is an additional standard for special purpose financials suppose if you're doing audit of general purpose financials 800 will not apply which means up to 720 it is applicable we have standards from 200 series to 720 getting it all the standards are applicable in the context of primar general purpose financial statements for special purpose financials Additionally you have to to apply these standards earlier when I'm teaching auditing standards I used to tell very clearly this whatever auditing standards that we are discussing they are mainly predominantly applicable for general purpose financial statements audit because that time we don't have special purpose financial statements audit and all in our syllabus now I'm clearly saying you these auditing standards will apply predominantly for general purpose financials in fact that is a main reason why they were drafted when you are doing audit of special purpose financials also you can apply them getting it now so what is the special purpose framework if first of all there is something called applicable financial reporting framework what is the objective of audit you might have seen the objective of audit is to obtain reasonable Assurance whether the financial statements as a whole or free from material misstatements and whether they are prepared in accordance with applicable financial reporting framework so what is applicable financial reporting framework so what is applicable financial reporting framework what is a framework first of all rules and yeah framework is nothing but rules and regulations remember the word word framework can be used in any context getting it regulatory framework legal framework medical framework some engineering framework missionary framework so framework word is something which is General in every context now we are talking about which framework we are talking about financial reporting framework for as what framework is relevant to understand financial reporting framework is what relevant to understand what is financial reporting financial reporting is nothing but preparation and presentation of financial statements it's not just preparation but also includes presentation today we are preparing financial statements balance sheet pnl not just for our understanding in order to present it to public at large that's why the subject is called as reporting financial reporting financial reporting subject you're learning not to prepare how to how not how to prepare the accounts but how to present it to people how to report it to others getting it so preparation and presentation of financials is nothing but financial reporting now applicable for a bank the the rules and regulations for Preparation and presentation of financial statements are different from insurance company [Applause] insurance insurance company has to prepare financial statements as per irda preparation of financial statements regulations some 20202 is there as for those regulations they prepare so for insurance company applicable financial reporting framework is defined by irda for a bank the financial statements are prepared as per banking regulation Act form a Form B some some some schedules for there getting it so bank has to prepare financials as per banking regulation act so for Bank applicable financial reporting framework applicable rules and regulations for preparing and presentation of financial statements are given under banking law for an nvfc the applicable financial reporting framework is schedule 3 part three for a listed entity the applicable financial reporting framework is schedule 3 part two IND for an entity who has to prepare financial statements as per Accounting Standards 2021 because earlier it was 20 6 they were amended many times and now it is revised accounting standards were issued in 2021 that's the latest normal accounting stand not in days so normal companies applicable financial reporting framework is part one schedule three so depending upon nature of the entity depending upon nature of the entity and objective of the financial statements objective is what general purpose or special purpose depending upon the nature of entity object I of the financials whatever financial reporting framework adopted by adopted by responsible party nothing but management getting it is known as applicable financial reporting framework now you see if you understand with examples you can easily understand these terms now you can remember this you need not M up so depending upon the inw of they use the word in view of not depending in view of nature of entity and objective of the financials the financial reporting framework adopted by management for Preparation and presentation of financial statements is known as applicable financial reporting framework getting it now this applicable financial reporting framework may be again fair presentation framework or compliance framework earlier also I used to teach all these fundamentals from the beginning ATA inter level itself initially when I started this particular thing many have asked me like why this is not there in syllabus and most of the questions are coming from this many questions you know mcqs and all they're drafting with the fair presentation words compliance words and all people are not understanding it getting it in CA inter they have asked one straight question what is applicable financial reporting framework four marks question getting it in final also they can ask there's no there's no like exception you're not except you're not exceptional for you also in CA inter CA final the syllabus is predominantly 50% is same because standards are there in C inter same standards were there at CA final and the coverage is also almost similar 70% is same some 30% advanced level is discussed at final some content is not discussed at inter because it is bit Advanced getting it now fair presentation framework compliance framework so what is a fair presentation framework and compliance framework see see first we we have started with types of financials in the we are understanding general purpose special purpose but we stopped there and we are actually understanding some more terms and then we'll go back there I think it now you know what is a fair presentation framework if you look at fair presentation framework definition you see here it refers to it refers to a framework obviously it's also a framework right where financial statements are prepared and presented as per the requirements of such framework as per the requirement of such framework so in that framework whatever Rule and regulation it says if the financial statements are prepared exactly as per that rule and regulation that's a fair presentation framework and you see the said it is not yet over and you may deviate if you want you may deviate from the requirement of the framework to achieve fair presentation if permitted generally it is explicitly permitted they use the word actually explicitly within bracket when you saw When You observe fair presentation framework definition they give as it is and they use the word explicitly whereas for this they use the word imply or explicitly imply or explicitly they may test you on these words also as an McQ they may test you on these words in an McQ which of the foll statement is true Point number one a fair presentation framework contains explicit deviation explicit permission to deviate from the requirement of the framework to achieve fair presentation option b a fair presentation framework May impliedly or explicitly permits the deviation from requirement of the framework option C a fair presentation framework impliedly permits deviation from the requirements of the framework option D fair presentation framework permits deviation from the requirement of the framework how will you figure out observation is important when you're reading you have to observe the things what wordings they are using what terminology they are using observation is very important as I go further at every concept maximum possible how that can be tested in different way I will definitely cover that aspect also okay so fair presentation framework means see first of all suppose you you look at a company for a company the financial statements preparation is given under 129 section in that subsection one it says every company shall prepare its financial statements in accordance with schedule 3 accounting standards and should achieve a true and Fair View since they have used the word true and Fair View in 129 a company has to prepare financial statements using fair presentation framework what is it a company has to prepare financial statements using fair presentation framework because they have used the word true and fair if at all they didn't use the word true and fair look at the definition once again suppose if true and fair is not there every company shall prepare financial statements in accordance with schedule 3 and accounting standards which means whether whatever the accounting standard says whatever method accounting standard suggest only that method you have to follow while preparing the financial statements depreciation method Revenue recognition method provision creation method segment reporting methods whatever getting there are so many on so many occasion for so many elements of financial so various standards are dealing with yes or no whatever standards is you just have to follow suppose the standard requirement is not suitable for you the standard requirement is not suitable for your organization still you have to follow that you know very well our financial statements should represent substance over form yes or no what do you mean by substance over form fairness what is actually called as fairness what is the difference between true and fair we have sold to so many customers on credit the total outstanding dors as on 31st March is let us assume 500 CR the dors outstanding were 500 CR they're all genuine sales but out of this there are detar worth of 50 CR who were about to become insolvent who were about to become insolvent as on 31st March conditions exist subsequently also okay fine let's not go into that but there are there is some doubtful debt there is some doubtful debt now honestly speaking how much I have sold goods for credit for 500 CR truly I have to receive 500 CR but tell me when I'm showing you are asking me what is my net worth should I consider that 50 CR which is doubtful when when I'm answering you about my net worth I should ask I should answer you fairly what is my net worth yes or no because you're going to invest in my entity yes I sold goods for 500 CR on credit I have to receive 500 CR that's true but fairly how much I will receive 450 CR provision for bad and doubtful debts is a result of fair presentation is a result of fair presentation so truly you have to receive 500 CR but fairly how much you receive 450 our financial statements always present not only true picture but also a fair position but also a fair performance of The Entity getting it so that's exactly true and fair so suppose under which under the law that you are preparing financials if the law says you have to blindly prepare financials as per sence rule no deviation is permitted that's a compliance framework that that concept is called as what that situation is called as what compliance framework suppose if the law specifically says you comply with Accounting Standards you comply with schedule 3 and also achieve true and fair if the law specifically highlights even true and fair so explicitly the law permits explicitly the law permits you to achieve true and Fair View you can violate an accounting standard you can deviate an accounting standard you can deviate from schedule 3 are you getting it so if if deviation is permitted so as to achieve fair presentation that's called fair presentation framework not only in India across the world most of the the general purpose financial statements they are prepared using fair presentation framework most of the general purpose Financial are prepared using fair presentation framework you take uh Apple Incorporation Tesla incorporation alphabet okay incorporation or you take any Volkswagen related audit report Europe you take any Indian company audit report Bank nbfc any entity you take in the audit report in the opinion paragraph the auditor specifically uses the word fairly present fairly present true and fair in case of fair presentation framework only in the audit report we can use that terminology if at all we are doing audit of financial statements which are prepared under compliance framework we cannot use the word present true and fair or not we simply have to give our opinion whether they are as per sance or requirement if they as for the requirement we give qualified opinion if the financials are not as for the requirement we give modified opinion simple whereas in FA presentation framework if the financials are true and fair we give unqualified opinion if the financials are not true and fair we give modified opinion are you getting the point so now now again so what is a special purpose framework it is a framework where Financial IAL statements are prepared in accordance with requirement of a specific user in accordance with requirement of a specific user where there will be one dedicated user okay because of his request because of that entity request we are actually preparing these financials otherwise we don't prepare these financials we are preparing these finantial statements specifically for the specific user requirement suppose our company has got an offer for like we we want to go for expansion ours is a startup we want funding so there is an investor who is readily available to invest in our entity so he's asking me the financial position and performance and for which the criteria he have given he has given I cannot I I I went and presented him my regular balance sheet pnl which I prepare every year whatever balance sheet pnl I prepared generally for general purpose every year as a part of legal law compliance getting it I have given all my past three years balance sheet pnl to this investor proposed investor but he took that he considered that but what he wants is he want the balance sheet pnl everything to be prepared on cash basis same for the past 5 years or past 3 years he's asking me to prepare balance sheet PN on cash method of accounting so Cash basis of accounting so now fine I understood what is he's asking for he he exactly want to see the cash flow pattern he exactly want to see if at all cash method is used do we have profits see I know you are selling Goods on credit to so many customers you can show profits but recoverability who will guarantee yes or no so only when you recover the sale amount then only there is a typical profit if you do not realize the sale amount if at all that has insolvent so your true your position and performance is Highly Questionable getting it so for his purpose specifically we went back and prepared three years of financial statements we called a chartered accountant we told him this requirement sir you you have to prepare as the financials as for the specific user requirement getting it so that's it so he prepared he prepared and give so we went and again submitted that he's asking us audit report on that on the special purpose financials whatever we prepared he asking an audit report on that now you see we prepared special purpose financials that we don't know how to prepare we know how to do business we are a company minus an organization we are running some a chain of backery okay we are we are running actually backery products and all but since we want to go for expansion we want funding so in so person has uh uh you know committed us that he'll give fund provided he asked me to prepare financial statements as per applicable framework whatever the framework he decides he he decided the criteria Cash basis of accounting you see this example comprehensively I'm trying to incorporate all the points here so there is a funding party there is a funding party or investor proposed investor and our company management is there which is a startup company related management so this funding party requested special purpose financials under cash method of accounting under cash method of accounting cash method of accounting and uh this company appointed one chartered accountant in practice for what not to audit but to prepare and present financial statements as per this criteria as per this criteria criteria is set by the third party criteria is set by the third party we also call him as user of the financial information we also call him as what user of the financial information so we appointed a CA to compile what is it to compile financial information to compile financial information as per the criteria established by third party by the way primarily who is responsible to prepare this financial statements uh management is primary we call him as responsible party we call them as what responsible party we call him as practitioner we call him as practitioner we call him as user user user of the financial information or third party appropriate user or appropriate third party now they prepared right cash method of accounting that is called as applicable criteria what is it called as applicable criteria so now look at now here CA is preparing accounts right whatever the work that he is doing that is called as compilation engagement for which 4,000 Series standard is applicable getting it 4410 is applicable specifically getting it so compilation engagement getting it so we have two standards one is dealing with agreed upon procedures and another dealing with compilation engagement compilation is nothing but we're preparing whatever you ask me to prepare financials I'll come and prepare getting it I'll help you how to prepare these financials all that now we went and submitted this financials to the third party again who is the intended user who designed the applicable criteria as per this criteria only we should prepare we cannot deviate we have to prepare exactly as per this criteria this concept can be called as compliance framework here the concept can be called as what compliance framework because you are preparing financial statements exactly as per the requirement of the third party you have to prepare exactly as per the rule given by him compliance framework means what you have to prepare exactly as per the rule you cannot deviate fair presentation and all you need not worry are you getting the point so that's compliance framework example most of the special purpose financial statements Frameworks can be taken as an example for compliance framework getting it now the third part you know after we submitted these financials he asking audit report on that so we appointed another chartered accountant in practice to audit these special purpose financial statements his objective is see whether the financial statements are prepared as per the requirement of the third party whether applicable criteria exactly apped or not he has to check and then give a report on that if at all the financial statements are prepared by this company this startup exactly as per the criteria given by the third party we will give unqualified opinion if at all the company has if at all the company has not clearly followed the framework third party criteria we will give modified opinion simple so here C is giving opinion right for him sa 800 standard is additionally applicable he has to do audit as for all standards and auditing in addition to that since the financial statements are prepared using special purpose framework he has to consider specially certain elements are you getting it and you know what this CA is already the auditor of the company or this company is already the existing auditor he was appointed 3 years ago this is a non-government company 5 years appointment so this chartered accountant is already doing general purpose financial statements audit of this company already same person we appointed for doing audit of special purpose because he already know about our company and we even asked the third party sir can our stat auditor do this audit he said whoever it is he should be independent third party requested only one thing the auditor must be independent so compilation engagement special purpose financials sa 800 engagement and uh sa 800 audit of special purpose financial statements engagement and he's also our general auditor for him all other normal standards and auditing standards and auditing will apply able to understand next next so special purpose framework I hope you are clear on this now coming to general purpose framework if the financials are prepared using general purpose framework we call it as general purpose financials otherwise we call it as special purpose financials general purpose means what there is no specific purpose here we prepare generally every year who will use this financial statements everybody there is no specific person that who will use these financials stock market analyst will use our proposed investors will use government might use it for uh GDP calculations all that or even for tax authorities might use this whether we pay tax correctly or not GST authorities will use for turnover matching all that so there are many users of our regular financials which we prepare every year we are preparing every year these financials for general purposes which considers in this framework no what information we should present what accounting principles and methods we should follow everything is as per common financial information needs everything as per common financial information needs of wide range of users so there are wide range of users they all have commonly some financial needs financial information needs everybody like a banker want to know what is my turnover what is my profit what is my purchases and expenses all that and uh he also want to know what are my assets how much of my assets are fixed assets how much of my assets were floating assets current assets he want to know how many immediate obligations I have how many long-term obligations I have how much capital I have invested everybody whenever you share them that you're doing some business they commonly ask these questions right how much Capital you invested how where you invested how much turnover you're generating how much is the profit that you're generating what are the expenses you broadly having these are the common questions that we receive right whenever we say we are doing a business or these are the common questions that you ask so commonly everybody want to know about our financial business our business some financial data everybody want to know that common financial information needs getting it considering that if the law maker develops a framework if the law maker lawmaker developed a framework we call it as general purpose framework general purpose framework is generally developed by the lawmaker schedule three is given by MCA accounting standards are given by ICA nakas and NF tomorrow in future NF will give yes or no why a government Authority is involving because it's a general purpose financials because the financial statements are not just used by any specific person but are used by public at large since public at large is involved government will involve that's why general purpose framework is always defined always is decided by the government if the financials are prepared using general purpose framework we call it as general purpose financial statements are you getting it that's it now so now you see the objective of audit is to obtain reasonable Assurance whether the financial statements are in accordance with applicable financial reporting framework so applicable financial reporting framework means general purpose of special purpose of fair presentation of complain framework all these questions you should answer this is what the meaning exactly so now keeping in mind first as an auditor you should understand what framework is applicable for what engagement I'm appointed am I appointed for special purpose Financial audit or am I appointed for general purpose Financial audit you need to clearly understand your role then you decide that after deciding that verify the financial information whether they are as for the framework two another objective is what not only whether they as per framework whether they're whether they're free from Material misstatement misstatement means what you see the misstatement definition I've clearly given with a breakup M statement is nothing but difference between what reported financial statement item and and applicable financial reporting framework so what you reported in the financial statements ultimately compare it with applicable framework that is applicable so as per applicable framework what you have to report see what is a mistake difference between what you did and what you are supposed to do if both are same there's no mistake at all yes or no if both are differing there is a deviation there is a mistake that's what you have to a company has to prepare financials as per applicable framework but what the reported is different from applicable framework so that's a misstatement and misstatement can happen in four ways it may be in the form of amount in a financial statement a misstatement can be in amount or misstatement can be in classification or misstatement can be in presentation or misstatement can be in disclosure misstatement can be in any of these four amount classification presentation disclosure generally whenever we think of misstatement we only think of amount but misstatement can be in classification best example for amount the 700 series itself used this example getting it inventory valuation if the company mate if the inventory has been valued wrongly you don't mind can I switch all this a huh yeah can you just a person yes sorry so inventory is materially misstated so that is amount suppose inventory the cost is 100 CR whereas NRV is 75 CR the company has to show the inventory at 75 but the company showed the inventory value still at 100 only getting it so that's a material misstatement two misstatement can be in the form of classification suppose the asset you purchased suppose the companies having some surplus funds they purchased one immovable property they purchased one immovable property because they have surplus funds now that immovable properties purchased with a view to get a value appreciation in the future for that reason they purchased what is this actually it's an investment property to be classified as investment but the company showed it as a fixed asset as per applicable framework investment property it is classified as what investment property but the company how the company reported as fixed asset so as per this investment as per this fixed asset so it's a misstatement or misstatement can be in presentation M statement can be in the way you are presenting the information we all know dator has to be presented gross minus pbd provision for bad and net you should present yes or no but the company instead of presenting like this pbd showing in liability site they are not netting off with asset they are showing it under liability it's a misstatement in presentation the way you are presenting is misstated getting it disclosure as per every accounting standard best example you take schedule three share Capital related disclosure requirements are many so a company has to disclose the shareholders names and the percentage of holding if the holding is more than 5% it has to be shown two in the past 5 years is there any buyback getting it is there any bonus issue or uh like this there are some information which you have to show in the which happened in the past 5 years that company did not show that's a misstatement in disclosure so non-disclosure is a misstatement partial disclosure is also a misstatement you are omitting some disclosures that is misstatement or you you are omitting complete disclosure it's s that's a misstatement able to understand now you see you need to understand misstatements are in four ways now suppose you know in exam how they'll ask you question I'll tell you if the auditor has identified a material misstatement by way of a non-disclosure getting it how the auditor responsibility section in the audit report shall be covered what points auditor shall explain in auditor responsibility section of the audit report if the auditor has identif I mean how basis for opinion shall be reported if auditor has identified misstatements by way of non-disclosure getting if the misstatement is an amount how to how to qualify in the basis for opinion paragraph if the misstatement is a non-disclosure how to mention the same like this the questions can come able to it was there they were all asked they were all these are all asked being asked in CA inter it was asked in CA final also it was being tested getting it so that's misstatement got Clarity so now so now now this is the I mean initial overview about various terms that we are going to use in this uh uh you know chapter so for all these things we are having some standards called engagement and quality control standards so whatever standards that we have are called as engagement and quality control we are totally having 46 standards we are having totally 46 standards now within this once we qualify we do can render two types of works either we can render Assurance works or we can render non-assurance non-assurance in an assurance Ro there will be three- party relationship in an insurance generally there will be three- party relationship there will be an auditor there will be a third party who is using our report and there's a responsible party who is responsible to prepare financial information as as per the applicable criteria decided by third party generally third party decides suppose if it is general purpose financials government will decide special purpose financials third party will decide now so one work that we do is somebody will prepare some financial information as per so of criteria we just have to give opinion we just have to give Assurance conclusion what is it actually called as Assurance conclus we just have to give Assurance on that is that information right or wrong that's it is that information right or wrong now Assurance on what financial information assurance on financial this financial information is again two types historical financial information other than historical financial information we give Assurance on two different things one we give information on past financial information whatever financial statements company already prepared on that you are giving Assurance our regular audit reports they are giving they containing opinion on what already completed Financial year related financial information yes or no so that is regular our work another one we are giving audit report on performa financial information what performa financial information prospective financial information future financial information getting the point so other than historical financial information means again two types prospective financial information performa financial information you know forecast it may be called as forecast of course forecast comes under Prospect to financial information getting it projections all that comes under this category two we can give Assurance on nonfinancial information we can give Assurance on non it's not Finance at all some controls controls at service organization we can give a Insurance on what control set service organization a company specifically called me a company specifically called me to to comment on their controls suppose Chennai Metro Rail limited they appointed me to look at the controls they implemented regarding ticket collection getting it collections related to tickets and how the passengers are entering into the station and exiting what controls they're following is this controls properly working or not our objective is to do that audit only our objective is to check whether ticket related controls are proper or not Revenue related controls are proper or not there we are not doing balance sheet audit PN audit books of accounts nothing they called me specifically they called us specifically for checking this controls that is called controls audit getting it that is also not a financial information correct it comes under other than historical financial information it comes under other than historical financial information for this we have a standard called 342 whereas this entirely is covered under 34 3420 are you clear so three standards we have now then we still have we can give Assurance on historical financial information we can give Assurance on what historical Financial so historical financial information we can give assurance and this assurance can be in two different levels this assurance can be in two different levels one assurance that we already know reasonable Assurance another Assurance is called as limited Assurance the best example for these two what is the difference between reasonable insurance and limited Assurance in a reasonable Assurance suppose I have to verify purchases suppose I have to verify purchases purchases of an entity generally what points you will verify when you're verifying purchases in a very big multinational company so first I will see there is a is there a purchase department or not is there a vendor Master vendor means approved list of vendors from whom we can purchase Goods what are the controls on the vendor Master we will see then now a company want to purchase they have to place a purchase order we will see purchase order who is placing why they are placing what is the control do they have a power to place the order like this so we will see authorization controls all that purchase order then once purchase order is placed the other person will send Goods inspection will be happening regarding specifications all that quality all that then grn will be prepared then the other party will also give EV Bill we inspect all that if at all we still have doubt we go to the go down and observe the purchases process how they're receiving all that so here we are asking company inquiry we are inspecting documents we are observing how the purchases are happening we are testing the controls we are testing the transactions this is what we do in it this is what we do for getting reasonable Assurance whether purchases are proper or not whereas in limited Assurance we don't do all this we just inquire and do analytical procedure we just to do two activities two procedures inquiry analytical procedures and based on the inquiry and analytical procedure we give opinion company sales are some 10 lakh purchases are some 7 lakh CR last year company sales are some 8 lakh CR purchases are four lakh CR last year purchases were somewhere around 50% of the sales this year it was around some 55 60% they not much variation not huge variation technologically it appears fine logically purchases value appears F business increase purchase also increased then I inquired people so what is the purchase mechanism in this company they told me some reply they gave me some reply so I understood what exactly happening in purchases but I did not test any transaction I did not vouch any voucher getting it I just inquired nothing comes to my attention when I inquire when I interact with the management when I'm inquiring them when I'm talking to them or when I'm doing analytical procedure nothing come to attention nothing came to my attention to cause me to cause me believe that something is wrong getting it I did not get any information that's it that's enough nothing has came to my attention that something is wrong I'll directly give an unqualified conclusion directly I'll give what let us call it as unmodified opinion right now later on we use the specific terminology so I will give unqualified opinion getting it I only do inquiry analytical procedure here whereas in audit no we do inquire we do analytical procedure we do external confirmation we do test we do inspect documents we observe things we go physical verification we do recalculation so many things we do in audit same purchase item but we do all these procedures we do in all possible ways to find a mistake whereas in uh limited Assurance we don't do all that we just inquire we just logically see whether everything seems correct or not or something is wrong I just logically try to do that that document it give the opinion that's it that's a limited Assurance so now for limited Assurance for limited Assurance we have something called standards on review engagement for reasonable insurance we have something called standards on auditing whereas for Assurance on other than historical financials or Assurance on control we have standards on Assurance engagement standards on Assurance engagement is reflected with SAE whereas standards and auditing is just reflected with SAA able to understand apart from this we will also provide certain non- audit Services non-assurance Services some clients call us for filing it return some clients call us for GST return some clients call us to prepare books of accounts these are all non-assurance services where we don't give any Assurance conclusion we just we just whatever client and me agreed upon that procedure will I'll just go and then perform we both agree upon some procedure I'll perform that procedure or he asking me to compile the information I'll compile and give that's it there my duty is to prepare the data to prepare the information or to do per to do a procedure as we agreed upon no Assurance nothing are you getting it so there the these are all called as non audit or non insurance services for them for them know we have a standards called related Services related to Assurance right something yes or no but not Assurance so parall along with Assurance we are providing all this so standards on related services so we have two standards on related Services we have totally three standards on Assurance engagement and two standards on review 38 standards on auditing out of 38 35 were General auditing standards three standards were dealing with special special Frameworks three standards were dealing with special Frameworks special purpose framework related standards are you getting it now you whatever work you do whether it is Assurance work non-assurance work audit review Assurance related service whatever you do you have to do them with a quality you have to ensure quality is maintained in all these works for that whatever controls you have to take up as a chartered accountant whatever controls you have to set up whatever controls you have to follow whatever rules you have to follow it is your responsibility your F has to maintain entire this quality control system that is what a standard called sqc there's only one standard there's only one standard so this standard says you have to whatever work you are performing you have to maintain quality control you see sqc heading quality control for firms they use the word for firms performing audit review Assurance or related services this is a heading of the standard correct or not so sqc is applicable for all types of works that you are doing okay we'll discuss all that so that's it this is fundamentals clear all of you yes so let's begin the next chapter that is audit report remember the weightage of all the standards is put together 60 minimum weightage of all the standards put together is 60 marks so this chapter which includes scrow also this chapter covers scrow reporting also so this chapter weightage somewhere around 10 to 15 marks getting it because in this chapter we are covering approximately 10 standards okay 700 701 75 76 710 720 299 600 610 620 570 260 I will discuss later as part of uh standards on auditing we have a separate chapter which is 11th chapter in our book so in that I will discuss 260 getting it earlier also we have 260 in the world scheme but it was discussed at a very basic level but now 260 is discussed at very advanced level so that's why I have kept 260 in this chapter as well as there in standards and auditing chapter also 260 is there here it is in a simplest version but there it is an advanced version okay first of all I am completely against the idea of color book getting it I don't like color books or charts nothing because if you look at the question paper in the past six or seven attempts how the way questions are drafted you know when we were writing the auditing CA final no even CA inter see a final audit one paper is the question paper that's it two sites only two sites only one paper question paper today auditing is approximately 30 pages question paper including McQ booklet I'm telling you 30 pages approximately the question paper of auditing is today when we were studying one page whatever methodology of learning that we applied when we were studying the same methodology is what many students are even now they're applying why people are feeling auditing is very tough or auditing is a dry subject or auditing is something you can't understand scoring 40 is enough why this kind of notion has been developed in people's mind is because they never try to understand the subject since they don't understand the subject which they didn't try first of all which they didn't try so they they named it as a dry subject because they don't understand but if you look at the Quantum of efforts that you give in financial reporting subject like people know what they say is no matter how much you study you can't score more than 40 audit and he will not study at all so the see point is like you know the person who introduced this probably there will be some inventor right always for anything there will be one one person who invented this that person would have never studied audit he would have hardly invested uh some 78 yearsss or 100 hours and then he want to score exemption he scored some 34 and failed four times and finally qualified with 40 and that's how this entire this propaganda has been created and the same guy who said auditing is not a scoring subject would have taken 250 hours of f coaching and 150 to 250 hours approximately of preparation time 400 to 500 times 400 to 500 hours of preparation would have spent on F and scored 62 example and he says f is scoring hey you spend 400 hours obviously you score six you know 60 plus how much how many years you spent on audit 70 to 80 and you scored 40 tell me relatively which is highly rewarding auditing is highly rewarding you spend equal amount of time on F whatever time you spend on effort you spend equal amount on audit I bet you will get 80 plus of course the point is you will not spend thinking that you will not get only when you spend your time and effort then only you realize that right without without spending adequate time how do you so the point is to spend the time they're not understanding when they're reading they're not understanding ah fine whatever time I spend there is no point because I'll not understand anything at the end of the day and from where he's reading he's reading from some chart chart book itself contains 25% of the original content original content that's why you see the first page in the smart notes which I gave first page if You observe I clearly explained you the difference between what institute is expecting from you and what you are expecting from The Institute getting both are not matching the first page you see there is a sentence and I'm telling you that's one of the easiest sentence that is there in the entire auditing syllabus and that easiest sentence 99% don't they don't understand when they read once or twice or Thrice they need to struggle a lot to understand that sentence getting it so I just intentionally gave in the first placeas that exercise so that people realize what is expected from you is different getting it in this next whatever 25 30 hours of time we have believe me I will change your perception on entire auditing not just on few chapters on entire the sub subject I will change your perception just that you have to be with open mind don't be with an assumption that no matter how much ever I listen here I will not get anything I will not understand anything no just come out of that be curious you know be curious that you're going to learn something new completely okay I don't know how many of you have seen my marathons cisions earlier but since it's a face tof face class definitely you will have a lot of good impact you know uh one more one more Hest saying I'll tell you face Toof face class is very effective for the faculty not for the student so this is truth because you cannot you cannot listen continuously more than 1 hour 15 minutes some students not even 20 minutes not even 20 minutes okay the moment they continuously listen 20 minutes at itself is enough they open phone Instagram they open mute they'll just scroll through the Post finally sometime randomly okay find something is saying okay let me listen once he'll come back and he will say not understood anything out of one hour you listened to me for 15 minutes 40 minutes you spent on Instagram and 5 minutes again you're coming back and listening you will obviously do not be in the pace you will not be in the pace so no don't don't write running notes also just listen what we are discussing and see the book of course anyhow I'm using a projector so simultaneously you can easily locate any concept that I'm referring to this smart not is nothing but 90% of the main material like some students ask me you know they they do in they do investigate sir they they compare site Page by Page line by line smart notes and Main material so both are appearing same bendy D is different getting it the only reason why I'm doing the smart notes is because people are obsessed with color materials and they're asking me when will you release your color material I released my color material getting it listen listen there is no shortcut for Success getting it and people think right way of working is hard work no getting it if you work rightly that's the most easiest way just that we should discover how to work in a right manner okay now so first so let's begin with audit report you know this audit report we are having two parts in audit report we are having two parts part one of this audit report is dealing with reporting standards part two of this chapter I deal with reporting requirements part one of this particular chapter reporting standards and another one is reporting requirements first of all what is the objective of this chapter what is the objective of this chapter many do not understand this all again they read audit report chapter and they don't know how to prepare audit report yes yes generally in school days we have this something called letter writing English subject yes or no we have something called letter writing what's the objective of that entire thing just to to learn something how to write leave letter when we affected with fever yes or no so that is what there is some objective so we need we once we complete a particular chapter we should know at least we should be able to have at least a reasonable quality of writing an audit report so now let's learn how to make an audit report so I will use parall tataa motors audit report for comparison sake so tataa Motors audit report I'll use for comparison sake this is latest data Motors 2223 Financial audit report first know let's look at this particular index which they have given you look at this index you see this is an annual report the primary purpose of why this company has released annual report is to issue notice to the shareholders what is it to issue notice every one of us know that a company has to issue at least 21 clear days before a notice calling for meeting AGM annual general meeting and we all learned that along with notice the company shall also give financial statements Auditors report board of directors report and any other report which company wanted to give why 21 days notice time is given is so that they can plan bus ticket try ticket all that no they have to read this annual report because see you see along with notice what we are giving in this we are giving Standalone financials Consolidated financials we are giving various statutory reports that are required under SE and companies act we are giving various sustainability related you know our our chapter we have SDC right so that is this only okay so whatever is covered here whatever is covered here this is this entirely Theory theory part is what covered for us and along with this companies also reporting companies also how companies doing value creation for stakeholders various you know how the compan is doing business nothing but and they also talk about what are the business segments they have okay and they have so now you see annual report contains lots of other information in addition to the financial statements segment that we know now see in this annual report only the auditor in this annual report only the company is presenting Standalone financials and Consolidated financials Standalone financials means first it will start with audit report audit report on Standalone financials then of course Act ual financial statements balance sheet pnl cash flow statement of changes in equity notes to accounts getting it and Consolidated audit report on Consolidated financials and the Consolidated financials all set this is what there is this now this Standalone financials Consolidated financials and audit report were included in a document which contains other information which contains other information other information means what other than financial statements other than financials what is other information in the startup motor statutary reports sustainability reports about the company business segments these are all other information what is the responsibility of the auditor for other information 720 standard is dealing with that are you getting it so what is responsibility for us relating to other information first of all tell me what is our objective to give opinion on the financial statements or to give opinion on the annual report ah very good so our objective is to give opinion on the financial statements whether they are free from material misstatements now when we are giving opinion on the financial statements why are we bothered about other information because the financial statements on which I gave opinion through an audit report and that financial statements together you are releasing with other information if at all only the financial statements and audit report if you publish separately I'm very happy but you are publishing this along with other information you know in other information you see tataa Motors is saying highlighting 3 lakh 45,000 CR turnover yes or no and they're highlighting so many sales so many number of units how many they sold what is p what is so much of financial information also they are talking in other information are you getting the point whereas in the profit or loss account of tataa Motors let us assume the turnover is not this number some other number is there in the company financial highlights you are giving some number turnover and shareholder who reads both he will get confusion right yes or no which one is correct he will get it out I though I give an audit but that profit and loss account is correct then why company saying some other number in highlights they'll get it out to resolve that to resolve these kinds of doubts in audit report we have a section we have a per called other information per so for that 720 standard we will be learning okay I'm just giving introduction I'm not going in depth whatever I have covered in fundamentals is only a basic understanding entire standards each and every standard I will discuss getting it neatly I will be discussing getting so one element of audit report you see one element of audit report is what other information one element of audit report so yeah so in this chapter we are ultimately learning how to prepare audit report now in order to prepare audit report what should be the contents of the audit report what are the elements of the audit report first we should understand so the first and foremost element is in audit report it must have a title so what is what should be the title the title must be independent auditor report independent Auditors report simultaneously I will also use this uh module one main matal also I will be showing you this is exactly copy paste of ICA book so don't worry so so there should be a title called you know independent Auditors report the title name must be independent Auditors report that should be the title suppose in case of uh review we use a different heading called independent reviewers report or independent Auditors reviewer review report dependent Auditors review report or report a r report of reviewer on the on the financial statements of the entity so any suitable words we can use getting it next addressing the report is addressed to somebody right so whom generally in case of general purpose financial statements we address to members in case of special purpose financials actually we address to either board of directors or we are addressed to third party for whom this ultimately report is being used for getting it then third one opinion and basis for opinion you know actually I don't know how many of you like just I want to know have you gone through sea 800 series 2,000 series 3,000 series all that no you're making this class as a platform to start them okay so see in sa 800 series um 3,000 series 2,000 is all there and all they introduce another word called modified report remember modified opinion is different modified report is different audit reports are two types broadly one is unmodified report one is unmodified report another one is modified report you will not get this understanding the audit report chapter itself if you look at initial standards you will not get this understanding only when you read special purpose Financial standards 2000 series review standards Assurance standard related service standards in all these cases they used this word modified report unmodified report terminology in CA internal now in the new scheme in the audit report chapter introduction itself they give a diagram like this audit reports are two types unmodified report modified suppose if you are giving an audit report which is exactly as per s 700 format which is exactly as per 700 format where you are giving unmodified opinion where you are giving unmodified opinion then that format is called as s 700 format that is unmodified so whatever standard gave the format right whatever the format which is given in s 700 same format you giving you're using without modifying the format given in the original auditing standard you are giving the report so it's called as unmodified report so it's called as unmodified as per s 700 no I'll highlight certain things material uncertainty related to going concern emphasis of matter paragraph other matter paragraph other information paragraph these four actually if you look at original s 700 format were not there you see that's why I given the bracket applicable as per relevant standard this is a comprehensive audit report format which I gave you in the material this is a comprehensive what if all the standard related circumstances apply in the given engagement getting it so then how the audit report looks like comprehensively that format I have used here technically originally if you look at 700 format whatever I've highlighted in yellow color specifically they were not applicable as for original standard they were not applicable material uncertainty related to going concern key audit matter emphas sorry emphasis of matter other matter paragraph other information paragraph these are actually called as sections in audit report no they were even they were even referred as what sections or either you can call them as a paragraph or you can call them as a section key audit matter section other information section auditor responsibility section like that getting it so without the without these paragraphs without these paragraphs if at all I prepare an audit report and giving unmodified opinion that's actually 700 format forming of an opinion and Reporting on financial statements s 700 format and that report is called as unmodified report suppose suppose in that report if I am including remember I'm giving unmodified opinion only I am giving unmodified opinion only but along with that I am including certain sections in the audit report the format given under sa 700 now I am modifying the format I am modifying not the opinion understand I'll talk about opinions all that little while later look at the structure so I give unmodified opinion but I am including material uncertainty related to going concern side heading so I'm including the section in the audit report so the audit report format is modified now whatever s700 format I'm not following so I'm adding some additional Contents I am I am modifying the audit report by adding additional contents in the audit report or I am using an emphasis of matter paragraph or I am using other matter paragraph or I am using other information paragraph getting it when I use all this actually other information also not there when I'm when I'm using these three specifically I am modifying the audit report which is not as per original sa 700 contents because I'm adding them I'm newly adding them able to understand or if at all I am giving modified opinion also then also the report is modified because sea 700 only talks about unmodified opinion and now I'm not giving unmodified opinion I am modifying that's why you see s 705 heading modifications to the opinion yes or no in the independent auditor report original audit report there is some unmodified opinion now you are modifying it so by modifying the opinion you are modifying the format able to understand by default by default an organization expects you to give unmodified opinion but you're modifying the report by modifying the opinion so either if you modify the opinion or if you add these paragraphs even though you are giving unmodified opinion the report is modified that's called modified audit report what is it called as modified audit report this this discussion specifically was covered in Sea 810 sea 810 85 mainly in these two cases this discussion has been specifically covered but not not explicitly they discuss like this but they used all this terminology in that okay I'll come to that sa 85810 later first we'll finish all the auditing standards then go to 800 84 810 then 2,000 believe me review standards Assurance standards related Services standards and even sa 800 series are damn easy if at all you understood the actual standards on audity because in 800 85 810 also every time we will be be talking about all written representation subsequent events entire the discussion going concern discussion all that will come in 800 series all that will come in 201400 201410 also when we are discussing 800 series 2400 you feel like revision of the revision getting it whatever we are revising right standards auditing same you feel like revising that so that's how easy they are you should not read them at first you should read first all this then you should read later you will understand very easily now so this is the struct of the audit report first understand unmodified report modified report now now opinions so first the first element one is title another one addressing the first thing that we talk about in the audit report is opion people wants our opinion directly they don't want all the nonsense first they want to know what is your opinion so in the audit report first paragraph itself is opinion section and in audit report no we have we have two types of opinions the s 700 no SCS 700 no it clarifies the opinion is two types unmodified opinion modified opinion unmodified opinion modified opinion when auditor can give a modified opinion when auditor can give a modified opinion here they have given you see in the introduction definitions below when auditor can give a modified opinion so first of all see if the board of directors in a company context board of directors are the one who are preparing financial statements whatever the financial statements they prepared no balance sheet P noes so statement of changes and Equity all that I verified everything I felt that these financial statements can be issued as it is what is meant by that when I feel that the financials prepared by the company can be issued as it is what does it mean ah they are free from Material mistakes when I say that they can be issued as it is dear director you prepared excellent fine you publish as it is no problem which means it doesn't require any modification it doesn't require any Amendment so I give unmodified opinion my opinion is also unmodified unmodified opinion means what my opinion on the financial statement is not modified because the financials itself does not require modif ification suppose I verified balance sheet P all that some Investments were wrongly classified and some inventory is materially misstated provision for bad and doubtful debt is understated creditors were overstated some misstatements I identified now tell me when I identify these misstatements can the financial statements as it is be issued to the public no I told directors please modify the financials they agreed they'll okay sir we will modify so that financial statements are absolutely true and fair they modified everything whatever mistakes I told them they modified all the misstatements were corrected by them getting it there were no uncorrected material misstatements there were no uncorrected material misstatements everything every material mistake they corrected now tell me do they further require any amendment I will give unmodified opinion suppose when I ask the company to please modify these mistakes because there are so many mistakes you please modify directors replied no sir the financials are already freezed approval also happened now we cannot change anything it is out of our control we will publish the financial statements as it is which contains material misstatements according to us so you don't modify fine I'll modify my opinion so I will give which opinion modified opinion so we give modified opinion when auditor concludes when auditor concludes based on the information he has based on the information means what based on sufficient and appropriate evidence the financial statements as a whole are not free from Material misstatement the financial statements as a whole are not free from material mistat so when the financial statements are not free from means they are containing material misstatements I will give modified opinion that is one circumstance two see ultimately I have to to give opinion that is what my objective to give opinion first I I have to verify things right I have to verify purchases what is the breakup what is the background invoices when the purchases were made on what dates it were made what is the process of purchases who are from whom you are purchasing I want to verify so much of information just related to purchases likewise I want to verify sales I want to verify employee benefit expenses I want to verify depreciation I want to verify fixed assets current assets liability so much I want to verify but you know company is not giving me information which I want so purchases know company saying sir how much is the purchases they showed the number some 2 lak CR T Motors give me documents for that sorry said documents were not available data was deleted how should I verify now how should I know this 2 lak CR is correct or not so ultimately I end up with no Clarity on this I did not get information which I want so that I can give some opinion so you're asking me to to give an opinion whether this is right or wrong you give me information you show me data show me the data based on the data I will tell you whether it's right or wrong you did rightly or wrong yes rightly or not right I'll comment based on the data you provide me but you're not giving me data how can I give how can I give opinion so when the information that is required for audit is not available then also we give which opinion modified opinion if auditor is unable to obtain sufficient appropriate evidence if auditor is unable to obtain sufficient appropriate evidence to conclude that the financials are free from material misstatement to conclude that they're right I don't have information I am unable to get the information to say that they're right or to say that they're wrong see if I have data in the back you gave me a phone I'll operate for some time and I'll give you an opinion whether it's working good or not you didn't give me a phone itself and you're asking me what is your opinion on S of phone are you getting it I am unable to obtain the required information sufficient and appropriate evidence to conclude that the financials are true and fair to conclude that they are free from mistakes to conclude that they right I don't have evidence now will you say since you don't have evidence to conclude that they right will you say they're wrong no you cannot if evidence is not available you cannot give opinion first of all understand you cannot give opinion these are the two types of modified opinion but remember now you know suppose you take this starta Motors itself so Standalone Standalone Financial C go um this is audit report suppose this is the balance sheet of tataa Motors this is the balance sheet of tataa Motors 31st March 20 23 which was the latest balance sheet available so non-current assets some property plant and Equipment some 11,700 CR is there okay so this is completely in crores 7 11,700 CR worth of plant and missionary is there so in this plant and missionary tataa Motors is maintaining a fixed asset register what is the breakup of pp so they have a very big electronic electronic register I asked them what is a breakup for 11,700 CR I asked them they sent me even mail this is our register sir asset register they sent me as asset register as it is raw data getting it the mail which I'm using is completely company given mail so inside that everything whatever I'm receiving whatever I'm sending everything will be properly documented nothing can be deleted it is confidential I cannot even download that file onto my normal hard disk or my whatever pen drive I cannot download confidentiality is maintained getting it so even that's how I that's how V Auditors work getting it asset register I open I open this asset register big ex Excel sheet very big Excel sheet more than 20,000 line items were there 20,000 line items but there're more than so many assets break up like you know suppose you see in this classroom itself we have so many some eight air conditioners so each air conditioner is one line item yes or no so blue star air conditioner number one purchased on so date installed on so so date amount was so and so GST component was so and so GST input tax credit claim so we will not capitalize installation expenses so and so total capitalized cost how much and now what is the depreciation as on 31st March 2023 what is the depreciation for 2223 what the total accumulat depreciation what is the closing Book value where the asset is located getting it it is located in unab bakam so a third floor like this asset register contains information for each and every asset these 20,000 number of assets were located at different different tataa Motors plant you know factories different factories different operate offices they were located at different different so I selected randomly some 200 Assets Now I I called my senior article and Junior article I called some 10 members I told them this work please go and verify these 200 assets at different different locations were there you go in there physically verify whether this asset is there or not and also verify concerned invoice also verify when it was purchased as for the date of invoice look at EV if available or earlier we'll be having some other Transit related document verify that so all that I gave them certain instructions they go and verified and all of them came back and they just told that one one one asset is not found out of 200 199 assets our team whoever went they found for one asset they did not find in the exact location when they are asking the concerned branch of tataa Motors they unable to explain where the asset went off where the asset is now that one asset value is approximately 10 CR that one asset value is approximately 10 CR fine so out of 200 one ass is not found so I I select I told them don't come back stay there only I will give another 100 assets list go and verify so again they verified all 100 100 present again I I'm not convinced 50 I gave them again again I gave another 50 assets again they went and verified all the 50 again finally they came back and told fine sir everything is available only that one oh only one only problem is then it is not that it is repeating every day yes or no in out of 200 only one this is something called anomaly this is something called anomaly getting it in sa 530 it's called as what anomaly I'll Define later what is anomaly so this one item which we did not found is exceptional you see generally out of 200 set one item is missing can I directly say out of 20,000 items proportionately these many assets were missing 100 items were missing no I cannot say yes or no so that's why whether is it only in these 200 assets or every sample which I select this will happen so I verified extra there I did not find so there's only one mistake which I found which is non- repetitive anomaly so I told them so they verified this 10 CR worth of asset is missing so we came back to the company and we told the company said this 10 CR worth of asset is missing we don't know where it is the company is also trying to investigate ultimately they came up with no answer no sir we filed a complaint we don't know what happened exactly so they came up they finally we found that 10 CR worth of asset is not existing physically it is not existing but asset register SS that asset balance sheet value also considers that asset now tell me is this a material mistake or not an asset which is an asset which is physically not present an asset which is physically not present getting it and shown in the balance sheet as at 31st March position of the company indirectly companies asserting that companies asserting that 11,700 CR worth of plant and missionary was existing as on 31st March when they say in the balance sheet 11,700 CR they acting what they accepting this much value of assets as on 31st March physically available with us this much value of assets we are owners this much value of asset is rightly arrived after depreciation total Purchase cost will be something minus depreciation something net net value like this break up they gave in notes management is asserting so many things on this now tell me one asset is not there missing now 10 CR is it material or not considering 11,700 CR 10 CR one item is missing immaterial what is it immaterial okay fine all these things happens but I tried to investigate further I did not find like this any other mistake only one mistake I found I did not find any other mistake so I will give which opinion unqualified opinion but the rest current assets everything I found whatever I want to verify I verified whatever liabilities I want to verify I verified all the concerned documentation I spoke to third parties assets I ver expenses I verified incomes I verified everything was perfect only this 10 CR worth of item and related depreciation I could not verify so I'll still give which opinion unqualified opinion what if the asset value is 100 CR what if the asset value is 100 CR now it is material now it is what material 100 CR is almost 1% of 11,700 CR 0.9% approximately will come getting it 1% value is no doubt material yes or no even in the schedule 3 if you look at anything above 0.5% of turnover yes or no you should show it separately so schedule 3 itself says 0.5% of turnover is material value I consider that and this 100 CR comes 0 0.5% or some percentage it satisfi or I felt it is material a material asset is misstated asset is physically not there with the company I know it's a clear-cut misstatement it's a clear-cut misstatement they have all the documentation everything is there but the asset itself is missing I told the company right of the asset they told they will not right off no no no it is there sir but I don't know where it is exactly installed suddenly out of these many assets 100 CR worth of asset is missing it is not supposed to happen but it happened so compan is not rectifying the financial statement still they're showing it is there but I know very well that because I went for audit I know physically it is not there materially misstated now can I say shareholders do not believe this balance sheet can I say like this don't believe this balance sheet no remaining items and all are correct right in fact I gave an opinion like don't believe this balance sheet this balance sheet is not true and fair company shoting everybody director asking me sir what happened sir you verified everything right only 100 CR is only 100 CR worth of asset only you did not find how come you say like that so aggressively you are commenting I will give qualified opinion in this case I'll give which opinion qualified so qualified opinion is given by the auditor when he found a misstatement which is material but not pervasive remember the word pervasive is different from persuasive getting it persuasive is different pervasive is different both spelling you see pervasive getting it persuasive both are different persuasive means convincing in audit we will just get persuasive evidence the nature of evidence that we get in audit is what persuasive suppose know they showed me asset physically there they showed me concern invoice also they showed me depreciation calcul all that and they're using it for our business operations I will convince that asset is owned by the company and asset is really owned by the company it can be shown in the balance sheet as a fixed asset I will convince but you know in the background that tet is a leet the invoice which they showed me is a fake document getting it this is actual transaction what happened in behind just to convince me they made the situation like that but I am not bothered about reality because I don't know are you getting it this is reality which company knows we are not how do we know 100 CR worth of asset is owned by tataa Motors you show me I showed they showed they showed me so it was physically there what is what where is the purchase invoice they showed me the invoice they showed e bill they showed all the bank transfer everything they showed perfectly it is there now can I say this asset is a fraud asset nothing so I convince based on the evidence which they show me I will convince and give opinion in audit the nature of evidence that we get is persuasive evidence we only convince based on the data given if the data everything appears true I convinc that it is true are you getting the point pervasive means what pervasive means the effect the effect is so significant that it Alters the position of the company performance of the company all together it changes your perception about the company that's called pervasive effect what is it called as pervasive effect CR is no doubt material for T Motors but it is not pervasive what if it is 1,000 CR one entire Factory itself is missing they told so a factory compan is having some seven factories or some 17 or 70 70 dealers 70 dealership locations they have some I I just want to physically verify each and every dealership location randomly I selected some let assume randomly I want to verify 20 locations I selected one location I went there it's not there the dealership itself is not there physically where is the dealership that location where you have you said so many assets were there inside this dealership the dealership address itself we went there at that address graveyard is there what what like what is this so some thousand CR worth of assets which the Tata Motors is showing as fixed asset is physically not there companies materially financial statements are materially mated not only that if this, CR we write off from the balance sheet it will change the company profit profit itself it will change the company position itself already tataa Motors is at neutral position working capital and all they are able to discharge now earlier year not now only tataa Motors is selling good number of cars and they're able to discharge their working capital requirements without borrowing loans earlier they used to borrow loans and then discharge working capital they're loss making company tataa s is helping getting it so it's a material and pervasive I will straight of give which opinion adverse opinion because if th CR worth of mistake I found if it is not rectified in the balance sheet it is pervasively misleading it is misleading people it is misleading people all together if this, CR assets no the net worth position of the company is positive if this th000 CR is not there net worth will be negative if this th000 CR worth of asset itself is written off if it is right if it is wrote off company looks like an insolvent company getting the point but because of this company financial position looks stable so it is completely misleading that's called pervas then the financial statements are materially misstated and are also pervasively misstated we give which opinion adverse op remaining current assets and all we have got evidence but we'll ignore all that pervasively as a whole the balance sheet is not reliable as a whole it is not reliable able to understand next next same same example I'll take suppose 10 CR worth of purchase invoice is missing the asset is there physically but invoice is missing I am having a doubt that what if this could be a lease reset yes or no if you show me invoice purchase invoice I will say it is in the name of the company so you can show proudly under fixed asset register you can show it as a fixed asset I will convince but invoice is not there now if invoice is not there can I say tataa Motors is trying to dodge me they trying to manipulate me no I cannot say that can I say Tata Motors is is not owning this asset they told sir in 10 CR is our invoice is lost we lost it we lost a certain record sir so that's why we are unable to prove our ownership we are unable to prove our ownership generally if it's a Lee res if a Le that to operating Leed asset we will not show it under asset side at all we will not show we will not add it in the asset register itself yes or no now ownership of the asset is becoming questionable ownership itself is is questionable can I say tat m is not owning it you should prove right that they are not the owners do you have any proof that they are not the owners you don't have any proof or do you have the proof that they the owners you don't have that also now ultimately you end up unable to comment on this you ultimately unable to comment on whether this 10 CR worth of asset is owned by tataa Motors or not you did not get sufficient appropriate evidence regarding ownership of an asset absence of evidence now is this material for the company IM material considering the turnover considering their total assets it is immaterial for an immaterial item why are you waiting for evidences and all ignore it give unqualified opinion give which opinion unqualified because the evidence the evidence for which you are looking is immaterial for material items and all you got evidence yes I got evidence for material items immaterial item why are you sitting and wasting your time ignore unmodified opinion what if this plant and missionary value is 100 CR sorry so what is kindly excuse me with my okay yeah so if you have if at all the ownership of 100 CR worth of asset compan is not able to prove 100 CR worth of asset company is unable to prove the ownership 100 CR is no doubt material and for material item I'm not getting evidence for material item I cannot give my comment also but can I say I cannot give my opinion I want to disclaim the opinion here T mot 100 CR worth of invoice you are not giving me I will not give opinion on the financial statements T mot said hello you have verified reming all the things right this is just of course I agree this is an important item but this is not something so significant as a whole the balance sheet and pnl so that you can deny your opinion so serious step this is material I agree this is not pervasive okay fine I'll give qualified opinion in that I will clearly mention that the entire financial statements are true and fair except that so and so item I did not get evidence except this rest all other financial statements I'm giving opinion this I don't know I will just mention like this T mot also agreed okay sir you can mention like this this is qualified opinion now You observe qualified opinion we give in two circumstances one we have an evidence that the balance sheet is materially misstated we have an evidence for that and balance sheet is materially misstated there we will give qualified opinion two we do not we do not have evidence for a material item for a material item then also I will give which opinion qualified opinion next adverse opinion is given only in one circumstance there is a material misstatement you have a proof that there is a material misstatement and uh it is pervasively impacting the company where you will end up saying the afor said financial statements are not true and fair you will directly say that the afor and financial statements are not true and fair can you switch on the a enough you're sitting relaxed you'll not sweat but I'm Different right how much ever energy all of you together are consuming single I'm alone consuming that so next St so that's adverse opinion disclaimer suppose, CR worth of one big Factory itself related documentation is missing I'm unable to establish the ownership I'm not believing tataa Motors information also whatever information they providing me ultimately th CR worth of factory related invoices I couldn't verify ultimately I decided not to comment on the balance ship why should I comment, CR is it right or wrong I don't know I cannot say it is wrong or I cannot say it is right I'm in dilemma so with Dilemma on a significant portion of the balance sheet item why should give opinion let me not give an opinion getting you decided like that there you give which opinion disclaimer of opinion you see uh in 705 I give this diagram in 705 standard I give this diagram qualified opinion you will Express in two circumstances qualified opinion page number 20 qualified opinion you express in two circumstances one you have verified proper documentation evidence everything you have verified and you know you found a material misstatement you found a material misstatement exist in the financial statements yes it is physically not there that's a proof getting it but is it pervasive no it's not pervasive it is not so significant as a whole pervasive you can understand you can you can use word substantial for pervasive an alternative way to understand is substantial but don't write the word in exam for your understanding say substantial is a better word to to Define pervasive to reflect pervasive there is a material mistake but it is not substantial it is not substantial in the balance sheet and P so I will give opinion on the balance sheet that everything is fine except so and so Mystic that alone I will point out getting it or suppose you you are unable to obtain evidence you are unable to obtain evidence regarding ownership of certain fixed assets yes or no and are the material yes they are material 100 CR is the value of the asset they 100 CR worth of asset I don't have ownership are they substantial in the balance sheet no no no they are not substantial they are fine so you can give an opinion on the remaining part of the balance sheet just this substantial item not you sorry this material at alone you put it under exception though it is not a substantial it's a material at you put it under exception okay okay then also I'll give which opinion qualified opinion you see qualified opinion definition two points will be there in qualified opinion definition I don't know how many of you found mcqs on this mcqs were there on these earlier know we have a separate McQ booklet that booklet can be used except the chapters whatever removed remove that remaining part you can or else you can download my McQ material which is also there free pdf you can download so you just go to there's a website called ra for CSM website in this material I have given entire my material soft copy PDF getting it so PDF you can comfortably download so McQ booklet is there in this so many mcqs I've covered I have covered almost many mcqs getting it few RTP mcqs have covered last scheme old scheme we have a separate McQ booklet that mcqs have added and of course in ICA booklet we have case study mcqs and normal mcqs that also were added here so almost all the mcqs were present next so the auditor shall Express which opinion qualified opinion when two circumstances having obtained having sufficient appropriate and you concluded that there is a misstatement the mistake either individual it is material or multiple mistakes you found aggregate of all the mistakes is material but you know they are not substantial they are not pervasive getting it so you can give which opinion qualified suppose no if at all instead of the word but not pervasive if I substitute the word end persuasive then the adverse opinion definition comes getting it in qualified opinion first part of the definition copy paste only one word you have to change here it is but not pervasive right instead of that if you use the word end pervasive it becomes adverse opinion the auditor having obtained sufficient appropriate evidence concluded means you decided you decided that misstatements are both material and pervasive then you give adverse opinion suppose you are unable to obtain sufficient appropriate evidence you did not get evidence you're unable to get evidence on which you can base your opinion see only if there is an information background information you can base your opinion by looking at that information you can conclude is it right or wrong or something but you did not get the information itself on which you have to base your opinion and auditor no concluded that you see how cleverly they have used possible effect auditor concluded that possible effect on possible effect on financial statements of undetected misstatements possible effect on financial statements of undetected misstatements you see 100 CR worth of plant and missionary you are not giving me invoice you're not giving me invoice related to that so where I am unable to comment whether it is wounded by the company or not wounded by the company okay can I ignore this and say unqualified opinion no I don't want to take risk what if tomorrow this is a leased asset company is showing it as a fixed asset fraudulently what if what if means what possible effect are you getting the point what if there's a possibility what if the 100 worth of planted missionar is mated have you found this mistake by the way you did not found undetected but there is a possibility of this mistake right the possible effect of UN detected misstatement when evidence is not there you think of the worst possibility what if evidence is not there fine you are not you are saying that ownership document is not there I will think in a worst possibility what if the company is not really the owner they fraudulently shown this asset as the owner ownership I mean they fraudulently showed as one asset of the company what if this happens in such a case if there is a mistake like this will it be material yes it is material the possible misstatement could be material of course it is not substantial but not pervasive I will think of the worst possibility when evidence is not there I will think of the worst possibility what if there is a misstatement which I have not identified what if is called as possible effect getting it so when evidence is not there I will question what if there is a mistake what if it is not identified and that mistake is going to be material but not pervasive I will be qualified here if you see if you replace this but not word with end then it become dis disclaimer of opinion getting it if evidence is not there for substantial portion and what if that entire substantial portion was intentionally misstated by the company which I have not discovered what if this undiscovered misstatement is there in the financials which is material and substantial let me not give opinion on that let me not associate with that audit report I will not give an opinion on that that's called disclaimer of opinion understood or not these are relevant these are important for mcqs these are important for mcqs the definitions are important for mcqs now which modified opinion I will give which modified opinion I will give it depends upon nature of the matter giving rise to modification why I wanted to modify is it because you found a misstatements which are material or is it because you are unable to obtain evidence for material item what is the reason you want to modify see there should be one reason right why you want to modify in two two two occasions I will modify my opinion one I found a material misstatement then I will modify my opinion or for a material item they not giving me information then I will I want to modify the opinion okay you want to modify fine which opinion qualif ver disclaimer it depends upon pervasiveness it depends upon pervasiveness of the effect per aess of the effect of the material misstatement or persuasiveness of the possible effect pervasiveness of the possible effect if it is possible effect of matters the matter may be a material misstatement or the matter may be a undetected misstatement the matter may be a material misstatement or undetected misstatement to the financials so why I want to modify one material misstatement I found two for a material item I did not not get evidence now okay you want to modify which modified opinion it depends upon pervasiveness suppose if the M suppose the modification reason is misstatement I found and it's a material and it is not pervasive it is not pervasive I'll give qualified opinion if it is pervasive I'll give adverse opinion suppose if the modification reason is not misstatement the reason is inability to obtain evidence is it regarding material item yes is it regarding pervasive item no qualified again if it is both disclaimer disclaimer of opinion comes only when there is no evidence for substantial portion of the financial information adverse opinion you will give when you prove when you can prove that substantial portion is materially misstated either intentionally or unintentionally whatever intention is not important for us if it all intentional fraud you will report to central government if it is a big amount otherwise you will not report that's it that's the only difference so whether misstatement is intentional or unintentional is not the criteria for the opinion is it a mistake or not are you getting it next what do you mean by pervu we are saying pervu pervu pvu pervu means in auditus judgment the misstatements or absence of evidences it may be either misstatement or absence of evidence whatever it is they are not confined to a specific item they are not limited to a specific element they are not limited to a specific account they are not limited to a specific item of the financial means the misstatement is not in one item the misstatement is not in one account or if so confined okay sometimes it may be one element only but it could represent substantial portion the reason why I told substantial word is because of this when it is called as pervasive when you consider the misstatement is substantial to the financials you can simply say anything more than 20% is substantial portion you can apply income tax definition substantial means what if 20% of the balance sheet is materially mated or for 20% of the item in the balance sheet you are not getting evidence you can consider it as pervasive in fact most of the Auditors consider 5% itself as pervasive most of the Auditors consider 5% itself is pervasive 1% is material 5% of turnover is pervasive 5% of net worth is pervasive able to understand we don't even go for 20% 5% is enough to change the position of the entity able to understand so if so confined so generally pervasive means what it is limited to multiple elements not limited to specific element sometimes single element only sometimes single element only but that single element could be substantial portion are you getting it then also we will call it as what pervasive you see in the example which we took 100 gr sing sing element only mistake is only in single element but not pervasive th000 CR mistake is in single element only but th CR is substantial portion that's why we call it as pervasive suppose no mistake is not in single element multiple elements datar were overstated by 10 CR inventor is overstated by 5 CR some loans and advances were overstated by 20 CR fixed assets were overstated by 40 CR multiple items were individually they material individually they are some items individually they're not even material but aggregate they are material aggregate they are even pervasive substantial then also I'll give which opinion adverse opinion if at all if at all the nature of matter is no evidence then I will give disclaimer of opinion are you getting the point all of you now in true or false statements I mean mcqs designed in true or false manner mcqs are designed in true or false manner they'll give you the following just one minute yes so in uh in exams know they'll give you like this the a you are appointed as an auditor of so and so entity as a part of the audit you have you have found a material misstatement where you judged it as not pervasive and the misstatement is in so and so aspect which of the following opinion drafting you will use they'll give you like this one first all option A in our opinion to the best of our information and according to the explanation given to us because of significance of the matter described in fais for so and so they'll give option b because of in our opinion all that is common except for the effect of the matter described in basis for qualified opinion section of our report like nothing but they talk on opinions two marks McQ like this they ask this two marks mcqs they were they were there in the McQ booklet also this these kinds of question were there getting it I'll show you that just we'll finish this in another 15 minutes this this topic will be over this opinion topic will be over so if You observe this is a pronouncement book of course it's not relevant for you the illustrate of audit report is given in the ca Institute your material is there right at the end of the chapter they have given illustrations the same illustration is what I'm showing here okay so there is one illustration where you have to give an audit report where you have to give an audit report on of a listed entity prepared in accordance with fair presentation framework how opinion wordings look like so first of all there should be a title for the audit report called independent audit report yes or no now so first one to the members of the company then the first section in the audit report is opinion in audit report every paragraph should have a side heading for sure getting it and when the word opinion side heading is simply opinion it's actually unqualified opinion when you are giving a qualified opinion you should reflect that in the side heading itself getting it it should be reflected in side heading itself now you see what is there in the opinion per in opinion per there are two aspects one is this introduction another one is actual opinion one is Introduction this is called intro within the opinion earlier we call it as introductory per getting it now this is actual opinion per both are under opinion section so in the first thing what auditor is saying we have audited Standalone financials of ABC company comparing balance sheet pnl cash flow statement of changes in equity notes to accounts which are prepared as per so and so you will mention that now below you are giving actual opinion in our opinion to the best of our information and according to the explanation given to us the afor said financial statements give information required by the act in the manner so required and give a true and Fair View in Conformity with gap and after is there no giving true and Fair View this this extra sentence will come I'll highlight with the different color and give a true and Fair View in Conformity with gap in India whatever I've highlighted in l c these words will come if the framework is fair presentation framework suppose if the framework is compliance framework we just we just put the opinion up to this full stop in the manner so required off State of Affairs balance sheet pnl like that we will mention suppose if it is fair presentation whatever is highlighted in yellow color that will also come in extra extra additionally getting the point so this is plain opinion you see here nothing no exception no no reason specifically in our opinion to the best of our information and according to the explanation given to us the afor set Standalone financial statements give true and Fair View nothing but simply they're giving they giving true and Fair View that's it suppose if it is a qualified opinion if it is a qualified opinion under ESS 75 we have this illustration so I'll go to sa 75 in that we have illustrations on all these things so illustration one here where illustration one is an illustration for qualified opinion due to material misstatement material misstatement is there what is that misstatement inventory is misstated the misstatement is given to be material but not pervasive which opinion will give qualified yes or no so they have given an hint that qualified opinion is appropriate same title independent audit report side heading you see qualified opinion and basis for qualified opinion basis for qualified opinion now you see qualified opinion right how the wordings were same in our opinion to the best of our information according to the explanation given to us except for except for the effect of matter described in basis for qualified opinion section of our report we added one an exception here the efor said financial statements give true and Fair View so in our opinion to the best of our information and according to the explanation given to us the effort and financials are giving true and fair you positive opinion but in between we added one exception remember the wordings must be the same you cannot use some other wording you cannot use the word subject to instead of accept you cannot use the word subject to instead of accept other than word you cannot use whatever standard says only that phrase only you must use you cannot use some other phrase or some other sentence alternative except for the effect of the matter you see they are using the word effect why here material misstatement evidence is there you proved it suppose if evidence is not there then we would have been using the word POS effect except for the except for the possible effect of the matter they will use the word if evidence is not there the wordings will change like that getting it so okay except for the matter which matter where what is the matter don't worry it is described in basis for qualified opinion section where where is the section in our report only where is it next to repx part getting it now you see this is actually called as basis for opinion section concept is what basis for opinion section we call it as generally when you give unqualified opinion when you give unqualified opinion what is the basis for unqualified see when I give a qualified opinion or adverse opinion or disclaimer I will have a reason why I'm giving giving qualified opinion but when I'm giving unqualified opinion when I say everything is true and fair what reason I have specifically do I have any reason generally I will have reasons when I'm giving unqualified opinion the reasons are very general like I have gone through the entire financials I have conducted the audit we obtain sufficient appropriate evidence so that's why you know based on the evidence we got the opinion is unqualified suppose if it is unqualified opinion now only the second part of the basis for qualified opinion per will come only the second part will come getting it the first part will not be there when you are giving suppose if it is unqualified opinion side heading of this PA is what simply basis for opinion so in that case what is the what is the basis for opinion basis is very simple we conducted our audit as per standards on auditing we conducted our audit as per standards and auditing and our responsibilities under those standards are so under standards and Audi have so many responsibilities all of responsibilities are further described in further described in Auditors responsibilities for audit of financial statement section of our report you see I'll show you tataa motor audit report directly in tataa motor audit report If You observe there is a paragraph called auditor responsibility section so there is an auditor responsibility section You observe here auditor responsibilities for audit of financial statements okay if it is stand alone stand alone Consolidated Consolidated but basically it's a financial statements so what is our objective our objective is to obtain reasonable assurance re whether I mean whether the financials are free from misstatements whether due to fraud or error reasonable Assurance is a high level of insurance but not a guarantee all whatever the content you studied in CA inter inherent limitations of audit that is copy based here getting it so and we do what are our responsibilities we do we do risk assessment and we understand internal controls of the company we check accounting policies of the company we check going concern basis of the entity we evaluate overall presentation structure and content of the financial this point will come in fair presentation framework this point will come in fair presentation framework we have that in smart notes I mean in the notes also I've given this it is there in main material so in case of fair presentation in case of fair presentation framework what aspects auditor has to additionally consider the auditor has to consider overall presentation structure of the financial statements overall presentation and structure auditor has to evaluate overall presentation what is the structure and what's the content including the disclosure whether the Standalone financials are representing whether the financials are representing underlying transactions and events in the manner that achieve pay presentation they'll give you a question like this for four marks or three marks in case of fair presentation framework what Additionally the auditor will evaluate the auditor evaluate Additionally the overall presentation structure and content of the financials including the disclosures and second Point whether the financial statements reflect underlying transactions and events so as to achieve fair presentation this point that's direct question might come it is there actually as part of our question Bank it is there in our question Bank getting it next so we mentioned that in basis for opinion paragraph We mentioned that we have conducted our audit as per standards we are independent of the company as per code of ethics and we we will mention that we have fulfilled our ethical respon responsibilities as per code of ethics and we will also mention a statement that we believe that the evidence we have obtained is sufficient and appropriate to provide a basis for our opinion you're asking what is the basis for opinion right our evidence obtained itself is the basis for opinion and remember whatever evidence we obtain we believe that it is sufficient and appropriate so only after obtaining sufficient and appropriate evidence I'm giving this opinion so I'm telling in the audit report dear shareholder I'm not giving opinion just like that I have conducted audit as per standards on auditing what will I do as per standards on auditing you want to know go to my another paragraph what paragraph auditor responsibilities relating to financials there briefly I explained how I do audit briefly have explained how I will do audit so in that I have given entire my responsibilities as for various standards and auditing and look I'm independent of the company I complied with code of ethics and remember whatever the opinion I have given base for that the basis is evidence we have obtained and I believe that it is sufficient and appropriate I am giving an affirmation to the shareholder I'm giving confidence to the shareholder that I have a proper basis for the opinion able to understand suppose no you have given here qualified opinion right now what is basis for qualified opinion you are giving General reason fine you are giving General reason you have conducted audit as per but you have given qualified opinion you are saying that something is wrong what exactly you should qualify and all also quantify you should qualify and also quantify see in this no I have clearly mentioned that reason you see how basis for how basis for opinion paragraph will be given when you are giving a modified opinion suppose if there's a material misstatement in financial statements because of that you want to qu qualify so first you qualify and you should also quantify you should also qualify plus quantify both you should do suppose if you are unable to quantify if is not possible for you to quantify state that you cannot quantify state that if if it is not practicable to quantify the financial effect the auditor shall state in the section that you are unable to quantify now you see if there is a material misstatement of financials that relates to a specific amount getting it including a quantitative disclosures to the nodes auditor shall include in the basis for obedience section a description of the mistake quantification of the financial effect of the misstatement unless impracticable you see what what in this illustration it is there in this illustration they have clearly given that in this illustration no they have clearly mentioned a company inventories are carried in balance sheet at 1,000 CR management has not stated inventories at lower of cost or NB but only stated them at cost which is 1100 CR the cost is 1100 the company carried in the balance sheet at okay let us assume 1100 Only They Carried actually NRV is 1,000 NRV is how much 1,000 CR whereas cost is 1100 whichever is lower they should show th000 but company showed at 1100 only which constitutes a departure from accounting standard prescribed under 133 it may be indas or normal accounting standard whatever getting it because cost or NV whichever is lower they should follow right they didn't follow that now you see we qualified what is the mistake company did we qualified we mentioned that company financial statements are showing inventory carrying value 1100 CR which is not as per accounting standard as per accounting standard whichever is lower we should show but company showed them at cost only they did not show at NRV we qualified not only that we should also quantify how they Quantified you see you see how they Quantified the company the company's records indicate that add management stated if at all management stated the inventories at lower of cost or NRV an amount of 100 CR would have been required to write down to write the inventories down to their NRV and and cost of sales will increase by 100 CR income tax will increase by 30 CR net income so and so will be increased by shareholder funds will be increased or decreased by so and so are you getting the point we are quantifying the financial effect we are quantifying the financial effect now you know this is what we have given this is there in the study material a study material only getting it suppose no you cannot quantify like this for example I will show you next illustration I will show you next illustration this is adverse opinion related illustration this is adverse opinion related illustration you see here what happened is I'll tell you here they have given this the Consolidated financial statements are materially misstated due to non-c consolidation of a subsidiary if a subsidiary is not Consolidated we know consolidation of subsidiary is on a line by line method line by line method means every item in the Consolidated profit and loss account every item in the Consolidated balance sheet will affect rate if one subsidiary that to a material subsidiary is not Consolidated if a material subsidiary is not Consolidated in the Consolidated balance sheet and P you know Reliance Industries limited they Consolidated 270 subsid companies 140 associate companies 26 joint ventures getting it Reliance Industries limited the Consolidated balance sheet is a the consolidation of the holding company Reliance plus 270 sub subsidiary companies 140 associate companies some 25 26 plus or minus 10 number wrong I don't exactly but roughly I'm telling you which is my number is close to actual getting it don't again come and say 270 you said sir understand the intention getting it so this much they Consolidated in this one subsidary company which is material they didn't consolidate so tell me is it a material statement yes and since it's a material subsidary that occupy 20% of the entire company size since it's a substantial portion it is pervasive also you didn't consolidate Consolidated financial statements are not prepared as per applicable financial reporting framework applicable framework says you should consolidate all subsidiaries all Associates but you didn't consolidate one material subsidiary yes or no so auditor decided to give adverse opinion now you see auditor no same introduction sing adverse opinion what opinion gave in our opinion to the best of our information according to the explanation given to us because of you see the word they have used the word because not except it's not one item it's not one or two small item to say exception I'm not giving positive opinion with exception qualified opinion means conditional positive opinion getting it that's why we use the word everything is good except this whereas here I'm not I'm saying everything is bad why because of significance of matter because of significance of matter discussed in where basis for adverse opinion section of our report the accompanying Consolidated financials do not give a true and Fair View we straight away said do not give true and Fair View we are not saying that true and fair accept St do not give why why they not Ren Fair because of significance of matter described in basis for adverse opinion you see as explained in note number 10 in the financial statements group has not Consolidated one of the subsidiary which acquired because it has not been able to determine Fair values the investment is therefore accounted on cost basis they didn't account it on line by line method basis under the accounting standard Gap the group should have Consolidated the subsid and accounted acquisition based on at least provisional amounts had XYZ Consolidated many elements in the financials would have been affected the effect of the is Consolidated financials of failure to consolidate not being determined tell me if it is one mistake I will say that mistake is wrong if that mistake is not there this must be the amount this would be the profit this would be the fund if I do not consolidate subsidiary each item in the balance sheet each item in the P will be affected with some amount right can I quantify that entire list so auditor know he has not determined what is it effect because it is impracticable that's what they saying you see if it is not practicable to quantify the financial effect the auditor shall so state in this section he clearly mentioned the effect of non-c consolidation of a subsidiary is not determined getting it suppose no suppose no this is actually another point this is actually a separate point this is actually separate Point suppose no if the misstatement is if the material misstatement is relating to a disclosure if the misstatement is relating to disclosure you disclosed something wrongly you know misstatement can be in the form of disclosure right in such a case how do you qualify in basis for opinion section explain how the disclosure is misstated what is Right disclosure you talk that's enough suppose they disclosed wrongly some information some asset useful like they disclose it wrongly it's a material misstatement you disclose what is Right disclosure in the basis for qualified opinion or basis for adverse opinion section understood suppose they did a material misstatement by a non-disclosure they didn't disclose at all this is a very important question four marks question if any material if a material misstatement arises in the financials by way of non-disclosure what auditor has to do getting it if there is a material misstatement if there is a material misstatement that relates to non-disclosure discuss it with the top management identify the nature is it material all that include the omitted disclosure in the audit report include that in the audit report whatever disclosure is omitted you include it in the audit report unless prohibited by law if there's a Prohibition in law to include that in audit report don't include otherwise you can include in India there is no Prohibition in the world also there is no Prohibition in any country getting it so provided it is practicable to do so suppose company did not disclose segment information itself segment information they did not disclose will you will you give an audit report entire segment reporting it will come four five pages now who will do that first of all to prepare that segment information company should have prepared now if they prepared and not disclosed you can take that copy and then attach it in the audit report now compan is asking me sir what is segment information they don't know what is segment information should I sit and prepare primary segments reportable segment secondary segment study as17 once again and then prepare all the segment not possible it's not practicable so I will mention that segment information is not disclosed and the impact is the the actual disclosure is impracticable for us to do so we will just mention that suppose you are unable to obtain evidence if modification is resulting from inability to obtain evidence mention that in the basis for opinion section the reason for inability so that also we will see next one next illustration disclaimer of opinion disclaimer of opinion you say disclaimer of opinion same title independent Auditors report seding disclaimer of opinion remember many students here they write disclaimer opinion no it's actually disclaimer of opinion you not giving opinion understand not giving an opinion should be expressed in the audit report technically speaking this is not an opinion disclaimer of opinion is not a opinion and you see here in the introduction they mentioned we were engaged to audit normally in unqualified opinion in in qualified an adverse where where we mention that we have audited here we were we are mentioning we were engaged to audit because substantial portion we didn't get evidence technically substantial portion since we did not get evidence we did not verify when we did not verify substantial portion substantial we didn't audit so we are not saying that we have audited we are saying that we were engaged to audit straight away we do not express an opinion on the accompained financials why because of significance of matter described in basis for disclaimer section are you getting it now you see basis for disclaimer section will have straight away the matter we we conducted our audit as per standards on auditing our responsibilities under standards and auditing are further described in so and so section of our report that $1 we will not give because you didn't give opinion first of all how do you conduct audit you are not giving opinion if there is a opinion you can talk about basis for the opinion how you did audit all that here you didn't give opinion so people are not bothered about what is the basis getting it you are giving op you are not giving opinion right why are you not giving opinion that reason you will mention the group investment represents 90% of the net assets some 90% of the assets is represented by investment we were not allowed access to Auditors of so and so company and their documentation we did not get access to the subsidary the investment where we mention a joint venture that related company records and all or the Auditors access also we did not get ultimately as a result we were unable to determine whether any adjustment is necessary in respect of so of proportionate share of assets actually regarding a joint vure this company made a joint vure this company invested in a joint vure now this investment value itself is 90% of the total assets of this entity and that joint venture related audit report audit and all happened that records and all were there but we were not given access to 90% of our company assets were represented by this investment in joint vcho whether that value is stated correctly or not I'm unable to comment so auditor gave what disclaimer of opinion and now you see there is a section auditor responsibilities for audit of Consolidated financials so simply here audit of financials generally auditor responsibilities for audit of financial statement section uh it will have the following we do audit as per standards of auditing we do we do obtain reasonable Insurance reasonable insurance is a high level of insurance as a part of our audit we do risk assessment we do verify going concern we do verify accounting policies we verify overall presentation structure all that responsibilities people will sit and listen when you give an opinion you're not giving opinion so what audit responsibility section our responsibility is to conduct audit of the group in accordance with standards our responsibility is to conduct as for standards however because of the matter described in basis for qualified opinion section I I told some matter we were we were not obtained sufficient yeah we were yeah we were not obtained sufficient appropriate to provide a basis for opinion on these Consolidated financial statements by the way we are independent of the group we have complied with ethical requirements all that don't think I'm not satisfied with ethical requirements that's why I'm not doing audit no I complied with ethical requirements but because of the matter described above where we did not get evidence that is the reason why I'm not giving opinion primarily I'm appointed for giving opinion our responsibility is to conduct as per auditing I mean our responsibility is to conduct audit as per standards but we are unable to conduct the audit because of so and so reason described in so and so so when auditor has given disclaimer of opinion auditor responsibility section will be modified to this extent that question is also there description of auditor responsibilities for the audit of financial statements when the auditor disclaims an opinion on the financial statements here I have not updated the reference this was asked in some uh May November 22 or May 22 some attempt May 23 somewhere it was asked this question was asked I don't know is in CA final or C but in one in one exam they have asked how auditor responsibilities for auditor financial statement section you describe when auditor disclaims opinion when auditor disclaims opinion responsibilities of auditor section what will you Draft when auditor disclaims an opinion due to inable to obtain evidence the auditor shall amend description of auditor responsibilities to include only the following a statement that auditor responsibilities to conduct audit as per standard a statement that however because of the matter described in basis for ad I mean disclaimer of opinion section we were not obtain sufficient appropriate to provide a basis and a statement about your Independence and other ethical other ethical responsibilities these three points they'll give you a four marks question able to understand description of auditor responsibility section when you have given a disclaimer of opinion generally basis I mean responsibility section will state all this all this write about auditor responsibilities relating to auditor financials generally you will talk about objectives of the auditor reasonable Insurance material misstatement you will mention about risk assessment you will mention about internal controls accounting policy going concern overall structure presentation all these you will mention in responsibility section but when you give disclaimer of opinion you will not mention all this understood or or not clear that's it so types of opinions we have completed types of opinions we have completed so we understood opinion per and basis for opinion per if it is unqualified opinion simply opinion basis for opinion if it is qualified opinion qualified opinion basis for qualified opinion adverse opinion basis for adverse opinion disclaimer of opinion basis for disclaimer of opinion clear all of you I canot not discuss much more than this it's a revision class remember okay that's it so just 2 minutes we'll continue next one so now we have completed title addressy opinion section basis for opinion section even responsibilities auditor responsibilities for audit of financial statements section all these we have completed in exam they will ask you what are the contents of opinion section they'll ask you like this question okay you just have to write identify the entity whose financial statements are audited state that financials were audited identify the title of each financial statement refer to the notes specify the date of and period covered by financial statements and ultimately F Point opinion to be expressed opinion to be expressed actually only these five are there in the Institute book also actually opinion section will also have opinion right that's it what basis for opinion paragraph will contain in basis for opinion paragraph We state that audit was conducted as per standards and we will also mention that our responsibilities are described under audit responsibility so we will refer to that section a statement that auditor is independent and fulfilled the responsibility a statement that whether we obtained sufficient appropriate evidence or not you see the basis for opinion per you read that all these points are only covered there getting IT Auditor responsibilities this question has been asked in CF final also what is the location of description of auditor responsibilities where you can I mean where you can locate this auditor responsibility section where you can give it I can give it within the body of audit report I can give it within the body of audit report you see tataa Motas they give within the audit report itself right you see they give yes this is the independent audit report opinion basis for opinion key audit matter management responsibility audit responsibility so within the audit report only they give so that is one option you have within the body of audit report or you can give as an appendex to the audit report you can give it as a appendex you see T Motors they did not give appendix but for Caro they gave it as appendix car you see NX a they gave it as an appendix so auditor responsibility section also you can give it as an appendix if you want you can talk within the audit report itself or audit a responsibility for audit of financials below refer andex B like that you can give option C another option that we have is by a specific reference by a specific reference within audit report to the location of such a description of a website of appropriate Authority where law regulation expressly permit in India this is not permitted getting it but standard international standard on auditing have this option if you want to talk about audit responsibility because audit responsibilities are so many yes or no even in the audit report we are only giving very few of our responsibilities briefly public want to know what exactly you do suppose suppose the lawmaker might involve they might say auditor you create your own website you have your own website right inside that what are auditor responsibilities for financials add that block getting it create a blog on that write a blog on audit responsibilities with clear examples all that so that people will understand audit rep properly I wrote a Blog and that website HDML address will be there right that address I will put it in the audit report auditor responsibilities for audit financial statements refer to the website link like this I'll put a link here able to understand so that is another option in that we can do website link and all we can do when when law expressly permit companies Act is silent on this SE is silent on this so in India we don't have this option but in exam they're asking this getting it so where what is the location of description of auditor responsibility section in the audit report so where you will describe the audit responsibility generally we describe with in the audit report itself not even as an appendix Carrow we are giving as an appendix actually car is also part of audit report but we are not directly discussing car in the audit report we are giving as an appendix appendix is like an additional sheet in exam additional sheet is also equal like main sheet right yes or no some students write correct answers only in additional sheets entire main sheet is strikes only strike Ops only next then signature of the auditor signature of the auditor Auditor in case of so proor you should sign in your personal name you should sign the report in your personal name suppose in case if the audit Auditors is a form by the way remember form means it may be a sole proprietor form or it may be a partnership form or LLP Forum means it essentially have a forum registration number in ethics we will discuss why this concept is important tomorrow once you start your practice example you can directly do in your name membership number is that itself is enough for you to practice by the way cop is also required that's what I mean so with the membership number itself with the cop itself you can directly practice so if I am appointed as an auditor I can directly say Ram charted accountant membership number I can sign it but some instead of that you incorporate a f you incorporate a f f name you take so F name supp you took like ramara and Co this is my fir example proprietorship only and the single partner only single person only it's a sole proprietor F that's it getting it if I if I do practice in my f name no F will have an experience F will get experience so this F name can be transferred to another chartered accountant if I practice in the name of the F far will get Goodwill get that Goodwill I can encash if I practice in my name goone that's it you can't end cash your legal ha and all cannot end cash able to understand so if you want to have sustainable identity forever identity for your F name get a f name with I will allow F I will give you registered with i a fir name that's it DB karano who is the founder of our Institute he died long back still his F name is there his farm is still running with different new partners Goodwill will be there getting the point in CA in ethics chapter we have no sale of Goodwill concept there this only we will be discussing F name individual name all that only we'll be discussing suppose if a FM is appointed as an auditor sole preparator only Ram Harsha and co-art accountants is appointed as an auditor not me my co my FM is appointed as an auditor getting the point if FM is appointed as an auditor the partner will sign the audit report in his individual name on behalf of the firm individual name only I will sign but I will sign it on behalf of FM they will give you true or false statement in CA inter true or false question they give of course in C inter separate true or false statements will for you true or false will be asked as an McQ in McQ itself they lost true or false statement so when a firm is appointed as an auditor the audit report shall be signed by the partner in his individual name full stop incorrect the audit report shall be finded by the partner in his individual name and on behalf of the F that point they expecting getting the point they'll give you which of the following statement is not true they'll give you four options like this you have to be very clear confident next date of the audit report what is the date on which you mention the audit report you should not mention the date of audit report earlier than you should not mention earlier than the date on which you completed the audit nothing but the date on which you obtained sufficient appropria without obtaining complete evidences that you want without verifying complete background information you want can you date the audit report do you cannot date the audit report before approval date of the financials remember what is meant by approval of the financial statements board of directors are signing the balance sheet saying that this balance sheet we are releasing in the Public Public want to know what is your opinion on that balance sheet only right now can you sign your audit report before they sign the balance sheet obviously not because they want your opinion on the signed balance sheet by the directors which means our audit report should be signed after they signed the financial statements cannot be earlier it can be equal date so the date of audit report shall only be the date of audit report shall only be on or after approval of the financials on or after obtaining complete sufficient appropriate evidence actually in standards they use the word the audit report shall not be signed the audit report shall not be dated not earlier than the date on which you obtain sufficient appropriate evidence the date on which those with those with I mean appropriate Authority have asserted that they have taken responsibility for financial statements that's nothing but approval of the financial statements that's the date of audit report and we all know finally we have Udin number I hope many of you are in articles I mean articles completed no dummy have you generated Udin which means you all latest uh latest only completed article because uden is popular only in 2019 onwards getting it 2019 onwards so Udin number and uh Udin is like a digital signature simply it is like a digital authentication so if if you look at my signature my signature is so simple anybody can copy if you practice getting it it's very simple of course my strike you cannot practice sometimes my signature will not match with my signature okay initially I used to face this problem whenever I give a check no it's not matching bank will Banker will call me so I again once again send him okay carefully so then now it is perfect you see all the three signatures almost same bankr will check 90% accuracy only he will not check 100% check 100% accuracy all the checks will bounce everybody's because 90% only accuracy we can maintain now anybody who knows my membership number 239 714 this is my membership number do whatever you want getting it they can't do anything because a document is today authentic only if it have UD numers generated by me in my Udin login ID so there's a Udin portal inside that whatever document I'm signing the document characteristics I will mention in the Udin portal in the document some numbers will be there that numbers I'll mention so as a proof that this is the one I signed and I will generate a Udin number some 18 characters number will be there okay so in that membership number will be there all that will be there so that number will be generated only when that number is there you that that document is reliable Banker also will will believe that the document is signed by you if somebody without you number trying to blame me I cannot accept it I will start say where is UD number I didn't I didn't sign it though my signature is there nobody can you know uh like put a case against me easily earlier many CS have faced these kind of situations so Institute came up with Udin concept now recently Institute is also trying to attach no concept to UD very recently no objection certificate you know right Clause number eight ethics we have to communicate with the previous auditor right so that we can obtain through Udin portal nowadays I mean that's what institute is planning to implement otherwise communicating with previous auditor BEC so difficult nobody will reply yes no we communicate with previous aor he will not reply because he did not get reply from his previous auditor that's it next so that's about remaining contents of audit report now we are still left with responsibilities of management report on other legal and regulate requirement and these standards getting it right now we have completed 70075 technically speaking two standards we completed which is based for remaining all other standards in order to understand remaining standards perfectly precisely if you understand these standards that's best now next I will discuss key emphasis of matter paragraph other matter paragraph emphasis of matter paragraph and other matter paragraph now you see data Motors itself you see I'll I'll go to the index itself this is the tataa motors financial statements Standalone financial statements were started with 35 page ended 48 page okay which means within this some 10 pages audit report not 10 pages maybe eight pages some four pages balance sheet face of the balance sheet face of the pendl pH of statement of changes in equity face of cash flow some four pages some 10 to 15 pages leave it 90 Pages approximately notes to accounts who will read honestly yes or no people will not have patience to read Auditors themselves read on a sampling basis that's why so many mistakes in the financials many of you would have done this right when you're preparing final fin financial statements notes no in a final discussion you're going to your principal especially you will never read that you'll directly copy paste numberers alone you change and then go there exactly there you'll find a mistake have you have you faced this yeah so people will not read remember you have a responsibility to read entire financial statements do you have the responsibility to read entire financial statements including notes each and every line and each and every page yes of course you have to sign that you have to say whether they're true and fair or not 100% of the financial statements whether they are presented and disclosed as per applicable financial reporting framework you have to read in order to understand whether all the accounting standard disclosure requirements are met you have to read you don't have another option now when you're reading no somewhere in this somewhere in this some 94th page inside that some note number 48 is there some note number 48 is there which is talking about some contingent liability which is talking about very big contingent liability a pending litigation against the company by some environmental committee okay they filed a case against EV manufacturing EV batteries manufacturing and all getting it you are you're manufacturing battery in the name of eeve that you're you're reducing car you know all that carbon dioxide whatever but battery manufacturing itself takes so much of pollution like that some some committee has filed a case against the EV division of the company for example if at all that case went successful in Supreme Court we have to stop EV manufacturing that's the kind of case tataa Motors know e is growing like anything okay now they disclosed this entire facts of the case everything in the notes to accounts regarding conent liability what is the case all that Hest disclosed they did not hide anything no hide clearly they disclosed T Motors now when I'm reading this financial statements now I'm reading 10 times 15 times notes I found this 48th point is very important for people and I know very well nobody will read this if they if I ask them to read entire notes to accounts by the time they read third line in the notes account they'll stop reading because they don't understand CS students itself you don't understand correctly fair presentation for you see in the starting and all they use restated you know all that so many new words and all they'll be using Fair values all that if you do not study that accounting standard fair value related standards and all you don't understand this correct so I know very well so but I know somewhere that the percentage of people who read my audit report are quite higher than the percentage of people who read notes to accounts definitely audit people at least will see so this important note point I want to highlight that is where emphasis of matter paragraph comes emphasis means what highlight emphasis dictionary meaning is what emphasizing highlighting so emphasis of matter paragraph emphasis of matter paragraph is a paragraph in the independent audit report you see here emphasis of matter paragraph is a paragraph included in auditor report that refers to a matter appropriately the very important terminology appropriately presented or disclosed in financials that in the auditor judgment is of such importance that it is fundamental to users understanding of the financial statements I felt when I'm reading the audit report when I'm reading the notes to accounts or when I'm reading the financials there are some point which is presented or disclosed in financials I felt it is very important for the user understanding it is very important for the user user to understand the financial statements much more better way getting it to understand that to interpret the financial result to inter the company position in a much more better way this point is no doubt very important I felt so I will I will refer to this matter I will refer to this matter in our example the matter is not number 48 I will refer to this matter in the audit report getting it when I can refer like this only when it is appropriately presented or disclosed appropriately means free from material misstatement if at all the contingent liability information is not presented clearly as per the concern accounting standard they are not disclosing clearly the picture getting it which means it's a material misstatement when it is a material misstatement you should give a qualified opinion or adverse opinion depending upon the persuasiveness you cannot highlight it under emphasis of matter under emphasis of matter a particular matter presented or disclosed in financials you can highlight only when when it is appropriately presented that is what they conditions conditions for emphasis of matter the auditor shall include an emphasis of matter provided is not required to modify the opinion in accordance with 75 on that matter which you are highlighting you are not required to modify the opinion and the matter is not decided as a key audit matter if at all you are already discussing that in key audit matter don't discuss again in emphasis of matter paragraph better in key audit matter when we discuss anything related to financials we generally refer to that not point if it is there in the financials duplication to avoid duplication this point is added so conditions for emphasis it is not you you are not required to modify your opinion on that two it is not a key audit matter why are you highlighting an emphasis because I felt it is important for them to read whether they read remaining notes to accounts or not because I already told balance sheet numbers pnl numbers everything is true and for I gave unqualified opinion I don't have any objection compan is so honest they presented everything honestly but remember there are some important points that you need to identify look at these important points like this I can highlight under which paragraph emphasis of matter paragraph manner of presentation how how emphasis of matter paragraph can be presented I'll show you a in the audit report so many points were there in emphasis of matter paragraph so what is the manner of presentation Air India did so there's this is an audit report yes or no Air India related audit report inside this audit report in a separate section emphasis of matter paragraph is presented in separate section like separate setting like opinion sing how it is given qualified opinion they give separate side reading basis for qualified opinion separate side reading emphasis of matter separate side heading are you getting the point so emphasis of matter paragraph is presented by India in a separate section in the audit report what are they doing we draw your attention to we draw your attention to note number 2 Note number 26 note number 49 note number 46 like this so they draw they draw the attention of the users to so many you see almost note number 49 so many note points were there in the Air India notes to account so many so many would have been there so Air India Auditors are asking you to refer some seven or eight points seven or eight points by the way at the end also they're mentioning one more one more clearly what are they mentioning our opinion is not modified in respect of look I'm just highlighting important points that doesn't mean I have objection on them getting it emphasis of matter paragraph I'm just highlighting important points why are you highlighting is there any mistake in that no mistake I don't have any objection on that I'm just highl why are you highlighting because it's important for you for that reason I'm highlighting and remember people will not understand if I highlight something people may think that something is wrong in this that's why auditor highlight no no no nothing is wrong that's what I'm say that's why at the end of the pair what are they mentioning our opinion is not modified so we are specifically saying I don't have objection on the above Point don't think that I'm having objection on these points which means our opinion is not modified means all these items which are presented in respective note numbers are free from Material misstated they are appropriately presented or disclosed in financial statements which auditor is highlighting now you see this one what is the manner of presentation of emphasis of matter per include this paragraph within a separate section with an appropriate heading where the heading will include this term called emphasis of matter and express the matter being emphasized give the reference to that matter a India we draw your attention to note number 26 note number 49 yes or no state that your opinion is not modified mentioned or not at the end of the the par our opinion is not modified this is the manner of presentation next remember emphasis of matter paragraph is not a substitute for modified opinion not a substitute for disclosure in financials suppose company has to disclose something in financials they didn't disclose it's a material misstatement you need to qualify the audit report or you need to give add you need to give either adverse opinion in the basis of qualified opinion or basis for adverse opinion you should disclose that if it is practicable to do so non-disclosure misstatement you should disclose it in the audit report if possible so if company forgot to disclose something can you disclose it in emphasis of matter paragraph can you use that emphasis of matter paragraph as a substitute for disclosing in financials no emphasis of matter paragraph is not a substitute for reporting as per 570 when a material uncertainty exist when a material uncertainty related to going concern exist what to do we'll discuss later but emphasis of matter paragraph is not a substitute for going concern per clear all of you that's it emphasis of matter paragraph is in exam they'll ask you define emphasis of matter par what is the manner of presentation of emphasis of matter per or they'll ask you define emphasis of matter under what conditions or circumstances auditor can use an emphasis of matter per give examples also they'll ask you you see that's why in the question Bank I've covered the that question under what you know give some examples of circumstances where auditor may consider it necessary to include emphasis of matter per an uncertainty relating to some pending litigation some significant subsequent event occurred but it is not an adjusting event or adjusting event whatever early application of some accounting standard company you know applying some accounting standard even though it is they're not liable they're applying and preparing as per new some companies know they are not liable for IND voluntarily they adopt IND and then prepare so can highlight that point which is given in the noes to accounts a major catastrophe that had occurred in the you know this thing now you know these are the examples of matters which auditor can highlight you cannot write your own examples look only these examples you have to write even though they are examples you have to write these examples only suggested answer will have only these examples are you getting the point you writing your own random examples company suffering from so and so highlight this auditor you will suffer from lack of marks so see paper valuers they are not they are not subject experts they are not faculties like me yes or no I will understand your alternative answer but others will not understand their alternative answer best example if I give you statistics or mathematics paper because you qualified Foundation or CPT or some other you have gone through mathematics right somewhere in your life point of life yes or no so definitely of course up to 10th standard or 11th standard you have mathematics right 12th standard so if I give you CF Foundation mathematics paper how will evaluate student wrote alternative answer like what we claim student wrote alternative answer how do you how do you evaluate when when you are evaluating you just to look at suggested answer and see what answer he wrote not matching wrong yes or no exactly same that's how your audit paper is also evaluated people are not realizing this I understand this is a loophole in valuation there's a mistake in valuation but something that we cannot avoid the Institute condition first condition for paper valuation you should not be associated in coaching activities that's the first condition for CS students or CMA or CS you should not be associated in the coaching activities in the past 5 years so that's the primary condition for the valuation so obviously I'm I'm disqualified for paper valuation getting it now the person who is coming is a qualified C completed four years of post qualification experience forgot already whatever he learned that fellow is sitting and valuing your paper by just comparing with the suggested answer if you write an alternative answer you only understand that it's an alternative answer but he will not understand so if examples were asked the Institute give so and so examples they'll give maybe another five extra examples but your example is not matching in any of the nine points which they give you just have to write three points only this question you just have to write three to four points only but it's not matching what to do he'll strike off the answer though your concept is correct your examples are correct he'll strike off this is the like what unavoidable loophole in the valuation we can't overcome it inherent limitation getting it so what is the only option you have to you have to study from the ICA book only or any book that you follow must match with ICA book if the author of the book is over enthusiastic and giving you different different examples of his knowledge it'll be useful but not for qualification getting the point so be careful don't know Institute know they're trying to make all the changes they are conducting exams for valuation notes also no valuation and all they they keep two laptops they'll see the question open the question in another laptop and pick the answer this is what they're doing online exam for valuers getting it for for valuation online exam I don't know they they're planning to conduct physical exams also in physical exams Al They alling two laptops and for paper valuation they'll give you 150 rupees for the paper Val the person who is valuing the paper they'll be getting some 100 or 150 rupees per paper valuation per per paper remember valuing right paper takes lesser time valuing wrong paper takes so much of time because if your answer is not matching first time need to assess your answer right if your answer is matching matching matching matching it's easy easy to evaluate if it's not matching I need to at least to see whether your sentence is your sentence is similar to this or not which will struggle which where I will struggle so this is a problem with the valuation so be careful you have to write some students they ask sir can I write in my own terminology audit for me whatever terminology I studied that itself is very challenging for me to reproduce I don't have that much language skill to write alternative terminology honestly when students ask me this question I feel very like like how can you create an alternative terminology for this this terminology itself you give no that's easy right whatever terminology they give understanding that producing is easy instead of creating Al together different terminology see sentence meaning should be same and for applicable financial reporting framework what alterntive term you will use for framework word What alternative term you will use you will use rules and regulations instead of that simple word framework right financial reporting is a simple word right instead of preparation and presentation of financial statements yes or no just that we should adapt we when we are reading we should always consciously remember consciously read in the same terminology what is important is understand so you remember okay as I go further I will discuss various observations I will tell you to observe so many things if You observe you remember if you do not observe when you're reading you will not remember this is a formula for remembering the things people ask me again sir how to remember I'm studying sir I'm understanding sir how to remember I'll ask him a question whether he understood or not that itself he'll fail you don't understand he will think he understood but point is he will not understand that's a basic uh you know fundamental thing people are not able to understand whether they're understanding it properly or not what they think they understand is they read the sentence like they read this un Rel to F outcome significant subsequent event early application of new standard major catastrophe circumstances when auditor can circumstances where auditor May considered to include emphasis of matter paragraph they understand this only this they understand they don't understand the concept behind emphasis of matter par they don't understand what is emphasis of matter par clearly in that context if you read this and visualize with that context ah then you will understand okay some some uncertainty happened relating to litigation company disclosed this in the nodes to account the auditor can highlight it one example some subsequent event happened between the date of financials and date of audit report that's a significant subsequent event which company already disclosed in the notes to accounts the auditor can highlight it under emphasis of matter paragraph So this is an example for what auditor can highlight this is context based understanding are you getting the point reading the sentence translating this into engl another some sentence and then understanding no that is not understanding clear some students know they listen to classes in local medium is even more mistake if you are writing in Hindi medium you listen classes in Hindi if you're writing in English medium listen to the classes in English as simple as that in North know in many many Hindi Hindi background student where they listen classes in Hindi but write in English they struggle for 14 16 hours to study whereas South Side we on an average study 8 to 10 hours anybody got okay what day if at all you studied more than 12 hours I'll challenge you have not you have not studying by the way means sitting and scrolling Instagram post no that will not be counted in study Time study time means focusing on the book properly without any other deviations or thoughts sinc early studying that is what study time like that in South what I observed is 8 to 10 hours only is the maximum time students can study not more than that student plan for 14 hours 16 hours schedule he'll sleep that much time he'll not study getting it whereas in North know they struggle a lot the only reason is they're listening classes in Hindi since they listening classes in Hindi they are unable to sync what they listen with what they're reading now you see the audit report chapter after after after that you read you will sync everything because I discussed the subject in the same language in a simplified version getting I am trying to put the data into your mind the terms everything into your mind because I'm discussing in the same terminology in the same scale but you if at all you're discussing the subject or thinking about the subject in a different level and here it is in different level it will not syn properly that's a easy way so you remember when you understand it thoroughly so understanding focus on understanding understanding context context why are you learning it understanding is important next so empasis is over clear next we still have we still have other matter paragraph e audit matter material uncertainty related to going concern report on legal and regulat requirements management responsibilities getting it so other matter paragraph I will start I'll take one example here you see other matter paragraph definition are you fine energetic yeah just one minute I'll take I'll just relax one minute okay continue other matter paragraph okay see what is other matter paragraph let's look at the definition and try to understand how it is different from emphasis of matter par so what is an other matter paragraph it is also a paragraph where it is included in Auditors report that refers to a matter other than those presented or dis disclosed in financials if you want to refer in audit report of those presented or disclosed in financial statements appropriately emphasis is there right yes or no if it is something is presented in financial statements you want to highlight that emphasis of matter is there other than that if I want to talk regarding what other than those presented or disclosed in financials that an Auditor's judgment is relevant for users understanding of audit AIT auditor responsibility auditor report if you want to make the user understand about the audit understand about your responsibilities understand about auditor report you want to talk something about audit report itself in the audit report getting it then other matter paragraph is there you see emphasis emphasis of matter paragraph emphasis of matter paragraph is important that it is fundamental to the user's understanding of the financials the matter which is present Ed or disclosed in financials the matter which is presented in financials is important for the user so that now you see other matter everybody will read but they don't understand the context why they used these terms the context if you understand it's easy for you now people who think they understand this other matter paragraph by reading this definition and translating other than presented in other than those presented in financial statements if you want to talk that's other matter paragraph that is only a basic level understanding the advanced level of understanding is Right example you have to take so here we want to make we wanted to make the people understand what is audit what is audit responsibility what is Auditor's report you remember joint audit all of you in joint auditor there is something called common reporting all the joint Auditors have to arrive common conclusion and express a opinion through a single audit report yes or no however a joint auditor is not not bound by majority if at all a joint auditor is disagreeing with other joint Auditors such disagreeing joint auditor can give a separate report and can express his own opinion in such a case each joint Auditor in the each report like the person suppose State Bank of India is having 12 joint Auditors State Bank of India is having how many 12 joint Auditors 11 of them want to give unqualified opinion one want to give adverse opinion of course the one whoever is giving adverse opinion he has his own reasons he can give basis for adverse opinion in his audit report whereas remaining Auditors they did not have any reason so they gave unqualified opinion now that 11 joint Auditors are giving one audit report one and this follow is giving audit report two now in this audit report one other matter paragraph inside that they have to cross refer refer other auditor report to in this in other matter paragraph of 11 joint Auditors they mention in other matter paragraph please refer so and so joint auditor who has given a separate audit report likewise this joint auditor also in his audit report should refer about remaining Auditors audit report this is called cross referencing are you getting the point so is this there or not in the joint audit when the when when the auditor is disagreeing in such a case auditor can give his separate opinion through a separate report and in such a case the auditor should also refer about other joint Auditors report in his report each of the joint Auditors shall refer about other joint Auditors reports in their reports where they will refer other matter paragraph they will refer understood or not next so for one example of audit report is this another example of another example of Auditors responsibilities another example of auditor responsibilities uh let me do one thing it's this will take 10 minutes example because now we are going to actually discuss simultaneously 299 600 also now we are about to we are we are discussing simultaneously if this example we understood thoroughly sa 600 becomes very easy for understanding and 76 will be anyhow over okay so it will take little bigger little little bigger example so we'll continue this in the next session so auditor responsibilities means what in the other matter paragraph We can refer about auditor responsibilities what what auditor responsibilities see brief introduction I'll give you when joint Auditors were appointed each joint auditor is responsible only for the work allocated to him suppose a joint auditor is disagreeing and he want to give a separate audit report inside that audit report he will cross reference about other audit report not only that he will also mention that he is only responsible for so and so areas of the financial statements remaining areas of the financial statements I am not responsible remaining areas of the financial statements other joint Auditors were responsible this entire responsibilities of each joint auditor is decided discussed documented accordingly like that the joint auditor can talk about auditor responsibilities in other matter paragraph that is one example another example Branch Auditors responsibility subsidiary audit subsidiary company associate company auditors responsibility all that the subsid company Branch audited this discussion takes little time so I will discuss it in the next session clear all of you until now we'll wind up okay that's it just we have 10 minutes more that's why okay so in the previous session we started uh we are discussing about other matter paragraph where in that we specifically discussed about these terminologies like what is emphasis of matter first of all emphasis of matter paragraph is a paragraph in the independent Auditors report that refers to a matter appropriately presented or disclosed in the financial statements which in Auditor's professional judgment was of significant for users understanding of the financial statements remember that last sentence is very important this can be tested as an McQ emphasis of matter paragraph is a paragraph used in audit report uh that refers to a matter that that is appropriately presented or disc closed in financial statement that an auditor judgment was of important for users understanding of the audit auditor report auditor responsibility wrong that is what ah that is other matter paragraph that two you see they'll give you somewhere they'll add other than somewhere they'll remove other than at some places at last no they will use other matter paragraph last line at final one option they'll use correct definition unless you observe the entire definition you cannot Pi pick up the correct answer getting it and yesterday uh like in the previous session one student was asking this out um like I have given the introduction to all these standards right where uh we spoke about uh standards on auditing standards on review standards on insurance standards on related Services getting it internal audit tax audit comes under which part for example internal audit do not come under any of this getting it because standards for internal audit The Institute has issued separate standards Saia standards on internal audit they were separate altogether different standards so they did not classify that assignment specifically under these probably if at all internal audit has to be classified under some category it it generally comes under agreed upon procedure It generally comes under agreed upon procedure in many entities internal audit is performed by two two set of people one their own employees okay to external Auditors now the question about internal audit comes under which assignment it will arise only when internal audit is being performed by an external audit form where we appointed a different audit form now for them which standard is applicable there only it will come generally internal audit the objective is not give opinion on financials understand first you see the definition of internal audit or whatever it uses the word Consulting and Assurance on risk management governance internal control so internal Auditors mainly provide Assurance on governance Assurance on risk management Assurance on this one internal controls Consulting and Assurance activity Consulting means what obviously company will be asking you to verify something suppose they called you just for physical verification of fixed asset so you have to go there do physical verification of the fixed asset and give a report on that that's an agreed upon proc is a technically speaking getting it without giving Assurance without providing Assurance so if at all a situation comes where internal a has to be classified there now coming to tax audit for that standards and auditing only apply remember tax audit you don't do separate audit in tax audit what we do first of all by the way we do audit of financial statements only that is what 3ca 3cb report right in tax audit we give 3ca 3cb report final audit report in both the reports we are talking about financial statements only of the entity whatever the entity it might be so we are talking about financial statements whether they are true and fair or not in the 3cd NX show we give various other particulars that's a different thing 3cb 3C tax audit primarily talks about audit of financial statements which is a stat audit for which all standards on auditing apply are you getting it so that's it so if at all any of you have this I think this clarifies your understanding so now auditor responsibilities one more thing auditor responsibilities so let us take this State Bank of India example very simple and classic example SBI limited SBI limited is having many subsidiary companies it has many subsidiary companies one of that subsidiary companies is SBA carts SBA cards which deals exclusively with credit card segment and Loans getting it so SBI Limited in the these two cases the relationship between them is it's a holding company it's a subsidiary company the relationship is holding and subsidary and SBA limited because it is holding company it has to prepare two sets of financials one is Standalone financials another one is Consolidated financials Consolidated financials is holding company plus all subsidiary companies financial statements will be line by line consolidation method asso joint venture depending upon the respect to standard method then Standalone financial statements means head office plus all branches head office plus all branches now SBI is having close to 23,000 branches close to 23,000 branches out of that approximately some 19,000 branches were Exempted from audit as for RBA requirement as per RBA requirement they have certain guidelines on Branch audit requirement SBA meet with exemption for 19,000 branches approximately some 5,000 branches 4 to 5,000 branches I'm just giving rough numbers okay you can see that in accurate numbers you can see in SBA audit report roughly some 5,000 branches were audited by Branch Auditors they were audited by Branch Auditors whereas for the entire Standalone financial statements for the entire Standalone financial statements SBI has appointed principal Auditors who are they principal 12 principal Auditors were appointed how many were appointed 12 because that's a maximum number permitted as per RBA guideline for for an entity especially for a bank the maximum number of joint Auditors cannot exceed 12 Once Upon a Time 14 other the time SBA has 14 Auditors now only 12 Auditors 12 Auditors were appointed for as a whole Standalone financial statements of SBA getting it so all these 12 auditors scope and objective is what to give opinion on the financial statements of State Bank of India limited which includes financial information of the comp I mean head office which they are auditing and financial information of components audited by Branch Auditors this is the main thing now let us call these them as H you know like cah holding company auditor cab let us assume we call him as Branch auditor CA s we call him as subsidiary company auditor so s refers to subsidiary B refers to Branch H refers to holding company that's what I mean now the cah has to give audit report on one Standalone financials he has to give another audit report on Consolidated financial statements that's why you see T Motors if you look at the Auditors report it will exactly If You observe here independent Auditors report one is title and address it to the members straight opinion in between they have added one more report on audit of Standalone so you need to add this line specifically when you're giving two audit reports for the same Financial year why tataa Motors is giving two audit reports one relates to standalone another one relates to Consolidated in such a case what is what exactly this audit report is dealing with this audit report is dealing with Standalone likewise you need to give such a kind of reference fine so I hope until now you understood this example now so Mr H getting who is the auditor of s limited has to give audit report on Consolidated financials has to give audit report on Standalone financials both now when he's giving audit report on Standalone financial statements remember he's giving audit report on the combined balance sheet combined pnl combined balance sheet combined pend means head office plus branches put together getting it but these branches 5,000 branches were audited by other Auditors the 5,000 branches were audited by other Auditors regarding this financial information of these 5,000 branches these 12 joint Auditors are not aware of anything they only know that so so branches is having so so turnover so so interest income so so interest expenditure so so loans and advances so so borrowings only that information they know getting it now s 600 it clearly says the principal auditor is not responsible the principal auditor is not responsible for the financial information of the component for the financial information of the component audited audited by other Auditors getting it so now in other matter paragraph of audit report on Standalone financials in other matter paragraph of audit report on Standalone financials given by 12 joint Auditors given by 12 joint Auditors so what auditor has to report the main joint Auditors they have to report under other matter paragraph audit of 5,000 branches were audited by other Auditors whose audit reports are given to us and our opinion on the total financial statements is purely based upon the branch Auditors reports like see if we are giving opinion somebody else is using our opinion right same way Branch Auditors gave opinion on all the branches 5,000 branches were audited by them they said everything is true and fair I took their Branch audit report and I verified they all true and fair and with respect to head office I'm having true and fair opinion so Branch branches and all put together true and fair head office is true and fair as a whole the Standalone balance sheet standal on pel is true and fair this is what the as a main auditor I felt I gave the same opinion now in the opinion paragraph the afor said financial statements are true and fair but people don't know that they they are thinking only I did the entire audit they don't know that 5,000 branches were not audited by me 5,000 branches were were audited by some other auditor so they are not aware of this fact this fact I should tell them getting it in other matter paragraphs I'm talking about my responsibility getting it towards what items in the financial information I am not responsible getting it so I will show you directly this SBA audit report you will understand easily you see other audit this is other matter paragraph in State Bank of India okay Standalone financial statements related audit report now what they're mentioning we did not audit financial information of 5,700 branches okay including some 34 branches which are included in Standalone financial statements audited by us we audited Standalone financials in that 5,700 branches related information is included who financial information reflects 20 lakh CR assets 130,000 CR Revenue the fin financial statements of these branches were audited by Branch Auditors whose reports have been furnished to us and in our opinion so far as it related to these amounts and disclosures which are included in respect of these branches is based purely on the basis of Branch audit reports by by mentioning like this what are we saying indirectly look in the entire stand financials total asset is 30 lakh out of 30 lakh 21 lakh is belonging to 5 ,700 branches which is audited by Branch Auditors with respect to this 21 lakh CR whether it is true and fair or not I I relied upon Branch Auditors report so to that extent my opinion is influenced by my opinion is decided by Branch Auditors what are we indirectly saying we are mentioning division of responsibility are you getting the point same way same way with respect to with respect to audit report on Consolidated financials I hope you understood regarding Standalone financials now with respect to audit report on Consolidated financials also similar requirement apply remember when I'm giving Consolidated financial statements audit report only holding company related financial statements were either audited by me or Branch Auditors but remaining subsidary companies associate companies joint ventures we might have not audited in Reliance case 200 plus Subs companies 100 plus associate companies 10 plus joint ventures were used in Consolidated financials and the main Auditors of Reliance holding company Auditors of Reliance were not they are not the one who audited all this entire financial information getting getting it so in the other matter paragraph of SBI or Reliance there we talk about one of course regarding branches will clarify clarify because main Auditors have not audited regarding the branches that point will clarify in addition to that we will also clarify we will also mention so so subst companies so and Associate companies so and so number of joint ventures whose total assets are this much whose total revenue is this much is audited by other Auditors component Auditors able to understand the Auditors of respective companies whose reports are given to us and our opinion on the Consolidated financial statements is purely based upon their report understood or not so that's how we give a disclosure in other matter paragraph So in other matter paragraph we talk about audit you talk about auditor responsibility you talk about auditor report now what is about audit audit means in 710 we will discuss that point for audit example I will discuss in 710 in 710 no we will discuss about prior period financial statements audit getting it if prior period financials were audited by predor auditor that fact has to be mentioned in the other matter paragraph that the prior period financials were audited by predecessor auditor and he has given so and so opinion his audit report date is so and so if pre previous auditor is not us suppose we are appointed for five years first year in the audit report om other matter paragraph We should mention this second is not required if predecessor auditor means auditor from different audit form the definition as per ESS 510 and even as per ESS 710 clear that's other matter paragraph now so look at this other matter paragraph once we'll close this and then go to 600 we'll close this and then go to 600 when to use other matter paragraph the auditor shall include an another matter paragraph when it is not prohibited by law regulation and it is not decided as a key audit matter getting it further what is the manner of presentation same how how emphasis of matter paragraph is presented same other matter paragraph shall also be presented within a separate section with a heading with an appropriate term other matter or other appropriate heading like uh I showed you SBA audit report any audit report you take side heading will be other matter simply getting it other matter and since it's a paragraph we call it as paragraph or we call it a section in the auditor report and at the end of other matter also if you look at SBI they have even mentioned that our opinion is not modified they have mentioned that our opinion is not modified in respect of the above I'm not a so the auditor is say saying that I am not objecting anything getting it and you know in in CA inter in the last attempt I think so they asked this question May 23 or no 23 in one attempt the sentence they asked when the auditor is including other matter paragraph it need not be presented under a separate section of the audit report it need not be presented under a separate section of the audit report half the students didn't understand because they never observed this you see when when you're reading separate section means what I showed you in the audit report right how it is separately presented are they adding anywhere as a under any under any particular PA are they merging or are they giving equal equally importance like opinion equal importance just like how opinion has a side heading other matter paragraph emphasis matter paragraph other matter every paragraph has a dedicated side getting it so this is what understanding means every term you must have significance what is its impact what is its implications you understood then you understood the subject getting it and there is a requirement here there is a formality you have to communicate with those charged with governance getting it especially when you are deciding to use emphasis of matter paragraph or other matter paragraph even if you want to modify the opinion what modification you want to give the wordings and all first you have to communicate with those charged with governance like see communication to those charged with governance there is a standard 260 it says auditor has to communicate so and so various things in that one of the point is when required by other standards on auditing auditor has to communicate when whenever required by other standards on auditing like that there are requirement in 75 76 570 getting in all these cases Four Points you will get easily when auditor is modifying the opinion on the financial statements the draft audit report has to be communicated to those charged with governance when the auditor is planning to include an emphasis of matter paragraph or other matter paragraph he has to give he has to use this he has to communicate to those charged with governance when auditor is planning to use key audit matter he has to communicate to those charged with governance when auditor is intending to use material uncertainty related to going concern he has to use he has to communicate TC tcwg like this a straight question might come of course I'll show you in 260 that question getting it straight question under what standards communication with those chared with governance is required especially relating to reporting getting it so you need to write like this C that's it in this possible questions also we understood next let's finish once joint audit and then I'll go to 600 The Joint audit means appointment of two or more than two audit firms or appointment of two or more than two one audit form one sole proprietary individual practicing nothing but there must be two different entities Auditors must belong to two different entities in such a case we call it as what joint audit they will have same scope of work the scope of work is same like SBI is having 12 joint auditors all of them have the same objective they have to report on the financial statements of State Bank of India for so Financial Year all of them have same scope same power everything is exactly same why joint Auditors were appointed is in order to reduce the work burden on the Auditors getting it and in order to improve the quality of the work that is the main objective behind joint audit now when joint Auditors were appointed they don't do each and everyone they don't repeat the same work they divide the work getting it like suppose in SBI The Joint Auditors might have divided the work based on items of assets and liabilities like some joint Auditors might have uh some joint Auditors might have focused on interest income and assets another joint auditor would have focused on interest expenditure and liabilities getting it or income and expenditure some some of them focus on interest income some of them focus on loans and advances and remaining joint TOS focus on interest expenditure and they also focus on borrowings Bank borrowings geographical areas some joint aors might focus on head office and some corporate office wings were there some five head office head offices for their across and some joint they focus on by controlling units there will be something called controlling units and all in Banks so they'll focus on controlling units Geographic I mean sorry they but some joint is focus on North North Zone some joint is focus on South Zone identified unit means some joints focus on head office one head office two head office three remaining Joy is focus on head office four head office five head office six identified units period of financials one focus on quarter one quarter three another one focus on quarter 2 quarter 4 able to understand so on any manner these are just a few guiding factors few examples on any manner they can divide the work among joint Auditors generally they will draft a plan you know whenever people are doing joint audit initially they will have a meeting all joint Auditors know they will have some meeting you know engagement partner from each joint audit firm in case of SBI from all the 12 audit forms each partner will be there right one main partner who is the engagement partner for that SBA audit yes or no each engagement partner and key engagement team member they all will be involved in planning the audit so the moment they are all appointed as an auditor they'll have a meeting first or initial day meeting so all all 12 joint Auditors they will present their important team members also will will present so in a conference room they'll discuss so what is this SBA what are the peculiarities involved in this what areas of audit that we need to focus on how many areas were involved how many Works were involved and how many of our team members were involved they discuss they plan it so all the joint Auditors together should establish joint audit strategy so first of all all of them do risk assessment all joint Auditors do shell assess each joint auditor shall assess risk of MMS communicate to other joint auditor so all the joint Auditors do a risk assessment they try to understand in their own way what is Spa what are they doing all that and based upon that they establish joint audit strategy joint audit plan audit strategy is slightly different from audit plan audit strategy means control based audit strategy substantive testing based audit strategy what audit strategy you following generally in a bank we follow control based strategies getting it there where we don't focus on actual transaction much we focus on processes we focus on policies we focus we focus on controls getting it so that is the strategy so Auditors all of them together have to decide which strategy we should follow should we follow compliance based audit should we follow substantive testing based audit getting it in a normal entity where that much of Information Technology is not used where the transactions are not Tech driven there we generally do audit by substantive testing approach means there we don't Focus much on controls we focus on actual transactions actual balances much whereas in it envoirment audit we focus we do audit on compliance approach if processes are correctly going on we assume the transactions are going properly because Bank obviously is completely Tech oriented yes or no if if software is proper if tech is working properly we ensure that transactions are happening smoothly and so once know so first all all of them do risk assessment they all have to develop joint audit plan they all have to develop joint audit plan now here no for joint audit plan there is actually sub points they'll ask in exam this was asked in CA final this was asked in CA final many times all the joint Auditors have to jointly develop a joint audit plan what factors are considered while developing a joint audit plan that question so for this point there are some sub points that are there getting it in my main material I have given that in the main material I have given you see here all the joint Auditors should discuss and develop a joint audit plan specifically division of areas are what common areas or what what are the reporting objectives remember reporting objective is different reporting requirement is different reporting requirement means audit report what is is the reporting requirement for as an audit report that is reporting requirement reporting objectives means here communication timely communication with the top those charged with governance that is what the intention of reporting objectives here and communicate significant factors identified with each joint auditor preliminary engagement activities so while developing an audit plan they have to consider preliminary engagement activity results significant factors they identified and communicated by other joint Auditors what are the reporting objectives what are the common areas what are the divisible areas considering keep keeping all these in mind they need to develop a joint audit plan what are preliminary engagement activities 300 says three items are preliminary engagement activities acceptance and continuation of client relationship procedures 220 terms of Engagement 210 relevant ethical requirements in case of repeative recurring audit experience gained in the previous SS all these four points have will come under preliminary engagement activities getting it it's actually CA inter syllabus so what are preliminary you know in in in CA final also this question is Sir what are preliminary engagement activities so under sa 300 The Following comes under preliminary so what are they 220 audit procedures regarding acceptance and continuation of client relationship 210 regarding establishing terms of Engagement relevant ethical requirements you write these three enough getting it relevant ethical requirements include including Independence including Independence these are these three procedures we will do that comes under preliminary engagement activity now what are the procedures under 220 acceptance and continuation of client relationship inside that there are again some points getting it what are the procedures under 210 SE sa 210 terms of Engagement there are some points so that and all is not relevant 220 anyhow we have in-depth discussion later so there I will cover then so here here detailed detailed question might be asked detailed question might be asked okay next finally The Joint aitor should discuss and document nature timing and extent of procedures for what are the common areas and what are the specific areas so now you know not every area of audit is divisible there are some works in the audit which where the work cannot be divided in respect of work that cannot be divided all the joint Auditors will have equal indivisible responsibility getting it all the joint Auditors will have equal and indivisible responsibility you see there are certain areas where there's a combined responsibility when the work is not divided or where decision is taken by all the joint Auditors and there is an Evidence of documentation there's an evidence for that or matters brought to the notice of all joint aors there is a mail sent to All The Joint aits regarding a fraud none of them reacted all of them are responsible to answer this answer that or even for verifying discl closure requirements of financials remember financial statements are ultimately signed by all 12 of them I we cannot divide 10 pages of notes you verify 10 pages of notes he will verify 10 pages of notes you will verify no we cannot divide yes or no entire notes to account is interlinked with pnn balance sheet so for verifying presentation and disclosure requirements in financial statements all the joint Auditors have equal responsibility whether the financial statements presentation and disclosure is as for applicable framework or not is it as for a schedule is it as for respective is it as per respective accounting standard followed or not all of them are responsible and we know that joint Auditors together give an audit report right audit report also has a reporting requirement right it has it has a particular format it has a particular structure making sure that the audit report matches with the law who responsibility all joint Auditors for ensuring that audit report complies with relevant statute getting it so where the work is not divided where decision is taken by all where matter brought to notice of all the joint Auditors for presentation and disclosure in financials and for audit report for all these areas combined responsibility finally all the joint Auditors know they issue a common engagement letter and they obtain common representation letter so what is management representation letter I will discuss in 580 standard okay what is representation letter I will discuss in 580 finally whatever the work allocation happened right between joint Auditors it should be documented and the work allocation shall also be communicated to top management so the work allocation we will take a print outs of n plus one getting it number of joint aors 12 plus one one for the management so 12 joint aors each of them keeps one one document with them getting it so manual copy if it is a manual generally it's electronic copies big AIT under electronic only only happens getting it so every one of them so even for the management also work allocation schedule should be given to the management so tomorrow if any investigation is going on if they have any query on a particular area where want to discuss with the auditor they cannot call all the 12 fellows and then ask who did who did this so if you give them the work if you give them the plan whichever whatever you documented management for the management it will be easy for them to locate the auditor concerned auditor and call them and ask that's it with this 299 is over clear next two 600 after I finish 600 then I'll go with 71 570 getting it 600 also I'll finish it off because now you will understand because you remember SP example yes or no yeah just 2 minutes yes so we'll continue SCA 600 using the work of other auditor the standard now if you look at the original standard also the initial paragraph of the standard itself starts with this principal auditor would not be responsible in respect of work allocated to other Auditors the principal auditor should State clearly the division of responsibility the extent to which the financial information of components audited by other auditor what do you mean by extent in SBI I showed you 20 lakh CR worth of assets 130,000 CR worth of Revenue that is what extent getting it the extent to which the extent to which the components the financial information of the components is audited by other auditor you know so the number of division branches subsidaries other companies audited by other Auditors and the financial information belonging to them if you just mentioned 5,000 branches were audited by other auditor people cannot understand people cannot interpret the result you need to clearly mention how much of the loans they're dealing with how much of the interest income they are dealing with that will give them a clear idea of interpretation able to understand even in in Bank audit also you have a reporting requirement in Bank audit chapter you will be getting it unaudited branches information should also be given un audited branches information should also be given but anyhow when I come to bank audit when I'm discussing there I will locate you that un audited branches right now the disclosure requirement which I showed you is branches audited by other Auditors now there are three definitions here one is principal auditor other auditor component there are three definitions principal auditor means what principal auditor means the auditor with responsibility for reporting on financial information of entity they uses the word clearly entity when that information includes the information of one or more components audited by another auditor only when the discussion of other auditor comes only the principal auditor discussion comes getting if there is no discussion about other auditor there is no discussion about principal auditor so they clearly so cleverly they drafted principal auditor means the auditor appointed for the entity getting it when the financial information of the entity includes financial information of components audited by other auditor now you see other auditor is what other auditor is an auditor other than principal auditor with responsibility for reporting on financial information of a component not entity and this financial information is included in financial information audited by so logically connected definitions now what is a component you are using the word component and all what is a component component means it may be a division it may be a branch these two are in the context of Standalone financial statements or the component may be a subsidiary joint venture Associated or any other entity this is in the context of Consolidated financials so for Consolidated financials point of view component mean subsidary entities all that from Standalone financial statements point of view component means branches or divisions whose financial information is included in financial information which is ultimately being audited by principal auditor now acceptance as principal auditor November 22 attempt or May 22 attempt four marks question getting it so first of all will you accept as a principal auditor see this question and all generally do not require but suppose SBA approached you sir we are we are choosing joint Auditors for our entire SBI sir we were looking for you we were looking for your firm to be appointed now can you accept that appointment as a principal auditor of State Bank of India having that much size that much vast business so if you want to accept such a kind of assignment as a principal auditor that to you need to check certain points right what points you will consider so that's what the auditor should consider the following with respect while accepting the audit of I mean while accepting the audit as a principal auditor one materiality of the portion of information which you are auditing so how much significance how much significant portion of the financial information that is there in your scope so you will ask SBA so out of total financial information what is the scope of principal Auditors you know a scope is is what principal Auditors coverage is what what is the knowledge regarding business of the components so do you understand how the business is functioning how the components are functioning all that and risk of MMS in the financials of the components audited by other Auditors what is the risk copy material misstatements of the financial data not audited by me but are audited by other Auditors so what is the risk of the financial statements that are being audited by other auditor and what is the significance of the financial information I am what is my knowledge of business and performance of additional procedures as given in this standard okay regarding components audited by other Auditors resulting in principal auditor having significant participation how far this entity eling so that this standard know there are some procedures which I have to do with other Auditors there are some instructions which I have to give with other Auditors how far the entity is allowing me all that getting it how for entity is permitting me the intention of this point is this only whatever procedures given in this standard are you able to perform if at all you can perform you are having this authority to perform then you can accept as a principal getting it so what is the knowledge of the business what is the materiality of the financial statements what is the risk of MMS of the components what is the risk of what is the risk of MMS of the components audited by other Auditors and performance of additional procedures as set out in this this particular standard regarding work with other Auditors what are additional procedures the moment you accept as a principal auditor you have to do certain procedures that to at planning stage getting it you have to advise other auditor how his work is going to be used by you you should tell other auditor look only when you complete the audit that to you have to do audit as per so so standards on auditing this is the scope of audit so don't think Branch audit is different completely alt together it is same like main audit only we both are having same responsibility same objective everything is same just that I will give audit report on the entire entity you will give audit report on the branch alone at the end of the day branch is also having a separate balance sheet separate P overall entities also having separate balance sheet separate P I should advise the other auditor how his audit report is going to be used by me I will tell him your audit report I will take as a base while forming the opinion on the overall financials and I should also inform other auditor what are the areas that require special consider so SBI joint Auditors they inform Branch Auditors look when we are doing risk assessment in the SBI there are some advances where one issue one issue I'll tell you suppose as a principal auditor we will tell other Auditors look in SBA there are so many fixed deposits that are available with so many at every Branch some customers have open fixed deposits now out of these fixed deposits there are so many maturity maturity I mean fixed deposits are already matured well before 31st March there are so many deposits which are matured but customers did not claim the money in in such a case until customer claim the money we have to create a provision for interest by default bank system has a software which recognizes provision only up to maturity date once deposit is matured bank will stop recognizing interest expenditure getting it but until customer get the money it is bank has to pay interest amount this is the norm as for RBA so look at your branches what are the fixed deposits that are matured before 31st March but not not yet claimed by customer getting it whether bank branch has created provision or not this is something manually Branch will create getting it so like this we should tell what are the areas that require special consideration and we should also advise other Auditors what are the reporting requirements under auditing and accounting standard look this is a company car is applicable this is a bank Caro is not applicable so we should tell the branch Auditors so in your audit report what points you will cover dear audit dear Branch Auditors I have to report as a part of overall audit since is a listed entity I have to report key audit matter so at Branch level whatever key audit matters you felt you report so that I will use them for developing key audit matters when I'm reporting at overall financial statements level principal auditor might discuss with other auditor the audit procedes applied so what procedes he should apply what verification techniques he should apply when he should do cash counting physical cash counting let's all of us do on a same physical cash counting like this we should or I may review a written summary of other audit procedures other Auditors might have perform so many works right if possible I can review their works I can review how they are working getting it that's a power given under sa 600 now here how here there is a slight conflict with sqc sqc says working papers are the property of the auditor yes or no the auditor cannot share his documentation unless he wants to share unless he is wishing to share so here here if you if other Auditors cooperate you if other auditors Cooperative review how they work on getting it they're working you can review if other Auditors are saying sir I'm a charted accountant I'm also just like you so don't do all that B I know I did very well you take my audit report you can't do anything technically speaking legally you can't do anything if possible principal auditor may visit the other auditor if at all other auditor is not cooperating okay you don't you don't you don't give me working papers I will come to Branch directly because I'm having power the main auditor has right to visit to every Branch every recording can access if you don't give his working paper okay I'll go and do audit once again get it I'll throw his away I I'll ignore this his audit report so generally Auditors will not decline like that if principal auditor is wanting to review the working papers Branch audit is generally cooperate are you getting it in a in true or false statement in c internal uh there's a question uh principal auditor I mean can a principal auditor request working papers of other auditor like that there is a question true it is it he can request nothing wrong right but the answer is false the answer which they gave suggested answer is false what they mentioned is no the auditor working papers or documentation of the Auditors I mean working papers are uh ownership of the Auditors I mean working paper is completely owned by Auditors so he cannot he cannot share the working paper if at all he want to share at his discretion he can take he can give portions thereof or extracts there from to others so principal auditor cannot demand working papers from other Auditors question whatever mentioned is request in the answer you're you're talking about demand yes or no if I am there if I genuinely read that question I will say true yeah he can request however he cannot demand getting it now Institute says the answer the marks are given for the reason not for the word correct or incorrect getting the point if at all really the person who is valuing the paper apply brain no when I write like this answer for example though I mentioned the answer correct the principal auditor can request working papers of other Auditors however he cannot demand the other auditor at his discretion can share working papers with the principal auditor but principal auditor cannot demand I wrote clearly the reason but examiner he looked at correct whereas suest answer say incorrect he didn't even look at the reason strike of the answer able to understand this is a risk we have and those who are uh writing you know this true or false statements mcqs and all somebody like us only suggest to The Institute so Institute they have a they have a operate department where they collect mcqs and true or false statements developed by many getting it now the fellow who designed this question in his intention demand but he didn't convey that through the sentence he made the he used the word request and in his reason the incorrect option the reason is correct only but that is not matching with the valuation pattern right in valuation they both do not match getting it student know when he when when the student read that question he feels that it is right only and he will say it is correct and he'll give accurate reason but the point is says the word incorrect and the valuation without even reading further answer he strike up the answer this is the risk we have very rare extremely rare circumstances that's it and now you see principal auditor can visit right principal auditor can visit other auditor right principal auditor can review their summary right principal auditor can direct other auditor what procedures to be applied he can advise other auditor what the requirements he can advise him what are the special focuses what are the areas where special Focus to be given and he will advise other auditor how they should work together how they should coordinate with each other all this they have to like principal auditor has to do to what extent he will do when he will do in what Manner he will do it depends upon circumstances of the engagement principal auditor knowledge of professional competence of other auditor how far I know he is competent if if at all other auditor is also a chared accountant having cop in India that's what getting it Branch Auditors must also be a chartered accountant so since I know he's a chared accountant he's also governed by same standard same code of conduct like like how I am governed if that is the case I will not do this much I will not interact that this much maybe at the initial starting at the planning stage I will send him a formal note get I send a formal mail that's it I will not do all this so the standard itself says what is the extent of the above procedures to whatt ENT you perform these procedures when you will perform these procedures in what manner you will perform all the above procedures it depends upon circumstances it depends upon other Auditors competence they'll give you a straight question what are principal Auditors procedures under a 600 they'll give you one story okay you are appointed as an auditor of so so entity which has so so many branches the branches were audited by so and so Auditors now as a principal auditor what are what are the principal audit procedures so you just have to write this answer so in this entire answer you have to write no no exception entire answer you have to write next now principal auditor and other auditor they must have a proper coordination right if principal auditor when he is doing audit when he find any information that affects component he should inform the component auditor same way component auditor also when he find certain issues which he feels is important as a whole for the principal auditor he should also communicate to principal auditor such a kind of arrangement principal auditor should make getting the point and the other auditor he must know the context in which his work is used by principal auditor should coordinate with principal auditor bringing to principal Auditor's attention any findings requiring to be dealt at entity level adhering to timetable for audit Branch auditor should coop only after he Branch audit report I can finalize my main audit report yes or no ensure compliance with relevant requirements similarly principal auditor should advise other Auditors any matters that came to his attention where he thinks it will have important bearing on the other auditor if necessary when considered necessary principle auditor may require other auditor to answer a questionnaire principal auditor will send to all the ,700 Branch Auditors of SBA one questioner he will send they have to fill the questioner electronic questioner in electronic form they just have to yes no yes no that's it so I will ask certain questions whether branch is recognizing provision on so and so they just have to pick yes or no already they did audit they have audit report everything is fine as a formality I want to know additionally I want to get some additional documentation on communication with Branch auditor so I can send a question so this is coordination what is this coordination between principle remember some students know when this this question is asked they will write this answer getting it observe what is covered here You observe they clearly spoke about coordination only yes or no other auditor should bring to principal auditor attention any matter that he knows which are important for principal auditor same way principal auditor should bring to the other auditor attention any matter which is important for other auditor and principal auditor if possible can send a detailed questionnaire to other auditor where principal auditor require for discharge charging his duties the order auditor should respond to such questioner on a timely basis he should respond because it's a sa 600 requirement in sa 600 there's a duty for the auditor to respond to questionnaire are you getting it finally significant findings by other auditor suppose other Auditors they found some important big issues in branches where they felt like giving adverse opinion on the branch getting it now what so first principle auditor may discuss with other auditor and the management the audit findings that affect financial information of the component first they will discuss what is the issue that we form suppose this issue I told fixed deposits up to up to maturity date only bank is creating provision for interest expend after maturity date but up to 31st March reporting date getting it for that period any unclaimed fixed deposit is there from the customer bank is not creating a provision this is a significant finding like this so many deposits for there so much of Interest expenditure bank has to recognize I'll discuss with management what they're going to do this if possible I will also supplement the test Branch Auditors have identified this and showed me right I will also go and test whether that is correct or not and I will document so principal auditor should document ultimately components audited by other auditor 5,723 components are audited by other auditor significance of the financial information to the entity as whole what is the significance of the components information 20 lakh CR worth of assets 1.3 lakh worth of Revenue names of the other Auditors company you ask the company they'll give you the list of the other Auditors the branches which they're auditing conclusions reached that individual component is immaterial any component that you decided as immaterial so that that list of components you just decide generally components which are not Material no audit will happen no audit will happen and ultimately what procedures principal auditor performed like sending them questionnaire visiting branches all that please document what what is the decision that you have taken ultimately so they last year question what are the documentation requirements under sa 600 they'll ask you this question are you getting it all of you finally reporting requirements for principal auditor suppose no if component auditor give adverse opinion what principal auditor also should give no it depends upon significance of that component getting it suppose State Bank of India having 23,000 branches out of that 5,700 branches were audited by other Auditors out of this 5 5,700 some 20 Branch Auditors gave adverse opinion now principal a also should give adverse opinion no these 20 branches the total of the asset value of these branches to the total assets of the company total of the revenue of these branches to the total of the revenue of the company it is less than 1% It is less than 1% means from a company point of view it is immaterial therefore I will ignore Branch auditor adver opinion and I will stri every give unqualified opinion I will not even talk about these branches why they immaterial are you getting the point suppose if the component auditor has given an adverse opinion on a particular component and that component information is material to the financial statements if it is material to the financial statements as a whole but not pervasive principal auditor will give in his audit report qualified opinion in the basis for qualified opinion he will we will mention that so A branch which is a significant component audited by other auditor has given adverse opinion so report date so and so able to understand suppose if component auditor that that aders opinion is also material and also puras at financial statements as a whole then the principal auditor also will give adverse opinion in the basis for adverse opinion we clearly mention the reason so a branch which is having 25% of the total assets of the company which is having 20% of the total revenue of the company the branch auditor has given adward opinion because of Soo mistake he found so so reason we will describe that reason accordingly we also gave adverse opinion C suppose if at all compan is restricting you like anything or other Auditors are not at all cooperating you want to apply some procedures and other Auditors are not at all other Auditors work you are unable to use if it is material but not pervasive qualified opinion if it is material and per is a disclaimer because when you're unable to use other auditor work when you're not getting other Auditors report when you're not getting information about branches which are material and pervasive absence of evidence not obtain sufficient appropriate evidence we should give which opinion disclaimer easy SS 600 got Clarity yes uh there is a doubt if other auditor have not cooperated with principal auditor understand non-cooperation means very simple other auditor is not discharging his duty where he is not giving his audit report primarily other Auditors are responsible to give audit report to the company and company has to collect that audit report and hand over to the principal aor management has to do this mediation they have to be the communication interface between both of them so if other auditor is not um if other auditor is not cooperating with principal auditor ultimately even though after intera after interference with the management also he ultimately concluded that other auditor is not giving his report properly where principle auditor is not getting Clarity that he want on the components so and so and those components are material to the financials and are also pervasive to the financials a material and pervasive components related financial information principal auditor do not have evidence if I do not have evidence what will I do exactly now here is it because of non-cooperation from management is it because non-cooperation from other auditor that and all is irrelevant I I will give disclaimer of opinion primarily and I'll mention reasons in basis for disclaimer so and so things happened this and all will not happen getting it if other auditor do not cooperate no SS 600 violation code of ethics yes or no schedu schedule to ation is liable for penalty up to 5 lakh yes or no because as per uh as per schedule 2 every every auditor has to comply with all the documents which are issued by Institute one document issued by Institute is standards and auditing sa 600 specifically say other auditor has to cooperate with principal auditor clear and in s 705 also there is one point one one uh you know I think I did not cover that but once I'll cover now in sa 705 you see this is an important question of course four marks question what are the consequences of inability to obtain sufficient appropriate evidence due to management imposed limitation after the auditor has accepted the engagement before accepting engagement if management limitation SE 210 it says don't accept the audit if after accepting the audit if management is limiting you they're not giving you information whatever information you're asking they're not they're not giving they they're just postponing it they they're delaying it intentionally if there is a limitation like this on the auditor to get sufficient appropriate evidence first auditor has to politely request you see request management to remove suppose if management is refusing to remove the auditor shall obtain through alter native way any evidence that is possible suppose if auditor is unable to obtain sufficient appropriate evidence even alternatively and possible effect on the financial statements of undetected misstatement is going to be material but not pervasive we will simply give audit report which is qualified suppose if it is material and pervasive I will not give disclaimer straight away first I will try to withdraw where permitted under law getting it if withdraw withdrawal power is there if a situation comes where I have to give disclaimer of opinion I will not give disclaimer first I will try to withdraw because disclaimer of opinion means breaching the contract my my objective is what to give an opinion disclaimer of opinion means what I'm not giving opinion so which is primarily a breach of contract getting it so that's why whenever a situation arises where disclaimer of opinion arises auditor will withdraw from the engagement where withdrawal is possible what is meant by withdrawal is possible ldr regulations if you recollect lodr regulations you cannot resign just like that in case of listed entity if you want to resign within 45 days from the end of the quarter you must give review report for that quarter and then do a resign suppose if you want to resign after 45 days from the end of the quarter you have to give review report for the previous quarter and the current quarter and then resign an auditor who has done review for three quarters should give review for fourth quarter should complete the audit and give audit report and then resign there is a formality getting it so so wherever practicable means that getting it so in some cases it is not possible for you to withdraw suppose if it is not possible I have done three quarters review now I wanted to resign I cannot resign I have to do the audit I have to give the opinion now I cannot resign management is also not giving me so they're asking me to give audit report LOD regulation also says to give audit report then I'll give disclaimer of opinion if withrawal from audit is not practicable or possible disclaim the opinion on the financial statements got clarity so this this question they'll ask you so what are the consequences of inability to obtain sufficient appropriate evidence that's it next joint audit common reporting requirement also I told I think so yes or no all the joint aors generally arrive common conclusion and give a common opinion through a single audit report no joint auditor is by the way Bound by majority if there is a different of opinion disagreeing auditor can express his own opinion by a separate report in such a case each joint auditor shall refer about other joint Auditors report in their audit report under other matter paragraph now I hope you are clear so we have completed s 700 75 76 and uh 600 299 five standards we have completed special considerations this itself can be asked as a four marks question what are the special considerations under joint audit straight question in that case main points any four points you have to write four marks question they'll ask what are the special considerations under sea 299 for the joint Auditors they'll ask a straight question like this clear next now once I'll go back to this audit report emphasis of matter understood right clearly now there is one important thing in 75 regarding that once we understood emphasis and other matter I thought of bringing it clarification on emphasis of matter par in case of adverse opinion or disclaimer of opinion suppose if auditor has given adverse opinion or if auditor has expressed a disclaimer of opinion in the same audit report emphasis of matter paragraph cannot be used the same audit report emphasis of matter paragraph cannot be used so what is that see what is adverse opinion saying that the entire above financial statements are do not present true and fact theforce and financials do not present true and fact that is what adverse opinion disclaimer I don't have opinion we do not express opinion whereas emphasis of matter paragraph you look at the presentation at the last time what you are mentioning our opinion is not modified indirectly what are you saying I'm having positive opinion on that first of all you said everything is bad below again in emphasis of matter paragraph you're highlighting some important points and you are saying no objection on that is this contradicting your opinion within the same audit report you are giving two contradictory opinions to avoid that 75 says if an auditor who expresses an adverse opinion or disclaimer of opinion in a single audit report in the same audit report the same auditor shall not use emphasis of matter paragraph or other matter paragraph I mean sorry emphasis of matter paragraph is not permitted you see when auditor expresses an adverse opinion or disclaim on the financials as a whole the auditor's report shall not include an unmodified opinion with respect to the same financial reporting framework on a single financial statement or one or more specific elements on the financial because it would contradict the adverse opinion or disclaimer of opinion on the financials you know what there is 85 standard again we have audit of single financial statement element or account or specific item of the financial statement audit of single financial statement element account or item of the financial statements this is actual standard inside that suppose on the auditor I gave adver opinion on the general purpose financial statements of the entity in the audit report suppose the same company called me to do trade receivables audit audit of specific element getting it 8.5 engagement for that I have to give seate opinion separate audit report and on the trade rebles can I give an unqualified opinion now yes if the trade receivables is not a major item if the trade receivables is not a major item it is not a pervasive item you found sufficient you have got sufficient appropriate evidence and the law do not prohibit this law prohibits to give an emphasis of matter paragraph in the same audit report where you give adverse opinion now emphasis of matter paragraph means on that matter we are giving indirectly unqualified opinion yes or no will you agree emphasis of matter paragraph means on the same audit report I mean on the on this on that matter whatever the matter we are emphasizing indirectly we are giving unqualified opinion remember emphasis of matter paragraph we can we can highlight the matter which is appropriately presented or disclosed so indirectly by highlighting under emphasis of matter paragraph any particular matter on that matter we are giving unqualified opinion in the same audit report adverse opinion emphasis adverse opinion unqualified opinion is not permitted but I am giving a different audit report on trade receivables it is a sa 85 engagement now can I give same Financial same financial information getting it as a whole the financial statements I give adverse opinion but on a specific element can I give an unqualified opinion yes because they both are two different audit reports this prohibition applies when it is a single audit report in the same audit report you cannot getting it so the auditor report the auditor's report where you expressed adverse opinion shall not include an unmodified opinion on a single financial statement or one or more specific element account or item same audit report shall not include that's what the prohibition is if at all audit report is a different audit report on a specific element specially special audit getting it can I give an unqualified opinion whereas the same trade reable is there in the overall financials on which we already gave adverse opinion yes you can give like that because both are two different audit reports so this audit report for general purpose is AD opinion that's for some reason here trade rebl audit is being asked by so and so person specific user requirement we are doing this audit for that person that rade reable is prepared by the company as for the specific person requirement I can happily give unqualified opinion because it's a different audit report and moreover trade reable is not a major item this is an important question in 85 this is an important question in 85 when I come to 85 we once again sync with this able to understand here no here for the for the sake of convenience in the same audit report word you can use in the same audit report where you have given adverse opinion or disclaimer you cannot use emphasis of matter th whereas in a separate audit report on the single financial statement or specific element can I give a unqualified opinion whereas adverse opinion is given on the complete set of the financial statements on the complete set of financials adverse opinion is given can I give a unqualified opinion on can I give an unqualified opinion on single financial statement or specific element or account yes if at all you giving a separate audit put provided that specific element is not a major item and it is not prohibited in law in India it is not not prohibited single audit report it is prohibited with a separate audit report that concept itself is not covered so it is not prohibited C have you recollected that 85 point if you have not studied don't worry I'll bring there that's it next one more important point you remember supplementary information point in sa 700 what is auditor responsibility relating to supplementary information if supplementary information is integral part of the financials then our opinion shall also cover supplementary information suppose if supplementary information given by the company is not integral part of the financials whether a supplementary information is presented in a way that clearly differentiate it from audited you see have given so much of supplementary information in the beginning Pages they have given so they have given so much of supplementary information you see these are all supplementary information which talks about some financial data which talks about some financial data you see this is supplementary information they're talking about some financial information getting it but you see this is completely different from the financials financial statements are somewhere in this page they clearly mention in the index know they clearly mention only this is financials so so supplementary information suppose if at all at a glance the company at a glance if at all they they have given immediately next to Standalone supplement information they presented not clearly differentiated from Standalone they were like an extension to standal on financials in that case we have to even give our opinion on supplementary nothing but notes to accounts supplementary also will be included if supplementary information is included like this which I feel integral part my opinion should cover if suppl information is not an integral part of financials I should see whether supplement information clearly presented separately or not yes here they have given so much of financial data they have given separately so they not somewhere they are not mixing up with Standalone or Consolidated so not an integral part so my opinion need not cover supplementary information supplementary information can be considered as other information supplementary information can be considered as other information suppose in the annual report in the in the notes to accounts immediately after notes to accounts he highlights of the company they're writing yes or no that is confusing for the readers audit opinion consider this key highlights also because they're immediately next to two financial statements notes to accounts they're immediately after notes to accounts page so people will get confusion so ask the company to clearly differentiate it if they're not differentiating in other information para you clearly mentioned that we have not audited the key highlights of the company clear so that's about uh supplementary information this is itself can be asked as a four marks question what are the Auditors responsibilities relating to supplementary information presented along with financial statements so what are your responsibilities four marks question possibility finally so we have completed emphasis of matter other matter getting it I will also discuss other information PA we'll take a break and get back okay fine so in the next in the next session I will discuss going concern key audit matter other information car with that the chapter will be over getting it so where we will be discussing almost 10 standards so by what standards that we have completed 700 75 76 299 600 so remaining also I will come back remaining Al I'll cover in the next session okay that's it yes uh let's begin the next section of the audit report uh that is other information per okay so in audit report opinion basis for opinion then material uncertainty related to going concern and uh we have key audit matter emphasis of matter paragraph other matter paragraph then we will have this other information section other information par so what is this other information you see the standard heading is auditor responsibility in relation to other information what is first of all other information other information may be financial information or non-financial information which is included in entity's annual report in the annual report whatever information is included which may be Financial or non-financial it is other information except financial statements and Auditors report the wrong except financial statements and audit report entire information is called as what other information so if You observe in the tataa motors if you see the index except financial statements what are they saying accept financial statements and Auditors report in this it is there this is financial statements and auditor report except this whatever information that we are including in the annual report we call it as what other information so what is auditor responsibility regarding other information by the way I've given a note specifically other matter paragraph is completely different from other information par getting it now what is an annual report so they have given a definition it's a document combination of documents typically on annual basis by top management or management in accordance with law regulation to provide owners about information on the operations Financial results position ass set out in financials an alal report contains or accompanies auditor report there on and it also includes entities development future outlook risk uncertainity so much you see tataa Motors they're giving so many yes or no at a GLS about about the report company profile our pres value creation product portfolio so what happened in 2023 Auto Expo what they disclosed getting G Performance highights chairman Mage so many other information they're talking so annual report includes so much of data this annual report has a structure as for sebi in sebi guidelines they have given structure for annual report getting it so there are some minimum contents that are to be given in annual report that are minimum in addition to that if a company want to talk about anything else they can talk about future also so what is auditor responsibility in this standard the auditor the objective of this standard is very simple the auditor has to identify whether inconsistent see is is there whether any material inconsistency between other information and the financial statements we are giving audit report on the financial statements the financial statements has some numbers so we said everything is true and fair in other information somewhere in the K key highlights financial highlights company is showing some other different figure immediately when a reader looks at these both things he will confuse which is correct of course auditor said that balance sheet pnl is correct but the same audit report same financials are included in this document and that contains some other information getting the point so what I mean say it creates some sort of you know confusion to the users getting it you need to clearly tell the users that readers that we have not audited other information yes or no are we auditing any other information we are not we have audited only financial statements we have not audited other information we should clearly mention that to the users by the way you don't give opinion on other information our audit opinion do not cover other information but we still read other information right why are we reading other information to whether there is any material inconsistency between other information and auditor knowledge obtained in audit first point you have to understand you have to obtain whether there is an inconsistency between other information and financial statements to whether there is any inconsistency between other information and your knowledge of the business when you read annual report you got to know that company is launching a new product you don't know that all these days you doing audit you don't know anything so what about this new product some research expenditure is incurred how they capitalized so now you will go through by the way when should we read this other information after giving the audit report or before giving audit report obviously before giving the audit report we should read other information getting it so to whether other information is having any additional information or is it inconsistent between with the financial statements or is it inconsistent with my understanding of the entity so by reading other information I will get to row some additional data getting it suppose you got to know some additional information how to respond when auditor identifies material inconsistency suppose other information is showing some different numbers than financial statements on a particular sales related information financials are talking about some numbers whereas other information is giving different numbers how to respond to this and Report accordingly as per the standard the objective is how to respond so you will generally like like there's a there's an inconsistency between other information and financial statements example if there's an inconsistency or some information which I'm not aware of I got to know now additionally first thing what I will do is I'll discuss with management I'll discuss with the company that so and so other information contain so and so which is conflicting with the balance sheet which is conflicting with the pendl and I will investigate further which is correct is the balance sheet pendl number which is correct or the other information which is correct I will investigate further then I will take a conclusion suppose if other information is only correct financial statements were only materially misstated then I will do further investigation and discover what exactly the material misstatement I will request management to rectify this material material misstatement if management do not rectify the material misstatement I will give a modified opinion in the audit report suppose material inconsistency is there like other information is not matching with financials and when we investigate further the financial statements numbers are absolutely right the other information is only wrong so which opinion I should give ah financials are right only right I should give unmodified opin but other information is inconsistent and that is that is published along with financial statements in audit report under other information section we should mention this situation that other information is materially mated we have not audited the financial statements are showing true and Fair View that is what correct other information is wrongly presented you need to mention that clear now generally if other information is materially misstated you request the management to rectify if management rectifies happy if not you need to specifically mention that point in the other information pair of like I'll show you tataa Motors you know the audit report what they mentioned in other information PA yeah you see here other information other information sometimes know they will mention the side heading as information other than financial statements and audit report there they will they will mention the sing as information other than financial statements and audit report there on so that's how they mention you see who is responsible for the other information obviously management so they mention management and board are responsible for other information it comprises company's annual report but does not include financials and audit report our opinion on Standalone financials does does not cover other information and we do not express any form of assurance conclusion on other information so we are directly telling to the people that look this audit report is part of annual report I know annual report contains so much of other information I'm not giving opinion not just that I'm not giving any sort of assurance on the other information so other information whatever it contains don't link with the audit in connection with our audit our responsibility is to read other information and consider whether the other information is materially inconsistent with financials or is it inconsistent with knowledge obtained during the audit or otherwise appears to be materially misstated if at all based on the work we performed if we concluded that there was a material misstatement of other information we we are required to report that fact here by the way we have nothing to report in this regard so we are mentioning to the shareholders in the audit report in other information para we are responsible to read if other information is materially misstated we have to report the fact in the audit report apart from that we don't have any the duty and by the way here the other information is not inconsistent so what the Auditors have finally replied we have nothing to report in this regard what does it mean other information is matching with the financial statements wherever some Financial numbers were used it is matching with financial statements are you clear now look at this Auditors responsibility under this standard do not constitute an assurance engagement on other information do not impose an obligation to obtain Assurance on other information McQ getting it under sa 720 auditor has to get an assurance on whether other information is free from Material misstatement or not true or false it's false auditor need not get any Assurance on other information it is not the responsibility of auditor by the way this standard is not dealing with announcements of financial information like qu results and all Securities offering document like Prospectors and all this is standard is not regarding Prospectors of course the standard clearly says annual report the standard clearly defines other information word is used in the context of annual report now when do we say mistake m in other information exist a misstatement of other information exist then the other information is incorrectly stated or misleading either it is vomitting or it is misleading the information necessary for proper understanding of a particular matter audit procedure for other information audit procedure for other information what auditor has to do the auditor shall obtain other information first get the other information ask the company before you publish annual report first given to me getting it discuss with the management What comprises annual report what are the documents that are there in annual report I last start they they showed me an entire index itself get final version of other information prior to the date of Auditors report McQ getting IT Auditor should get in other information on or before audit report date false it must be prior to the date of audit reput not even on the date of audit report suppose other information is not available prior prior to the audit report date suppose you have conducted audit much more early sir we are planning AGM in July sir for which we prepare other information annual report in June now it is May month you are giving audit report by this time other information is not yet ready if so get a representation that final version of documents will be provided to the auditor when available prior to issuance by The Entity before you publish to the public I know I given I I completed audit much more before in May month you are giving an you are preparing annual report in June once you prepare before publishing it give it to me give me a written declaration that you will give it to me are you getting it only after getting the written representation I will give audit report are you getting it if other information is not available prior to the date of audit report getting it verify the other information now so once you get the other information what Auditors shall do so they'll ask you a question what write about audit procedure for other information in that first point the auditor shall obtain other information by discussing with the management what documents constitute other information that are included in annual report and the auditor must obtain the final version of other information prior to the date of audit report after obtaining what you will do you will read the other information why are you reading you will identify is there anything conflict okay material and inconsistency between other information and financial statements or is there any material inconsistency between other information and your knowledge obtained during the audit you know something about the company as of no because you have completed the audit you are about to give audit report but after reading other information you might get to know some additional facts then please be alert for indicate indications that other information is not related to financials or Auditors not knowledge appears to be materially misstated be alert wherever other information is materially misstated just be cautious when you're reading be careful be skeptical you may find other information which is conflicting with financial statements conflicting with your knowledge of business suppose if there is a material inconsistency suppose inconsistency is there like what other information sales figure it shows what financial statements sh sales figure it shows both are not matching what auditor has to do auditor has to discuss the matter with management and conclude whether a material misstatement of other information exists or a material misstatement in financial itself exist when you find a difference no either that information is wrong or the balance sheet pnl number is wrong deide that suppose if material misstatement is in other information not in financial statements agree with the management for correction if management agree with the correction auditor see that correction has been made suppose if management is refusing communicate with those Char with govern top management audit committee communicate with audit committee that other information is materially mated we have to mention that in other information section of our audit report if it is materially stated suppose suppose before the date of audit report other information is not corrected getting it after even communicating with top management communicate top management how you are going to address the same in the audit report if at all management is not correcting other information prior to the data of audit report you found other information is wrong and uh management is not correcting it and uh you need to tell them okay if you don't correct I will mention the audit report like this you need to inform that factor to the management withdraw from the engagement where it is permitted if at all it is so simp so intimidating to withdraw suppose after the date of audit report we identified misstatement in other information example you know I completed audit in May month and I got I obtained written representation that other information before publishing will be given to my review and on that assumption I give an audit report with other information parent nothing has come to our notice but after June in the June month when other information is published of course it is not issue to the public now I got to know that other information is materially mated what auditor has to do if the other information is corrected perform procedes necessary if management corrected it fine suppose if other information is not corrected after communicating with top management take appropriate action considering legal rights to seek uncorrected misstatements are brought to the attention of the users to whom audit report is prepared here I've given follow 560 procedure suppose after the date of audit report you got to know that other information is materially mated and management is not rectifying you have a right to attend general meeting you can in the general meeting you can talk about this other information that it is materially mated as on the date when we have given the audit report this other information is not ready so make people aware of this other information material misstatement clear suppose if it is material misstatement in financial statements ask management to rectify if auditor concludes that material misstatement in financials and you know the auditor shall respond shall respond appropriately how he will respond generally we will ask the company to rectify the other financial statement so that they are free from MMS if if the company is not rectifying the financials we will give modified opinion we will give modified opinion so that's it if MMS in other information unmodified opinion and the same thing we will report in other information per suppose if material mistake statement is in financial statements we will give modified opinion and reasons in modified opinion paragraph of the report clear easy or not so in this the question which is important is they might ask you if a material misstatement is identified in other information after the date of auditor report how Auditors should respond this itself can be asked as a four marks question getting it or they may ask you how auditor shall respond under s 720 if a material misstatement is identified in other information then you should respond you should write two parts before dat of audit report if you identify what how do you respond after the data of audit report if you identify how do you respond this is one category of question another write audit procedure on other information just these points if you write enough these points if you write these two points if you write that's enough getting it complete answer nothing but complete points you have to write and annual report other information objective of the standard this is important for four marks straight question and definitions are important for mcqs confident that's it 720 is over so SEF 570 going concern in going concern the kind of questions which were tested in past given in question Bank when performing risk assessment procedure as required by 315 by looking at this line student thinks it's a risk assessment chapter question the auditor shall consider whether events or condition exist that may cost a significant doubt on entity's ability to continue as a going concern explain half the students don't understand what they're asking getting it because you read you read like these notes which is a short notes getting it so if you read from any short notes short version of course mine is completely somewhat at least cover 80% okay in the market no 30 pages bomb and all is there okay that's it your result is Bomb only huh so cover audit in 100 Pages see it is very simple how to make material in 100 p instead of using font 12 size line in 1.25 if we reduce the font size to six and line indent one obviously it will come exactly half almost half size it will come not even half less than half size material will come it's not number of pages that you should observe it's a Content how what they covered getting it so that's a psychological feeling students know it's a psychological feeling but be awake like consciously look at what you're reading where you reading is that a proper Source or not in exam know they'll ask you this question this was asked in fact this was asked you know this is completely have compiled from past question BS getting it past examination questions another another question they'll ask is this question like you don't even imagine that this question exist Management's assessments of ability to Contin a going concern involves making judgment about inherently uncertain future outcomes of events or conditions what are the relevant factors to the the Judgment what student writes answers you know for this as part of sa 570 if at all he remember number he'll mention it mostly he'll remember s 570 going concern auditor has to evaluate whether company going concern ability is proper or not okay for that auditor has to check whether management uh has prepared a cash flow forecast whatever he know he'll write getting it and look at the answer what they have given what they have given the degree of uncertainty associated with outcome of a event increases significantly most financial reporting Frameworks request require management to make an explicit assessment the size and complexity of the entity nature and condition of the business degree to which it is affected by external factors any judgment about future is based on information available at the time when it is made this is the suggested answer and your answer looks how you saw that's a problem getting it see the the point is student have never read this if at all he read this at least there's a difference he never read this content because in the notes which he is following it is not covered most of the materials that are there in the market I'm challenging they are not covering 100% they cover 100% all the standards 35 standards 35 list you will find you'll not find inside content getting what is important is inside content observation is very important fine I'll cover these two now along with going concern standard so 570 what auditor has to check very simple a company has company has specifically mentioned in the notes to accounts that the financial statements are prepared on going concern basis the financial statements are prepared on going consent basis auditor has to verify whether the financial statements are true and fair or not so management used going concern basis right whether it is fair or not we should check fair or not means what then management use going concern assumtion simple uh example see fixed assets we are showing at historical cost only because we don't want to sell them if at all you want to sell them if a fixed asset you want to sell them they will not fetch that much value for Motors best example they have invested 10,000 CR 12,000 CR approximately in the plant and they selling it for 700 CR now getting it somewhere around 500 to 700 CR the book value is somewhere around 5,000 CR Book value means balance sheet value the fixed assets value is showing 5,000 CR but if you put it for sale in the open market it will not even fetch 500 CR plant and missionary and all who will buy will you buy and keep in your home no point right because plant and missionary and all customized so they are not useful for general public like you and me they are not General products so they are customized only in one way they can sell it peace Mill distribution getting it they have to sell it in bits and nuts there's no the only in cages method they have to sell so tons and quintals only they have to send they have to send like an Iron and Steel not as a planted missionary so that's the main disadvantage but then why are we showing the planting missionary at 5,000 CR because impairment is not there when we are doing empowerment loss and accounting standard we do two things recoverable value recoverable value means by using this missionary how much cash flow I can generate in future and we discount it and if if it is more than carrying value no impairment if it is less than carrying value there is an impairment indirectly what are we saying is look I know if I sell the planting missinary it will not even fetch 10% of the book value but remember I don't have intention to sell by using this planting missinary I will generate cash flows much more than the book value on this assumption we are showing it at historical cost now you are promising that you will use this plant and missionary in the near future or in the future and generate so much of cash flow that is more than this first of all you want to use you want if you want to use in the future you have to continue in the future right can you continue your business or not is the main question so can you continue is management has ability to continue the business can the management use going concern exemption it depends upon whether they can continue the business or not you can continue the business only when you honor payments to everybody only when you're having proper cash flows only then you can honor only then you can continue in the business otherwise you cannot continue in the business correct so that's what that's what auditor has to verify now primarily who has to do this assessment primarily whether the entity has ability to continue the going concern entity has to do this assessment that is what here given risk assessment procedure related to going concern means what the auditor shall determine whether management has already performed pre minary assessment of entity's ability to continue the business to continue as a going concern if such an assessment is performed ask management discuss with them whether management identified any events or conditions events or conditions means nothing but indicators nothing but symptoms which symptoms what symptoms those symptoms that may cast significant doubt on the entity's ability to continue as a going concern if so what management is having to address them so whether management has conducted a preliminary assessment related to going concern ask if so what events they identified ask them whether they are affecting going concern or not ask them if they are affecting what management how management is taking remedial actions to respond to them so that they will Rectify that so that going consult will not affect verify that suppose management has not per performed the assessment you should not sit and perform getting it ask why management have not performed going concern on what basis on on what basis on what basis they have uh taken going concern assumption on what basis they prepared financials on going concern assumption ask them so when management has not performed auditor shall discuss with management basis for intention to use going concern basis getting it please be alert throughout the audit for identifying symptoms that may cast a significant doubt on going concern risk assessment procedure means this only risk assessment related to going concern means what with respect to going concern is there any risk how do you how do you check first ask a company whether they did any risk assessment related to going concern if so what do they identify any symptoms if so how are they addressing them suppose if they did not did not do risk assessment ask them on what basis you have choosen going concern because you didn't do assess about future without assessing about future how can you say you can continue in the future third Point auditor shall be remain alert throughout the audit to identify any events or conditions that may cast a significant doubt on the entity's ability to continue as a going concern and sea 315 standard also requires please revise your risk assessment and modify further procedures when events are identified getting it that sentence meaning is events nothing but when additional evidence is obtained during the course that affects Auditor's assessment of risk nothing but if in the course of risk assessment if you identify any events or conditions tell me originally you didn't plan this in the audit now do you have to revise your audit procedure or not do you have to revise your further planned audit procedure or not that's what further planned procedures revise modify modify your risk assessment modify your plan if you identify if you get any additional evidence that affect your risk assessment additional evidence that affect your risk assessment means what additional evidence you got nothing but you found some events or conditions what do you mean by events or conditions events or conditions nothing but indicators nothing but indicators they're broadly classified into three categories they are broadly classified into three categories I think I have not given here so these are broadly classified into indicators most of the students only study this in going consel which which which has never been asked in exam correct so indicators just example for understanding s only this indicators is they may ask you for four marks question also what are Financial indicators that that cast significant doubt on entity's ability to continue the going concern give any four examples net liability position fixed term borrowings are approaching maturity without any renewal indication of withdrawal support withdrawal from creditors negative operating cash flows adverse key financial ratios operating losses discontinuance of dividends inability to pay creditors on due date inability to pay emis and all on time that is nothing but inability to comply with loan agreements change from C change from credit to Cod inability to get Finance for new products many start know they fail at the initial stage itself because they not getting funding properly getting it operating management itself is wanting to close the business or loss of Key Management without replacement loss of Major Market labor difficulties shortage of supplies emergence of Highly Successful competitors suddenly a new competitor when gooh has came into picture Union or all that gone a air cell is there you know air cell which is very popular Network so airell un or all that were gone in the market they were merged either with some existing Telecom or they were removed they were completely like closed down the business and other indicators non-compliance with capital statutory Norms see PTM Bank no the license has been suddenly cancelled by RBI yes or no very strict string sudden action taken by RBA getting it from so long months onwards they they are hinting PTM you have to meet you have to comply with so and so n so and so things but PM is continuously failing to comply one day suddenly just exactly some 3 4 weeks ago RBA has cancelled PM bank's license directly it was a very big now PTM has worked so hard to construct the business to a large scale almost with every vendor they found the speakers and all now patm speakers and all were being removed now getting it remaining competitors and all have showed this to each and every vendor that one 15 days 20 days phone pay even various bat pay all their staff no field level staff they went to each and every flow vendor you know every vendor that are there on the road they educated that patm bank license was canceled take our speaker boxes and they they replaced it so fast you see so if you don't comply with law your business will stop so PTM Bank license has been stopped and patm bank is no more functioning of course they want to now revive it don't know what happens pending legal or regulatory proceedings if successful result in claims that entity unlikely to discharge so if any legal case if company loses they may have to close down the business in such a way changes in law regulation or government policy adversely affect the entity un uninsured or underinsured catastrophe so if any flood or any catastrophe occurred if at all you don't have proper Insurance your fixed assist and all were destroyed you cannot continue the business so many indicators auditor has to be alert throughout the audit whether any of these kinds of symptoms are there if any of these symptoms are there you have to do further audit procedure you have to do further audit procedure suppose if you identify any events or conditions if you identify any events or conditions so you need to you need to do further audit procedure like uh whether Management's plans for future action what are the management plans for future action whether entity has prepared a cash flow forecast forecast is generally prepared for short-term duration getting it projection is different forecast is different forecast is a best estimate best estimate assumption getting it whereas in projection higher uncertainty in projection uncertainty is very high we'll discuss in 3420 when we are discussing 3420 standard there I'll talk there I'll talk about 34 340 3420 in both the cases this context of discussion will come so what is the projection what is forecast we discuss there evaluating reliability of underlying data so they prepared cash flow forecast rate on what basis they prepared underlying data see whether whatever assumptions they have used right for that assumptions do they have a proper proof check out and get a written representation that these plans are feasible whatever management is having a future plans get a representation that these are feasible of course you will check whether they're feasible or not if you felt that yeah they appear genuinely feasible you also get a representation from management that they going to implement these plan of action for sure and they will be feasible they will come out of the situation very soon so get a representation now there is a question like this suppose they'll give you a question suppose there's a significant delay in approval of the financial statements approval of the financial statements were delayed significantly by the management what auditor has to respond how auditor has to respond here they're linked with the going concern if auditor believes that the delay could be related to events or conditions relating to going concern the auditor shall perform y procedures necessary and consider your consider what is their effect on your Auditor's conclusion regarding existence of material uncertainty so if any events are there any events or conditions are identified check out if there's a significant delay in approval of financials why are you not approving the financial statements what happened is there any event or condition that has significant doubt on going concern if so conclude take a conclusion take a conclusion whether material uncertainty exist material uncertainty exist see I'll tell you what is material uncertainty generally know if a material uncertainty exists like best example a India until 2022 they having material uncertainty like what is what Air India is doing you see here they have presented material uncertainty related to going concern what they presented you see the company has incurred a loss of 7,700 cror 77,000 million or 7,700 CR same okay during the year ended so and so you the company current liability exceeds its current assets remember current liabilities are exceeding current asset net working capital position is negative 54,000 CR and company has a accumulated losses means reserves and surplus negative 70,000 CR getting it now with the current liability exceeding current asset with the accumulated loss negative how the compan is functioning can I function with minus money in my pocket first of all how minus money is possible it's not possible getting it now how Air India is functioning in spite of this in spite of these events or condition which may cast a doubt on ability of the company to continue as a going concern the management is of the opinion that going concern basis of accounting is still appro rate in spite of this they're feeling that it is appropriate why in view of because continued support from government of India because government of India as and when we are having cash deficit they are transferring money getting it so we are surviving now but just because we are honoring all our payments that doesn't mean our company's operating revenues are very fine perfect we have a net current liability position we have accumulated losses we have net loss getting it so in spite of this we choose to go in concent because government of India is supporting now what is the uncertainty here how long government supports that's the uncertainty getting the point government might withdraw their support on one day government might withdraw their support on one particular day that is material uncertainty and you know the a India has honestly disclosed in note number 53 this uncertain situation they honestly disclosed this material uncertainty in notes to accounts clearly now since it is honestly disclosed in notes to accounts the material uncertainty air indiaia is facing going concern issue material uncertainty is there relating to the company's ability to Contin as a going concern and that material uncertainty in spite of this they are choosing going concern why they have chosen going concern in spite of material uncertainty all the reasons clearly they demonstrated in the notes to accounts what you can do here can you give a qualified opinion here they disclos clearly everything so we will give obviously unqualified opinion on the going concern matter we will give which opinion unqualified opinion for sure we will give going concern unqualified but don't you think this is an important point which they have disclosed in notes we can highlight it in emphasis of matter per but but instead of emphasis of matter perah sea 570 says don't highlight under emphasis already so many points have highlighted if you highlight going concern which is life and death situation of the company it is not just a normal matter to highlight it's a very significant matter to highlight put a dedicated per put a dedicated par what is the sing of the PA material uncertainty related to going concern put that side heading and highlight here this is also an emphasis par only this is also a type of emphasis only are we emphasizing or not here we are just emphasizing so here also auditor is emphasizing only but not under emphasis of matter par but a dedicated par for going concern if you want to highlight a going concern matter that is appropriately presented or disclosed in financial statements under which section of the audit report you can highlight under material uncertainty related to going concern per you can highlight understand by by the way is there any material misstatement on the going concern presentation by a India no no material misstatement they honestly disclosed everything then why are you highlighting I'm just highlighting I'm not objecting anything because this is an important point I'm just highlighting I still gave unmodified opinion on Air India you see a India Auditors have given qualified opinion but the basis for qualified opinion they didn't talk about going concern so with respect to going concern material uncertainty our opinion is still unqualified only so on going concern what opinion we have expressed is unqualified qualified opinion we give on the overall financials related to some different different issues not related to going concern so on going concern issue we still gave unqualified opinion we are just highlighting suppose if a India is not disclosing this properly in the note number 53 you went and read the note number 53 it is not clearly demonstrating what happened exactly you felt that the note number 53 is slightly misleading what you have to do you have to issue a modified opinion because financial statements are presenting something misleading the disclosure is not prop so what you have to do you have to give a modified opinion depending upon the civity either qualified or adverse opinion and reason for that you will mention in basis for qualified basis for adverse now tell me will material uncertainity section comes in the scenario no material uncertainty related to going concern section comes in the audit report only when the going concern is properly presented in the notes if going concern uncertainty is not properly presented in the nodes we will not talk about in the metal we will straight away modify the opinion understood or Not Here There is a doubt which is asked by one student suppose we give adverse opinion because of some inventory materially misstated and it is pervasive for example he gave an adverse opinion but remaining items current asset remaining current asset or remaining fixed asset he wanted to use emphasis of matter paragraph can be used in the single audit report no prohibited in the same audit report as a whole on the complete set of financial statements of course the reason why you are giving adverse opinion is because of one element but that's substantial portion that one element is substantial portion that one element changes your entire perception getting it on the company so that one element itself substantial portion it is affecting substantial portion of the financial statements it is like a marriage yes or no in the groom or Pride family you don't like one person close family member so still you don't marry right arranged marriage I'm talking about getting it yes or no so something like that so if if in the financial statements as a whole you give an adverse opinion that to adverse opinion you get because of one particular issue only but that's a substantial issue in the same audit report don't talk about anything else positively getting it that's what the answer is getting it now when we are giving qualified opinion or adverse opinion or what when we are finding mistakes no when we are finding mistakes how to interpret the mistakes this one small simple discussion suppose current assets no they are materially mated by 10 CR overstated some trade receivables were understated by minus 10 CR set off balance sheet totally still right only so we'll give which opinion unqualified opinion no what is the total misstatement value ah 20 CR misstatement will not have a symbol getting it so to total mistake is 10 so both the fact that they both are setting up with each other remember we are not giving opinion on the balance sheet total value getting it balance sheet total is irrelevant even in exam no many in most of the exams even if you do not put balance sheet total they'll not worry getting it if the amounts are right you will get marks so we are concerned about what exactly the amounts getting it the balance sheet liability values and assets values not the total we are not OP we are not giving opinion on the balance sheet total total is just a byproduct of the assets and liabilities so total is not a decision making Factor are you getting the point now suppose no we found mistakes like this some now current liability is some 5 CR now what is the aggregate mistake 25 CR is it material we will have to check out yes material but not pervasive then I'll give qualified opinion and why I gave qualified opinion because I found these three mistakes put together aggregate concluded me that they are material but not pervasive so these three mistakes I talk in the basis for opinion paragraph basis for qualified opinion section suppose no after these three mistakes I felt that it is material plus pervasive I will give adverse opinion in basis for adverse opinion I'll mention that these mistakes I found whatever that I can demonstrate I will demonstrate next so now auditor has to suppose no you found some material event or material condition some events or condition that cast a significant doubt on on going concern auditor has to check whether management plan exists suppose if there's a management plan management has a future plan solid plan is there to overcome the situation adequately disclosed the principal events or conditions that may cast a significant doubt and management plans to deal with these events or not auditor has to check auditor has to check whether management is adequately disclosing what are the situation that they are going through which is affecting going concern and what is their plan of action to deal with these events disclosed or not check out suppose no if management is not having any plans to mitigate disclose clearly that there is a material uncertainty related to events that may cast a significant doubt on the entity's ability to going concern and that it may therefore the entity may be unable to realize its assets and discharge its liabilities in ordinary course of business so in ordinary course of business we cannot get these assets and liabilities values exactly whatever we shown in the balance sheet disclose that if management do not have a proper solid plan of action disclose that they do not have a proper plan of action because of this company may have to seize operations in ifls audit report it is there in 1718 there's a company called ilfs in their audit report this disclosure they have given now Air India comes under category a ilfs comes under category B in Air India now they are saying government of India is supporting we are having a plan of action we are all Reviving we are looking for Alternatives all that they presented whereas in ilfs they clear CLE L mentioned that the compan is facing a severe financial crisis already everything is negative we can come out of this situation if we borrow additional funds right now modone is also saying the same vone idea you want to go for external further public offer they want to go for funding so to expand into 4G and 5G Spectrum getting it now reporting if going conc assumption is appropriate but material uncertainity exist already told you financial statements adequately close the fact the properly disclosing which opinion you'll give unqualified and you will give unqualified opinion and you will draw in a separate section you will highlight yes or not draw the attention to the specific not point which is presented or disclose adequately by the management regarding material uncertainty if the financials are not disclosing the fact adequately then auditor will give a qualified opinion or adverse opinion and reason he will mention in basis for qualified or basis for adverse suppose going concern assumption is inappropriate you felt company is prohibited to use going concern they're already closing down the business already they stopped all the operations factories and all stopped employees are all left getting it still the company is preparing financial statements on going concern at Superior financial statements are prepared using going con assumption in spite the business is completely halted getting it you should give which opinion adver opinion are you clear all of you now there is one more question which is important ongoing concern say this question management s assessment of entity ability involves making judgments about inherently uncertain future outcomes yes or no future outcomes are uncertain right can we make it certain obviously about future we cannot certainly make any judgments it only uncertain that is something inherent yes or no the future is always uncertain it is inherent limitation yes or no what are the relevant factors to that judgment so management is taking a judgment about future plan of actions all that which are inherently uncertain getting the point so what points you will verify the following factors are relevant what is the degree of uncertainty associated with the outcome of an event or condition increases significantly the further into future of an event or condition or outcome that occurs nothing but if the degree of uncertainty is very high if the degree of uncertainty with the outcome increases significantly the further into the future of the events events or events or conditions are the outcome that occurs nothing but see like suppose if Air India is saying next year we are buying so many planes okay and uh government is also funding us we are trying we will within next two years we will dominate Indigo Airlines and then become the number one airlines in India that is what their future plan of action that is highly uncertain the degree of uncertainty for that management future plan is highly uncertain getting it for that reason most financial reporting framework requires an explicit assessment specify the period for which management is required to take into account all the information see you know going concern for how for how many months we should assy the future means what minimum 12 months minimum what 12 months period of assessment of going concern is 12 months I will show you that what is the period for which going concern has to be assessed if the management assessment about going concern is less than 12 months then auditor shall request the management to increase it to at least 12 months suppose in some cases extremely rare cases going concern assessment for more than 12 months is also justified in such a case management must do assessment for that extended period in some entities know we should do going conern assessment for 24 months in that case you should do 24 months if management is unwilling to make the assessment at all or they assessed for 6 months they are not willing to extend it to 12 months auditor shall consider the implications in the audit report we either give qualified opinion or disclaimer of opinion because management is not assessing about going concern without assessing they're choosing going concern getting it so we either give a qualified opinion or disclaimer because regarding future there is no information available because management did not do that assessment that's it so about judgments no here here they have given right you see here so what points you will consider what factors you will consider one degree of uncertainty associated with outcome of event or condition up to that one point the next later part you can ignore this first point the degree of uncertainty associate at with the outcome of an event or condition getting it the size and complexity of entity that is another point natur and condition of business that is another point this is second point this is third Point degree to which it is affected by external factors fourth Point getting it so that is what I've given in notes here so discuss with the management their preliminary assessment of going concern like what is the nature and condition of the business what is the effect of external events or conditions what is the operational forecast any significant event or transactions that are occurred during the year all these points we will check so in order to decide whether management judgment is proper or not how management judged about going concern because going concern is about future already events or conditions are there that cast a significant doubt on entity ability to continue as a going concern so some symptoms are there some indicators were there material uncertainties clearly visible how management has choosed this assumption in spite of this look at the management judgment they made so many assumptions about the future what is the Assumption how far this assumption is uncertain degree of uncertainty involved able to understand in Essa 540 to have this uh M you know un material uncertainty I mean in in 540 uh estimation uncertainty there is a word yes or no estimation uncertainty what points auditor has to check relating to estimation uncertainty we'll cover there later okay that is that and this are slightly interl C so that's it I think these are the questions which you need to for sure not you should not miss these two questions you should not miss at all getting it so in question mark it is given but if you following isomet it is there in the iseral as it is in the proper in the proper discussion it is there so with this 570 is completed now you understood in 570 when in audit report exactly that side heading comes in the audit report that's it so with that 570 is also over I have I spoke about all possibilities in 570 getting it any question they can ask so what are the they'll ask you what are the audit procedures when events or conditions are identified this itself one question they'll ask St question you have to write four points okay and write about uracy of disclosures in the financial statements when events or conditions have been identified so whether financial statements are adequately disclosing or not what you will check so the auditor shall verify whether financial statements adequately disclose the events or condition that may cast a significant out on going concern and management plans to deal with them suppose if man if management has no plans to mitigate if there is no no future plan of action but event or condition is there as of now management do not have any Clarity on how to resolve the situation in in that case financial statements shall clearly disclose that material uncertainty shall be clearly disclosed and Company shall also disclose that it may be unable to realize it liabilities I mean it's it's unable to realze it assets and discharges liabilities in normal course of business they should clearly mention that this is there in ilfs audit report you can just download ilfs 1718 audit report that's the last year audit report I mean that's the last year for the ilfs financial statements so in that they clearly mentioned that company cannot cannot realize its assets and liabilities in ordinary course means nrbs the company will realize assets and liabilities at nrvs that's it so with this 570 is also over next uh next we'll begin 71 key AIT matter after that I will discuss uh this one 610 and 620 so let's begin the next one that is key audit matter so the heading is communicating key audit matters in the independent Auditors report straight example I will show you first yeah let me take an easiest example in Air India in Air India audit report they have presented one key audit matter let's look at what they have presented so you see how they are presenting e audit matter two boxes one what is the key audit matter and principal audit procedures performed like what auditor has performed on the same what is key key audit matter important audit matter in the current period audit so when you're doing the audit of the financial year 2223 or 2122 whatever year what is the important audit matter there is a difference between this is nothing but significant matter but there's a difference between significant matter and significant risk significant risk is different altogether getting it the auditor felt this is an important issue that while he has conducting the audit so what he is describing the management uses estimates to assess useful life of PPE right to use assets nothing but lease properties investment properties and intangibles including comp including the application of component accounting recognition of early retirement from use Etc which have a significant impact on the accounts the company also assess whether an impowerment indication exist and perform an empowerment test in respect of PPA investment all that which involves management judgments of various factors including future growth rate all that so okay so this auditor has considered as a key audit matter this auditor has considered as a key audit matter so what auditor has verified with respect to this useful life so here they're talking about two issues one useful life and impairment what he's saying is useful life estimation involves significant judgments impairment estimates involves estimations about future goth rate all that which is also a judgment what auditor has verified we have reviewed the judgments and methodology applied by management including the nature of cost capitalized nrb uh nrb useful life of assets and uh we are we ass we verified this considering the rates given under schedule 2 depreciation rate so what are the depreciation rates given under the companies act what rate the company have chosen what useful life company has chosen all that the Auditors have reviewed that is what we do right when we are doing depreciation audit what we verify we verify at what rate they depreciated what method they have followed whether that method is suitable or not whether that method is suitable or not that's what we verify correct further we we have reviewed company's empowerment process and working St It Whatever work they did for impairment future cash flow discounted cash flow workings all that we have reviewed adequacy of disclosures relating to impairment in the non stand and financials whatever assets related empowerment related disclosures also they verify try to figure out what they try what they're communicating here in the audit report they are communicating whatever according to them felt as important audit issue and how they did the audit of them this is what they presenting are they giving any are they highlighting any important issue in the financial statements are they highlighting any matter in the financial statements that are presented or disclosed in financials no they're not highlighting anything are they talking about audit report audit responsibility audit process actually they're talking about audit process how they conducted the audit they're talking about are they talking about any going concern issue are they giving any opinion on this by the way separately he audit matter is a matter in the professional Judgment of the auditor were of most significant while performing the audit of financial statements of current period in the current period when he is performing the audit whatever matter that he felt important so that he identified as a g audit matter he's just demonstrating how we do audit he just want to give examples to shareholders like they will have they will have a doubt right how auditor will be conducting audit tataa Motors 3.6 lakh CR sales is there how auditor would have audited this they'll be having some doubts on audit procedures through key audit matters section we are selecting some important issue and that important issue how we resolved in audit how we verified that in audit we are just giving it as an example so any shareholder by reading these three four examples of how I do audit will understand how I do my audit procedures because you only know that I do audit but how I do audit what I will verify on a particular issue on a particular situation what points I will verify he is not aware of so I'm taking one particular issue and ver explaining them what are all the things I verified briefly I'm not explaining indepth audit procedure I'm just briefly explaining tell me technically speaking is this useful to anybody not to anybody even for Market analyst also for nobody it is useful in audit no you for you important matters are different for another auditor important matters are different he audit matter selection is judgmental yes or no so typically key audit matters discussion itself is typically waste in audit report honestly speaking it's no use for whom it is useful you're reading this how it is useful in your e economic decision making suppose in emphasis of matter paragraph you are highlighting some important points that are there in the notes to accounts some contingent liabilities some non-adjusting events some compan future plans and all they spoke in notes to accounts you are highlighting that which is good for me other matter you're talking about where you're responsible where you're not responsible all that you're talking about fine it is useful to me opinion section you are giving your opinion on the financials whether they right or wrong and if something is went wrong you're giving in basis for qualified opinion what went wrong that is useful to me material uncertainity related to going concern you're highlighting and alerting me that be be careful that's useful to me he AIT matter why do I bother getting it you want to buy the AC you just inquire whether it's a good AC or not how they man manfactured inside you want to look into the manufacturing process before you buy a do you look into manufacturing process why it is bothering you too much of overaction this is getting it so to make the audit report much more informative to make the audit report much more informative they're giving all this information so you see here purpose of key audit matter this is a straight question you will get what is the purpose of communicating key audit matter what is the key audit matter and what is the purpose purpose is to enhance communicative value of auditor report by providing greater transparency about the audit who wants transparency about audit getting it hardly 1% not even one 0.01% of the readers of the financial statements can understand what is a key audit matter reminding people think that hey what auditor is talking something some issues going on yes or no he's highlighting some key audit matter it's an important issue something is going on in the company people will misinterpret it provides additional information to the users of financials for understanding The Entity and areas of significant matters in the professional Judgment of the auditor according to auditor who are what are all the important areas in the company people will get to know remember key audit matter is not a substitute for disclosure in financials it is not a substitute for modified opinion and it is even not a separate opinion and is not a substitute for reporting in accordance with 570 when material uncertainty exist the audit matter then what is it just what is important audit issue and how I audit it just to demonstrate my skill set that's it correct now key audit matter is compulsory for the following listed entities it is compulsory or if there is a requirement in law that you have to communicate a key audit matter then it is compulsory in India it is not there or if under circumstances when auditor decided to communicate suppose if auditor himself decided voluntarily to communicate keit then he can communicate applicability of key audit matter now key audit matter will not you should not talk about key audit matter when you disclaim your opinion on the financial see you gave disclaimer of opinion because substantial portion of the financial statements you did not get evidence substantial portion of the financials you have not audited when you have not audited substantial where is a question of important audit matter you didn't audit substantial portion that's why you are ending up giving disclaimer of opinion so you are ending up giving disclaimer because you haven't audited where is the question of important audit matter because you didn't audit first of all so SCA 75 prohibits auditor from communicating Q audit matter when auditor disclaims the opinion how do you select key audit matter I told professional judgment if at all your professional judgment is not working here areas of higher risk of MMS so generally you can select key audit Matters from the area where you found high risk getting suppose you found highrisk in provision for bad and doubtful Debs have you resolved that have you interacted with management have you verified the computations have you got external confirmations all that procedure you can talk or areas which involve significant management judgment right now Air India used this criteria Auditors of Air India used this criteria yeset useful life estimation involves judgments impairment involves judgments so auditor have considered that as a key audit matter because it involves significant judgments or key audit matter can be selected from a significant event happened during the year or significant transaction that occurred during the year so in a significant event or transaction that have happened key audit matter can be selected so the auditor will select key audit M selection of key audit matter is a matter of professional judgment the following factors will assist the auditor the auditor can select key audit Matters from the following issues one areas of higher assessment higher higher risk of material misstatement areas of significant judgment areas of significant events or transactions any of these three characteristics can be communicated as key AIT matter suppose you see a India itself once again some impact of covid-19 it's a significant event happened it's not a transaction right Co is a transaction it's an event okay IND as Lees first time adoption it's an event so it's a significant event it's a significant event which is communicated whereas this is significant estimate investment in subsidiary and Advan recoverable from the subsidary in significant transaction getting the point on some criteria you select a key audit matter generally know we don't read key audit matter and then select we are doing so many works as part of our audit when we are doing so many works at which work you are giving most attention most most of the the attention where you giving Which work make you struggle so that you will select as key simple getting it so it's unnecessary to communicate key audit matter most of the Auditors know why to communicate they will say that there are no key audit matters now the standard also permits that so what are the examples by the way they'll ask you they'll ask you this question you should write only these examples not other examples getting it so what are the factors that assist the auditor in selecting and communicating key audit matter give you examples so you should write factors impairment provision for losses and contingencies valuation of instruments Revenue recognition taxation matters so many getting the point in us and all it is called as critical audit matter even in Apple Incorporation alphabet you know all these companies know they also their Auditors also present the key audit matters there it is called as a critical audit matter in us and it is critical audit matter the audit report framework across the world is same is similar mostly similar you can compare audit reports across different countries different companies you can compare so it is same the opinion terminology is exactly same we use unqualified opinion where we simply mention opinion even in the United States even in the UK Europe also they use the same unqualified opinion means simply opinion qualified opinion they also give qualified opinion here adverse opinion there also is adverse opinion because at the end of the day our standards are derived from International standards and auditing International standards on auditing is what across the world followed getting it certain matters not to be communicated as key audit matter this is not there in your study material it is now removed okay you can strike off I think it is not covered in the study material in spite see the prohibition is when when you have given disclaim of opinion suppose I have not given disclaimer I have given a proper opinion at ver or qualified or unqualified some opinion I give in spite of this there are some some issues which I should not talk in key AIT matter either because it is highly confidential in nature so better not to talk about that in the audit report or by unnecessarily talking about that in the audit report it brings adverse consequences if you think discussing that matter in the audit report under key audit matter brings unnecessary confusion to the readers don't talk about that law regulation prohibits that if any particular matter is law law is prohibiting you to communicate any particular matter then you should not discuss about getting it that is a restriction on key audit matter it's actually called as what restriction on key AIT matter it's not a Prohibition some matters are restricted remaining all other matters important according to you you can communicate that's it 71 is over no definition finally the audit matters are the matters which in auditor judgment are most significant in the audit of financial statements of current period and these are selected from matters communicated with those charged with governance you should communicate with top management what matters you are selecting as key audit matters for sure now introductory Lang language I will show you key audit matters suppose this is a introductory language in the audit report key audit matters are those matters that in our professional judgment were of most significant in the audit of financial statements of current period these matters were addressed in the context of our audit so whatever Q audit matters I'm listing Out Below we already solved them in our audit we verified them in an in our audit as a whole while expressing opinion on the financial statements and ining the opinion however we do not provide a separate opinion on these matters so tataa Motas have highlighted what are the key audit matters how the matter was addressed in audit same like how in a India in Air India instead of using this they Ed the word principal audit procedures principal audit procedure means what may not principal auditor principal audit procedures means important audit procedures what briefly we did clear next this 701 is also over so we'll go back to this once again so material uncertainty related to going concern is completed key audit matter is completed responsibilities of management for financial statements what are the responsibilities of management for financials preconditions to audit in CA inter 210 sa21 management is responsible for Preparation and presentation of financial statements as per applicable financial reporting framework two management is responsible for uh design and implementation of internal control so as so that the financial statements are free from material statement whether due to fraud or error three management is responsible to provide the auditor with unlimited unrestricted access to books records documents all that management is responsible to provide additional information requested by the auditor management is responsible to give unrestricted access to persons within the entity to whom from whom auditor can obtain sufficient appropriate evidence that's it yes or no and of course we will give additional responsibilities management is responsible for proper selection and application of accounting policies like that we give so many other points also but if at all a question question what are management responsibilities don't think that these will not be asked in the last ATM what are fundamental principles of audit they asked that question five marks question Integrity Independence objectivity students were shocked thce they read is the same question which they ask yes sometimes they ask simplest questions getting it because we prepared for very advanced level we failed to answer simple questions sometimes so last attempt only I think it was asked last attempt that last attempt what are fundamental principles of audit recollected in ethics first first initial we directly skip first 10 pages in ethics when we are reading by default we straight away ethics means it started at 101 page you will directly go Tri one page first 10 page you will not you will never read many students could not answer that question that's a so simple question yes or no Independence Integrity objectivity professional competence and tare that question is asked other information is also over so signature of the auditor place of the signature you you will sign right below that date and place you should mention place means ordinarily the place where he is signing if at all you're signing in company office company office that city name you should mention if you're signing in your audit office that city name you have to mention place has no much relevance date of Auditors report already I told date of audit report you in number so all the contents are over except one content report on other legal and regulatory requirements report on other legal and regulatory requirements so just one 2 minutes Gap okay some students know they will uh they'll ask me sir uh in the attempt I didn't study well I'll skip this attempt next attempt I'll try rank this guy will never get rank because know rank is a conscious decision it should not be a byproduct of your process like uh because this fellow is not studying properly somehow he was deviated finally he'll come to somewhere in the one and half two months before exam that time he realizes that this attempt I will no doubt qualify this fellow will get a beautiful thought why should I why can't I try for rank next attempt I have two months plus next three and half four months totally 6 months all India rank I can get R you will get generally but this this kind of students will never get it because same thing will repeat again what he will do he will skip this attempt since he skipped this attempt why should I start immediately study one month j po somewhere he somewhere he'll enjoy one one and half month then again coming back and sitting on the books is a very typical task for him it is not possible for him he'll not get that interest back and he will decide at least okay fine it's okay not rank at least I'll qualify both the groups at a time this is the thought again with which he'll start then he'll start uh attending classes or start reopening the book and he he'll try to read and understand not understanding anything then he'll open Marathon classes on the YouTube he'll watch something and again Implement all that in the book okay he it is not sinking one one and half month time will pass by then he will realize both groups is not possible for him then he'll shift to single group plus one subject exemption in another group yes or no then he'll start studying the other subject which he want to get exemption okay then he will be going little bit then he will realize after 15 20 days I don't know let me finish that group and come back to this he'll skip that that fifth subject also gone Once Upon a Time fth fifth subject fourth subject that also gone three subjects now he'll be coming to October somewhere one one and half month before exam he has studied only 50% of the entire syllabus so remaining 50 is not yet complete and in each subject he studied 50% only okay now he'll be having this thought okay I'll do one thing one subject I'll take I'll get exemption for this subject and he will he will ignore other two subjects on the day of exam He he'll be absent for this exam itself getting it this is how the law of diminishing marginal utility applies getting it so you should not be having uh you rank is something like if you want to if you want to get a rank you should have decided at the first year of articleship itself when you are in first year of articleship itself you should have decided that you want to get a rank if you decided like that the way you have to work is different because you should work in such a way nobody nobody is working like you so when you work hard you will get that that's it okay so if at all any of you are still in that filtering process at least come out of it you're having exactly good amount of time from now even if it is May 1 exam okay forget about that postponement all that right now for the time being assuming it is May 1st you're having almost 40 days time which is a solid time not 40 50 days time you have which is a very solid time for group one students even if you start preparing today seriously you will do it seriously every day 10 hours if you dedicate 10 hours the 2 minutes Gap I'll continue with uh report on legal and regulatory requirements yes uh let's begin report on other legal and regulatory requirements so in the audit report one more section is spending report on other legal and regulatory requirements which is all also called as other reporting requirements which is also called as other reporting requirements so under legal means under company law we have a reporting requirement that we need to give in audit report additionally we are anyhow giving opinion we are discussing key AIT M we are highlighting important matters in emphasis of matter per any responsibilities and all we want to communicate we are discussing another matter paragraph and with respect to annual report and all we are discussing another information par all that in addition to that there are various aspects that we need to report on so 143 subsection 1 so where we have to report on six inquiries we have to do six inquiries and then report whether it is positive or negative generally here reporting applies only when it is negative so if at all when we inquire these six matters if at all the response that we are getting is negative then we need to report then 143 subsection 3 these are called as checklist items these are called as check list items or these are called as affirmations by auditor these are again called as what affirmations by auditor so auditor has to talk about auditor has to affir something auditor has to give his affirmations on various things approximately 16 to 17 items were given here like you remember that last Point like um whether the company has implemented uh accounting software with uh audit trial pH yes or no and audit trial F should not be tampered and audit trial should be retained for 8 years yes or no so whatever the record retention period applicable for books of accounts the same period audit trial shall also be rate so whether compan is maintaining audit trial feature or not whether they're using that you need to comment likewise some 16 to 17 items were given getting it so 16 to 7 on all these items whether your answer is positive or your answer is negative both you should report if at all your answer is satisfa positive you say that it is positive like yes company has maintained an accounting software that has an audit trial pH and the company is retaining it for the record retention period it's a positive answer suppose if the company has not not yet implemented audit trial future say that the company has based on our observation and examination of Records it is found that the company has not implemented audit trial feature with effect from 1st April 2022 you need to mention that clearly then we have 143 subsection section 11 where central government has given power where where companies act has given power to central government to issue any order under which auditor will report on various issues so the order whatever the order contains whatever aspects on that auditor will report accordingly central government has issued Arrow 2020 order as for this there are 21 clauses on which auditor has to specifically comment on now you need to remember Clause numbers it's important getting it I'll tell you important Clause numbers that alone important means almost out of 21 some 14 Clauses I'll tell you getting it so so AR 2020 21 Clauses were there so on all these 21 Clauses auditor has to specifically comment now all this completely where you where it will come in the audit report only inside the audit report under which side heading report on other legal and regulatory requirements under that sing accordingly tataa Motors no you see tataa Motors Auditors they have given report on other legal and report on other legal and regulatory requirements in that second one 143 subsection 3 they have listed out all the affirmations they have listed out all the affirmations then at the first point as required by Caro issued by central government so they reporting so they are reporting on car as well so this they are reporting as an an exure remember an exure is equal to audit report anex is nothing but instead of listing out 21 points here we are giving it as a an exure that's the only difference getting it so now in uh 143 subsection 3 important points I will cover and 1431 car I will proceed then immediately as I told audit report chapter I divided them into two parts Part One um this one uh standards part two report on legal and regulatory requirements 1431 I'm discuss I'm not discussing it's very easy 143 subsection one six inquiries for these six inquiries reporting requirement is if you got a positive response you can ignore if it is a negative response you have to comment in the auditor report now regarding 143 subsection 3 in question mark I have given a guidance note on that yes you see here 143 subsection 3 sorry 143 subsection 1 in question paper 2019 attempt it was asked in 2019 attempt it was asked so what they have asked is e was appointed a stat auditor while doing the audit it is observed that certain loans and advances were made without Securities certain trade receivables and payables were adjusted within the books of accounts book adjustment personal expenses were charged to revenue as a company auditor comment on the reporting responsibilities by CAG three items they have dis three items there is a I mean mistake which they did how auditor has to qualify they have mentioned here just to go through this later okay I I am going to release one comprehensive question mark which is free pdf in the probably in the April first week in the same website April first week or second week I'll is a comprehensive question bank one comprehens already it is there on question Bank part one question part two like that it is there but in that whatever questions that are covered in CS study material main study that I have not covered because I'm covering it in the main material for General like YouTube students and all I'm I'm releasing that getting it so duty to report on certain matters under 143 subsection 3 inside this you see here such other matters as may be prescribed inside that there is a rule number 11 of company audit and Auditors rules they prescribed the following matters one auditor has to check whether company has disclosed the impact of pending litigations on the financial statements and financial position so nothing but contingent Li dis information company will be giving right so that information if it is proper you will say that it is proper whether company has made provision under the law or accounting standard for material forc losses whatever possible losses compan is expecting whether they created provision under the law whether they created provision as per accounting standard or not we need to check if if they have created you just mentioned that they' have created whether is there any delay in transferring amounts to iepf invested edication protection fund every year company has to transfer some amounts where the D debt has been crossed getting it whether there is a delay in transferring the funds you have to comment on and here here there are there are some situ s suppose no our company where we are doing audit this company is acting as a funding party they are transferring funds they are transferring funds how they are transferring the funds either as an advance or as a loan or as an investment either as an advance or loan or investment whatever however the way you are actually transferring funds to another entity they use as the word another entity not company remember company act inside that they're not using the word company here but funding party is what your company where you're doing audit the company where you doing audit they transferring funds to another entity which may be a foreign entity also which may be a foreign entity also with an agreement that with an understanding that this entity this entity shall further Advance it or loan it or investment this entity will further transfer that amount in Ultimate beneficiary ultimate beneficiary identified by the company you are doing audit identified by funding party nothing but getting the point generally these transactions are called as shippening of funds getting it we also call them as a diversion of funds ABG shipping case this is what exactly happened they transferred to many of their foreign subsidiaries and all and the defaulted loans in India hedenberg report on adani also pointed out similar incident but of course adani have given proper reply adani group there is a proper genuity in the transactions and all like that they have given a proper reply they proved with the documentation they are not something like diversion of funds without any with a MiFi intention they are not like that they are with a proper intention there is a proper routing with the proper femma guidelines and pmla and all is not violated moneya laundering act and all so they have given replies everything clearly so if your company is acting as a funding party and transferring funds to another entity where the another entity has to transfer where another entity has to transfer that fund to another entity so now this middle entity is called as intermediary this is called as intermediary your company is called as funding party ultimately who is getting that fund is called as ultimate beneficiary now the intermediary you are you are transferring funds not to the ultimate beneficiary you're transferring funds to intermediary that intermediary has to loan or advance or invest in Ultimate beneficiary or intermediary can do one more thing or intermediary can give guarantee or provide security to some third party on behalf of on behalf of beneficiary on behalf of beneficiary so I will give money to you you will give I will direct you there is a third part there is a beneficiary belonging to me you give the money to them or do one thing don't give money take my money but on their behalf you give guarantee to third party why you will give guarantee because I'm giving you already the money I gave you the money already getting it since the funding party already transferred the money to intermediary now the intermediary either has to transfer that fund to third party I mean ultimate beneficiary or the intermediary has to give guarantee to third party on behalf of the beneficiary getting the point that is the first transaction second transaction that is the first point I'll tell you what exactly they are asking I'll tell you first look at these situations second one suppose your company's intermediary suppose the company you are auditing is intermediary whether your company has received any advance or loan or investment from funding party with an understanding that your company has to advance or loan or invest in Ultimate beneficiary identified by funding party or given Guaranty or Security on behalf of ultimate beneficiary to any third party so first whether you are company that you doing audit is it acting as a funding party first question second question okay you're not a funding party have you acted as intermediary in a chain of transaction like this have you acted as an intermediary so these two things we should verify whether the company for whom we are doing audit whether they acted in this kind of transaction where our company transferred funds to somebody and directed them to invest in somebody or our company received funds from somebody where they have received a direction that they have to invest in somebody so whether the company you're doing audit acted as a funding party or whether the company you're doing audit acted as an intermediary out if so disclosure requirement is there the company has to disclose the details of intermediary suppose if you're a funding party the company has to disclose in schedule three clearly in the nodes to accounts what are the amounts that you transfer to intermediaries on which date you transferred what are the names of intermediaries and where the intermediary invested ultimately ultimate beneficiary that details company has to disclose it this A disclosure requirement getting it two suppose if your company has received funds as an intermediary from some funding party list of the funding parties amounts received and where you have to invest it where you transfer that money ultimately list of the beneficiaries you need to clearly disclose the details auditor has to check whether the company disclosed details of intermediaries details of ultimate beneficiaries details of funding parties details of ultimate beneficiaries in type one transaction in type two transaction so auditor has to check whether company has disclosed or not then finally check out disclosed everything is disclosed get a representation from the company that other than that is disclosed in financial statements regarding these transactions there are no other transactions like this get a disclosure that is what exactly the point says auditor auditor has to get a management representation that whether management has represented that to the best of its knowledge and belief other than as disclosed in noes no funds have been transferred or invested that F the entire transaction getting it funds transferred or invested or Advanced to intermediary with an understanding either in writing or in oral otherwise that intermediary shall invest further in Ultimate beneficiary or on behalf of beneficiary given guaranteed to third party other I mean all these transactions were disclosed in balance sheet pendl notes other than this there were no other transactions no other loans given by the company other than whatever we disclosed like that you should get a representation are you getting the point third one now okay you got representation fine you have gone through the company bank statements you have gone through payments and receipts you know to whom the company paid from whom the company received is there any of these receipts and payments made by the company you found you found a list based on your audit procedure do you think management gave a representation that there were nothing there is no I mean there is no transfers which management is hiding they gave a declaration they gave representation that they not hiding anything based on your audit procedure do you think the representation is wrong based on the audit procedures auditor has considered reasonable and appropriate nothing has come to their notice that caused them to believe that representations under the under the Clause number one and Clause number to contain material indirectly they asking you to provide limited Insurance indirectly they're asking you to provide limited Assurance look that the wordings are very simple Point number one party to intermediary to do ultimate beneficiary ultimate beneficiary is decided by funding party Point number two you are the intermediary youed funds from somebody where you need to give that funds to somebody getting it now whether you are giving to somebody and they are giving to somebody or you receiving from somebody and you giving to somebody all that has to be disclosed in financial statements clearly you need to verify whether they disclosed clearly or not that is the audit procedure finally you should get a you should get a representation that you should get a representation from the company that other than disclosed in node there are no other transactions means you need to get a declaration that all these kinds of transactions were disclosed in notes accounts now okay you got the Declaration fine now you also verified all the bank statements everything right have you identified anything that makes the representation you got is not true getting it third point is this only based on audit procedure nothing has come to your attention that causes you to believe representations contains material M statement representation wrong means what contains material misstatement means what that means based on your procedure you found some other transactions where your company acted as a funding party where your company acted as an intermediary you found some other transactions which are not disclosed in financials whereas company directors gave me a declaration that everything is disclosed you found some additional transactions now tell me representation contains material misstatement or not that is what the reporting understood or not don't worry I'll upload in YouTube repeat mode you watch Once Again getting it I hope right now you're clear as of now whether evid declared or paid during the year is it in compliance with 123 you know what this question is asked in C in uh May 23 or November 22 attemp in CA enter it was asked in CA inter they asked right what is the reporting requirement what auditor has to report on this getting it they ask in C so final students itself are unable to understand the sentence yes or you see what how sentence uh no funds have been Advanced loaned or invested either from borrowed funds or share premium or any other source of funds by the company to or in any other person or entities including foreign entities with an understanding recorded in writing or otherwise that intermediary shall whether directly or indirectly lend or invest in other person or entities identified by or on behalf of the company or provide any guarantee or Security on behalf of ultimate beneficiary now I gave this example right with that example you did this you will understand very easily clear finally audit trial with effect from first April 2022 every company must have audit trial feature as part of their accounting software which is must so auditor has to check whether the company has implemented audit trial future or not audit trial means it's a step by-step sequential record which provides evidence of documents of History of the transactions to its source simple any any any changes happened in the transaction which is already recorded everything will be recorded lock book will be there it's audit is nothing but activity lock within the accounting software within the accounting software what happened exactly when a transaction is passed when a transaction is deleted you can find the deleted transactions also in audit tril earlier if there is no audit tril if a transaction is deleted you don't know whether you don't know that there is a transaction which is already entered and deleted how do you know that so through audit you will find entire process went through in the back end that's it and one more thing so there is one more requirement whether company has adequate internal Financial controls with respect to financial statements in place and operating effectiveness of such control auditor has to express opinion on whether the company has implemented internal Financial controls relating into financial statements and how are they operating effectively getting it so auditor has to give an opinion on this for this as for the guidance note on IFC reporting as for guidance note on IFC reporting they will give it as a separate audit report again they will give it as an anex B sorry anex a I think you see this one I think anx B only after car they might have reported NX B report on internal Financial controls with reference to Standalone financial statements opinion we have audited the internal Financial controls with reference to so and so this is IFC they will give like a separate audit report on that this is a guidance note requirement as for guidance note on IFC reporting you need to give a separate report now this IFC reporting requirement do not apply for the following categories of companies 1 person company Auditors of 1 person company IFC will not apply Auditors of small company IFC will not apply Auditors of a private company which satisfy the following condition turnover shall not exceed 50 CR and borrowing shall not exceed 25 if a private company satisfying both these condition IFC Point auditor need. Comm nothing but that IFC separate audit report you need not give clear all of you and now one more thing you see as I told you already there are three reporting requirements under the companies act 1431 1433 1431 1431 1433 they are completely applicable for all companies whether non-government government small 1 person whatever within 143 subsection three only I point IFC point that alone is not applicable for small company one person company private limited company subject to conditions now 1431 car car is applicable for all companies except Banking Company Insurance Company Section 8 company 1 person company small company and private Limited company subject to four conditions yes or no now this private limited company lost its relevance because of the small company definition yes or no small company means what today 40 CR turnover criteria 4 CR Capital criteria if a company which is doing business within that limit if the business in amount invested in the business is within that limit it is treated as a small company and it was it was given with certain benefits not benefits relaxations from the compliances of companies act rotation of auditor do not apply for them yes or no internal audit and all do not apply for them Arrow will not apply for them like they just relax they just give relaxations to the small companies getting it so that more people will be attracted to these relaxations and get corporate identity make transparency in the records getting it so that's a small company Advantage okay so it is not applicable for these companies most of the private limited companies satisfy small company definition if a private limited company satisfy small company definition It's a small company and car do not apply if a private company does not satisfy small company definition car is obviously applicable simple so private limited company four conditions is there now paid of capital and res shall not exceed one CR as on balance sheet dat total aggregate of borrowings from Banks and F shall not exceed one CR at any point of time during the year turnover calculated as per schedule three including discontinuing operations shall not exceed 10 CR and it should not be a holding company or subsidary company of a public limed company that and all you did not check today yes or no if a private limited company satisfy small company definition It's a small company car do not apply McQ if a limit andol is given it's a small company select that option where it says it's a small company car do not apply clear that's it so with this car introduction is over now we'll begin actual Clauses inside the car just 2 minutes so let's begin this uh Arrow so there are 21 Clauses within the Carrow where auditor has to comment on where auditor has to comment on all the 21 Clauses getting it so first thing which auditor has to comment on is regarding fixed asss see the car objectiv is very simple in Auditors report we are giving opinion we are giving opinion that financial statements are true and fair or not that's it so they saw the numbers in the balance sheet pnl and you said that everything is true and fair fine but people want to know how the company is protecting the assets what is happening inside the company what are the Aires of the company so they want to know company's taking loans company's having so many asserts company's having so much of inventory companies having you know some recently some Auditors have resigned from the company what is this like people want to know insights about the company getting the point through car we are giving that insights getting it about the company what is happening inside the company we are giving remember here we are not giving any opinions specifically on the financials we are giving opinions on is matters that's it now fixed assets suppose suppose balance sheet You observe fix asset some 11,000 CR is in the T Motors what is this 11,000 like what how are they maintaining people want to know right so the government identified some information needs of various users the the government has identified financial information needs ofer from various users so they developed some uh points auditor has to specifically check these points and give his opinion auditor has to specifically check these points and give his opinion now in that the first first thing what auditor has to check is fixed asset inside fixed assets there are five elements which auditor has to check there are five elements in exam they will ask you any two elements getting it any two write about auditor reporting requirement under Caro relating to revaluation of fixed assets and disclosure of binami transactions what is the auditor's reporting requirement four marks question or they'll ask you what is the reporting requirement for immovable property and physical verification relating to fixed assets four marks question or they'll give you a six marks question what is the reporting requirement for fixed assets where you have to WR all the Five Points each point will be given one Mark to one and half mark getting the point so the first thing what auditor the first thing which auditor has to comment is whether the company is maintaining fixed asset register are they maintaining a record of fixed assets because in big companies and all obviously the number of assets are vast so they have to maintain a record to know what are the assets they have where they were installed all that fixed asset register means what I already explained previously somewhere yes or no so whether the company is maintaining a asset register which contains quantitative details which contains location where the asset is installed PP yes or no then whether the fixed assets are physically verified by the management isn't reasonable interval they are buying theer they recording in the register all that is fine now whether management is confirming whether they are still existing in the organization I understand nobody can take out an asset outside the premises management has implemented robust control security system CV Camas security guards are working 24 by7 nobody can take out I understand fixed asss will be existing but there should be a confirmation procedure that all the assets which the company purchased and installed as at so and so location as per register are the still existing at that location or not management has to confirm it at a reasonable interval tataa Motors they are conforming once in 3 years they are conforming once in 3 years according to the information given the company has a regular program of physical verification of PPE and uh the planted equipment are verified in a phased manner over a period of 3 years and in accordance with the program certain PP were verified during the year in this year see regularly in tataa Motors infosis TCS every day physical verification will be happening at one campus at one Factory getting it by the time 3 years complete all the missionaries all the assets will be verified getting it suppose they verified today this laptop physically they confirmed your laptop is there that so so third floor and so and so again within three years they'll come back and check whether this laptop is there or not in within this three years what they'll be doing there are so many dealership showrooms there are so many factories there are so many offices they have in all these offices they will conduct internal Auditors will be there for start M us they will be doing all this physical verification and all one segment of internal Auditors get think it in our opinion this periodicity is reasonable regarding the size and nature of the asset looking at the nature of the asset and size of the company once in three years verification is reasonable so Auditors said the physical verification by tataa Motors is reasonable and one more thing is what whether any material discrepancies were noticed on the verification by the way who is performing this verification management only management when they perform this physical verification have they identified any shortage or excess check out if so how they were resolved how they were recorded So if any material discribes were there how they were recorded in the books of accounts then so that is the first the one one is fixed asset register and the second one is physical verification I hope you understood both so you need to check whether the asset register is maintained as per car requirement or not two whether physical verification is conducted at reasonable interval if if so physical verification is conducted have they identified any discr is between the count and actual record if so how they dealt with it getting it there might be some unrecorded assets or there might be some recorded assets but are missing how the company dealt with that situation next immobile property companies having in the PPE buildings land and all were disclosed and investment properties also some invest immobile properties disclosed whether the immovable property title Deeds are they in the name of the company or in the name of somebody check account especially if if a sole proprietary concern or a partnership form is converting into company until this partnership form until its conversion most of the properties are in the name of the partners or sole proprietor immediately on conversion they will not transfer into the name of the company but they showing it as a company property in the fixed asset they're showing it as a fixed asset in the company asset register and even in the balance sheet they're showing but it is not yet in the name of the company we just have to give the details here getting it by mentioning the details people understand that okay so it's a property which is shown in the fixed asset balance sheet side it is in the name of the director it is not yet transferred in the name of the company but company is the owner for the property they will understand that so description of the property land and building gross carrying value so and so held in the name of director reason for not being held in the name of D reason for not being held in the name of the company they're they're transferring the property is after six months like that you will mention now next whether company has revalued it PP check out whether the during the year whether the company went for any revaluation of assets if so okay let it be let let let there be revaluation whether the revaluation is based on registered value who did the revaluation is it by a registered valer who are registered valuers we ched accountants we have a post qualification course registered Val course from ICA once we get that course you can be a registered value getting the point and registered value designation you can use along with CA generally along with chared accountant you cannot use any other designation only two designations registered value designation and insolvency and bankrupt professional only these two are permitted so whether revaluation is based on a registered value and what is the change happened if the change is 10% or more in aggregate of net carrying value of each class of PPE each class of PPE means what buildings how much plant and machinary how much equipment how much furniture how much Electro electrical fittings how much these are all each class aggregate value means what buildings now company has 10 buildings don't see building Wisa total of 10 buildings put together what is the carrying value before revaluation after evaluation what is the value if the difference before and after evaluation of total of buildings which is a class of planted missionary sorry which is a class of property planted equipment if the change is 10% or more within an each class getting the point within an each class aggregate value of the each class able to understand the difference getting it suppose in tataa Motors know if you see the balance sheet fixed assets last year fixed assets total is some 10,000 CR current year fixed asset total is 12,000 CR percentage is how much more than 10% not this you should show fixed asset schedule open fixed asset schedule you will get buildings how much planted Miss how much equipments how much furniture how much Vehicles how much like that you will find each classwise planted misser now that particular class Vehicles they have some 200 Vehicles it's okay but entire that aggregate of that Vehicles Clause before revaluation much after evaluation how much what is the percentage of change if the percentage of change is 10% or more you need to specifically mention that fact in the car report so you're indirectly alerting the users this year revaluation happened more than 10% there's a value change in that particular Clause you need to mention that remember this particular revaluation will not affect in cash flow statement correctly revaluation will not occur in cash flow in you know people or some people know assets revalued right they forget they forget the fact that it is revalued and they will see the cash statement whether corresponding entry is there or not that's it now next now under schedule 3 company has to disclose pending litigations or proceedings against the company under uh prevention of money laundering act or bami transactions act like that so whether they disclosed or not you need to check whether proceedings have been initiated on the company or pending against the company for holding bami property under bami transaction act or rules made there under if so if some proceedings are happening whether the company has disclosed it in the financials you just have to check whether they disclosed if they disclosed yes during the year company is going with some pending litigations under bami transactions law and they were all disclosed in the notes to a c all of you next inventories what is the reporting requirement for inventory first only two things one is physical verification whether physical verification of inventory is conducted at reasonable interval by the entity generally this point is applicable only for manufacturing and trading sector of goods for TCS and all you will not find this point they clearly mention that companies not dealing with inventory accordingly they are not we this Clause is not applicable you will mention that if it is not applicable say that it is not applicable so whether physical verification of inventory is conducted at reasonable interval whether any discrepancy of 10% or more in aggregate for each class of inventory what do you mean by each class of inventory here raw material is one class work in progress finish Goods three classes of inventories able to understand not Material names getting it not so and so cars so and so iron so and so thing not that each class of inventory means raw material working progress and finish Goods now in this suppose in raw materials no you found shortage or excess if the shortage or excess is more than 10% as per record so much is there and in physically so much is there the variation is either shortage 10% or more or excess 10% or more how it is dealt in the books of accounts especially if see in fixed assets they use the word material discrepancy here they use word they Quantified it 10% or more discrepancy so in fixed asset also you can take this adoption you can adopt this and there also material means 10% you can choose getting the point in fixed assets they have used the word material discrepancy here they have used word discrepancy of 10% or more in each class of inventory if were noticed who were noticing by the way not auditor management only not say if so whether they have been properly dealt in the books if any unrecorded inventory is they'll record it if any shortage inventory is they'll write off so whether they dealt properly in the books of accounts or not of course in tataa Motors and they don't comment anything like this so you see here the inventories except Goods in transit and goods lying with the third parties okay except inventories that are held with the third parties nothing but they were physically verified by the management and for stocks lying with third parties confirmations have been obtained and for inward Goods in transit subsequent evidence of receipts were linked with inventory records Goods in transit in transfit so what they checked whether subsequently received or not they checked the company now in our opinion the frequency of the verification is reasonable and as to coverage followed by The Entity generally compulsorily once in a year inventory must be physically verified compulsory for fixed assets it can be 3 years or 5 years no problem problem but inventory every year it must be physically verified moreover company has to maintain Perpetual records in SEF 51 you need to get evidence on existence and condition of inventory that standard itself indirectly says you have to get confirmation you have to get evidence on physical verification every year getting it and they mentioned that no discrepancies were noticed on verification between physical stock and book records that have more than 10% in the aggregate of each class of inventory clear next working capital loan they have to you need to check whether at any point of time is the company sanctioned working capital limit in excess of 5 CR rupe remember it sanction limit not drawing power getting it company has a drawing power of 3 CR only but sanctioned limit was 7 CR company was sanctioned a loan limit of 7 CR but company offered 5 CR worth of security only since 5 CR worth of security only given 40% margin kept by Bank 3 CR only power to withdraw has been given drawing power is three CR but sanction delit is more than 5 CR here the point is sanctioned limit if the company was sanctioned with a limit of more than 5 CR what auditor has to check very simple you know company has to disclose this in the schedule 3 also in the schedule three they need to disclose remember B transactions they need to disclose pending litigations next they need to disclose like you know companies know every year they file with every quarter they file with banks because they got working capital loan quarterly statements they will file with the banks to get the drawing power updates drawing power will be updated every quarter by the bank some banks do follow monthly mode some banks do follow quarterly mode now first quarter you have five CR worth of Securities valuation like inventory valuation five CR is there they get three CR drawing power second quarter you you give some 7 CR inventories there in your golden average inventory so you gave that report some auditor also certified that stock certificate and then Banker gave you 5 CR limit so every quarter you are giving stock certificates and all current assets certificates and all current assets liquidity certificates you are giving to the bank nothing but statements you are filing with the bank the state in the statement you are mentioning some numbers and some auditor is also certifying some third chapter accountant is also certifying that the numbers are correct and based upon that Banker is giving you drawing power he's fixing the drawing power now the statements that you are filing right in that whatever the amount that you are mentioning as on so and so date in the statement is that amount is matching with the books of accounts or not you need to check because most of the entities what they do is in books of accounts inventory value is five CR only but in the stock statement filed with the bank they will show 7 CR getting it so next one week we are going to receive some inventory that also they will consider and show in the stock statement which is actually not there physically getting it so now you need to check whether the stock statements filed with the banks quarterly statements and how much amount indicated in those statements is the amount matching with the books of accounts because books of accounts whether they are properly recorded or not we any help check in books of accounts before receiving stock can they record it they cannot but in the stock statement filed to the bank they may manipulate whether this kind of manipulation they did you need to check and reply here so whether stock statements filed with the bank so whether any quarter returns or statements filed by the company with the banks and face are in agreement with books of accounts if not give the details start am they have to give aders opinion but they give a unqualified opinion okay last last attempt last previous year audit report they clearly mentioned according to the information explanation the company has been sanctioned working capital liit in excess of 5 CR in aggregate on the basis of security of current Assets in our opinion the quarterly statements filed with them are in agreement with books of accounts last year I think I'll show you uh they have given they have given a different opinion you see last time this was the first time this point is applied this was applied for the first time 2122 Financial year only K 2020 was first time applicable 2122 at that time you see they are in agreement with the books of accounts except statements for quarter Ed quarter 1 quarter 2 quarter 3 with the SBI Bank of America City Bank hfc IC standard ched all the banks were listed yes or no and the the differences were like this like between company records and the stock statements filed with the bank the differences were like this they reported getting it in the later year this is the latest that is 2122 audit I'm showing you this is 20223 audit report in 20223 by the time comes okay company got experience they rectified it so now they filing correct values with the banks remember this is not only audit reporting requirement company should disclose in the nodes to accounts whether they file what stock statements numbers they filed what is the balance in the books of accounts they they need to report in the notes to accounts also and auditor has to check that and then report in car also getting it next next this third point is not that relevant so first Clause Clause number one important Clause number two important maybe in Clause number three sub Clause e sub Clause f are important suppose no if the company has granted any demand loans or any loans were given where there is no repayment period getting it if any such line loans are given these loans are called as loan on call getting it demand loans or call loans we call them as like we'll give loan to some subsidiary company whenever want we call they'll pay back getting it so whether the company has granted any loans or advance in the nature of loan either repayable on demand or without specifying any terms or period of repayment if so what is the aggregate amount of demand loans given and what is its percentage there of total loans granted during the year during the year company has granted 100 CR loan out of which demand loans are 10% are you getting it so you need to mention aggregate amount of loans granted to promoters related parties as given okay demand loans you're giving to so many okay fine how much of the demand loan is given to promote related parties that breakup also you should show separately are you clear another Point company know they have given so many loans and many loans were over due many loans were overdue whether any loan or atance in the nature of loan have fallen due during the year it became due already but it is renewed it is renewed or it is extended the due dat is extended or fresh loan is given to settle the world loan any kind of extension renewal or fresh loan is given to settle old loan how much of aggregate amount of such dues were renewed extended or fresh loans how much amount during the year I give totally 100 CR loan out of which 20 CR is brought forward of gold loan 10 CR is a fresh loan is given for repayment of gold loan so totally 30 CR is the loan which is given either as an extension or as a reement or as a fresh loan to repay old loan percentage of aggregate to the total loans and advances granted during the year 30% of the total loans granted during the year getting it for example they are belonging to Extended loans or rescheduled loans like that able to understand especially for nbfc Cal this point applies a lot getting it actually in this Clause no initially they will give one point at the end of the clause or at the beginning they'll give you one point this point is not applicable for a company whose principal business is to give loans getting it obviously they're not talking about Banks they are talking about what nbfcs so nbfcs this entire point is not applicable for other than nbfcs if at all you are other than an nbfc and you are giving loans getting it anyhow there we check principal business criteria whether it is liable for nbfc registration or not but anyhow irrespective of that suppose it is not an nbfc fine even though it's not an nbfc you are giving loans to so many you giving demand loans and all to your inter intercorporate lendingsuite.co Provident fund ESI Income Tax Service tax you know all these whatever dues your organization has to pay under a particular law because of a levy whatever the amounts that you have to pay to a law legal Authority we call them as what statutory dues they broadly divided into two categories Undisputed due disputed due disputed due means very simple suppose GST Authority sent a demand notice against the company that company has claimed so input tax in a wrong manner so they revers the input tax added interest added penalty and then sent a notice now company challenged this notice in an appeal s tribunal getting it GST app tribunal they went to GST tribunal and then filed a case against against the like a commissioner whoever have passed this order so now 10 cror is a demand amount now this 10 CR demand amount will be ultimately decided by the GST tribunal whether we have to pay or not now the case is pending in a tribunal that amount is called as disputed du that amounts are called as what disputed but apart from this every month this company will calculate GST one month some 1 CR GST liability another month 1.2 CR another month some 80 lakhs another month some 1.4 CR every month they calculate GST voluntarily and pay every month by Honor before next month 20th before filing 3B they pay the GST amount and then file the 3B return so every month voluntarily they pay GST voluntarily they pay Provident fund voluntarily they pay TDS and all which they did voluntarily compan is remitting every month without any dispute okay compan is not remitting because there is a dispute between the company and the department compan is voluntarily remitting these are all called as voluntary dues those are called as Undisputed dues so that's the difference between Undisputed du and disputed du now what is the reporting requirement for Undisputed you we just have to check is the company regular is the company regular in depositing voluntary tax and Provident fund ESI liabilities is the company regular regular means within due date regular means what within due date every month they are paying no not that are they paying within due date then they then the company said to be regular if not if the company is not regular like some months know they did not pay on time now if not what is the extent of areas outstanding statutary use as at the last day of the financial year for a period more than 6 months from the date they become due as on 31st month some tax amount is outstanding which company has to pay TDS they deducted and they have to pay Provident fund they collected from employee and their contribution both together they showed as a liability that liability belongs to which month it belongs to AUST month which means it actually was outstanding for more than 6 months as on balance sheet date is outstanding it is not outstanding a fresh in March month it is not a fresh outstanding in March month it was outstanding from long ago August onwards it was outstanding for more than 6 months remember this is an Undisputed you means there is no notice yet voluntarily company has to calculate tax calculate Provident fund they have to voluntarily deposit without without getting any dispute first that amount was outstanding for more than six months auditor has to disclose the fact as on 31st March companies having TDS liability of totally 10 CR out of this 10 CR 4 CR belong to August month TDS which is deducted in July month this amount is not yet remitted as on 31st March since it is outstanding for more than 6 months we are reporting here are you clear so so Undisputed very simple is the company regular as on the last day of the prev as on the last day of the financial year is there any Undisputed du still outstanding not deposited and outstanding for more than 6 months that's it suppose no see when when a due is called as a disputed I'll tell you I already gave this example demand notice is raised against you you have not yet reacted still it's an Undisputed still the due is called as Undisputed du suppose you filed a case against the company I mean sorry against the appealant authority whoever have passed this order against that income tax officer or GST officer you again fil the counter appeal now the Forum now the case is spending at The Forum once the for whatever the particular Forum no once the decision once they gave the decision then that is a final so it is spending at somebody right then then only it is called as the due under the dispute you under the dispute otherwise it is not a dispute just because you received an income tax notice demand notice if if you have not yet filed appeal against EST it it is not in dispute so in McQ know they'll give you like this getting it so company has to pay so and so tax belonging to February month as on March 31st it is not paid should we reported in the car not required option b an amount that is became liable in August month should it be reported in Caro as on 31st March it is still liable suppose if it is paid off before 31st March March 30 is cleared as on lastday it was not outstanding you know actually April month we deducted tax May month we have to pay but we paid in March ending not March 31st March 30 it was outstanding for more than 10 months during the year but as on 31st March it is not outstanding so no need to comment getting it you received a demand notice but you didn't respond yet respond to the notices information is not given it is still Undisputed to are you getting the point when the notice was given you check out this last March February month only notice came March 31st it is not exceeding 6 months demand notice is there no dispute Undisputed due so it is since not exceeding more than 6 months outstanding so we will not comment able to understand they'll give you mcqs on this next now for disputed dues you have to commment two things how much is the amount involved in the dispute where the dispute is pending tataa Motas you see how simply they showed this so so they just showed Income Tax Act income tax some 46 lakh belonging to 9192 assessment year much before you were born Central excise tax belonging to these years this much amount Finance act 2014 means nothing but service tax so 1,86 CR belonging to 452 1314 High Court it is spending cat it is spending appet Authority it is spending Supreme Court some amount is spending so under which act it is spending what is the nature of the due amount involved to which period it belongs to where the dispute is spending entire that information is given actually in car they're only asking two amount involved and Forum where it is spending but most of the companies voluntarily disclose clear-cut information under which law what is the nature of the due how much amount due for what period it belongs to and where it is spending the volunt disclose much more better information clear next next discovery of undisclosed income discovery of undisclosed income very simple whether any transactions not recorded in books have been surrendered or disclosed as income during the year in the tax assessments under Income Tax Act if so if so whether that previously unrecorded income is now recorded in the books of accounts check out suppose suddenly income tax rate happened in the company during the year and they found that so many cash receipts and all belong to previous years were suppressed so in the previous year financial statements also we didn't identify them we may we may be the auditor or somebody may be the auditor but we didn't identify that suppression cash suppression income suppressed so now that income which is suppressed by the company is now detected by the income tax department okay fine company also surrendered paid tax everything is fine penalty everything is paid over case is over now previously unrecorded income is now discovered right prior period item Right company has to record it in now in the current year books right whether record happened or not check out and remember when you find this kind of incident it's naturally opening balance is materially mated getting the point prior period financial statements are materially mated accordingly 5 10 procedure 710 procedure will apply we'll discuss 5 10 71 together not no 710 I will not discuss along with this along with 510 I will discuss 710 standard better that's the best way to to discuss next just one minute okay let's proceed the default in repayment of dues important Clause ninth Clause Clause number nine so whether the company has defaulted in repayment of borrowings of loans to fi Bank debenture holder government getting it any of them mainly Finance institution and Bank very important so whether the company has defaulted in repaying loans to them if so if so the period and amount of default to be reported each lender wise what is the period of default how much is the amount of default is to be reported so if you borrow any loan have you defaulted default means what on dued you're not paying Emi simple what is the nature of borrowing building loan name of the lender h DFC Bank amount not paid on due date July month August month September month October month installments okay they were not paid and July month you know 10 lakh is Emi August 10 lak isi so Emi is equal right and whether principal or interest or both Emi which is which is consisting of both principal plus interest delay in days July month is delayed by 20 days August month is delayed by 31 days September month is delayed by 5 days you need to clearly remarks if any company has paid later on and along with additional interest the company has paid Banker also has I mean rectified the same in the credit report getting it now next whether the company that you doing audit is it declared as a willful defaulter by any bank or f f or any other lender check out willful defaulter guidelines will be there you need not you just have to check in the credit report you just generate Cil report of the company company pan number you take your name enter you generate Cil report you will find in that whether is this company declared as a willful defaulter or not now company has taken so many term lanss and they mentioned to a banker certain purpose of Term Loan and for what purpose they ultimately utilized this amount generally whenever whenever a bank is giving loan for a particular purpose they directly transfer that money to the vendor himself they not give to the money very rare cases the money will be given to the company hands if at all company has received that funds they should keep it in a separate bank account they should not touch it they should not keep that in the regular operating bank account of the company they should keep it in a separate suppose if at all that money is kept in regular operating bank account see whether the balance became to zero if at all after receiving the loan after after the after receiving that credit in the bank state it became zero only one purpose it should become Zero by this amount where it is transferred for the same purpose for which we got or for different purpose company took the loan paid salaries to the employee of course later company got collection from datar and they rectified later they got collection and again that amount is re rooted to original purpose for for which the loan was but temporarily company defaulted with the loan agreement yes or no whether the term loans were applied for the same purpose for which the loans were obtained if not what is the loan amount diverted and the for for for for what purpose it is ultimately used you should report even though subsequent it is rectified you should report it suppose company has taken a shortterm loan and they have used it for long-term purpose this will affect liquidity of the company you have taken a working capital loan and invested in construction of factory so that is that is not correct because how will you repay whether any funds raised on short-term basis hidber report pointed out these kind of issues in adani group they pointed out these kind of issues so whether any funds rised on shortterm basis have been utilized for long-term purpose if yes what is the nature and amount to be indicated have you taken any loan to meet subsidiary company needs like for for not for your purpose you took loan you took loan to transfer to subsidary companies if so details thereof with the nature of such transactions and amount in each case so how many loans you have taken each and every loan to which substate company you have transferred you need to clearly mention have you taken any loan by pledging Securities that you are having in the subsidary company associate company joint ventures you're having shares and subsidiary companies that shares you kept it as a pledge with the bank and you got a loan if you default what happens Banker will get the right getting it you will not you will lose the holding company status because in a subsidary company I'm having shares if as long as the shares are under under my control completely I'm the holding company now shares I kept as a security to the bank and I took loan and I defaulted that loan Banker will exercise the ownership on the shares naturally I will lose holding company status such a kind St such a kind of inent whether the company has raised any loan on pledge of Securities held in subsidiary associate joint venture if so give details thereof also report whether the company has defaulted in repaying those loans if at all you have taken any loan by pledging Securities held in subsidiary company report that if the company has taken so and so loan and moreover if the company defaulted the default also to be reported that's it in this any two points will be asked in exam any two or three points get they'll give you a story so so in that story you need to figure out this point getting it next whether the company has raised any funds in the form of IPO or fpo nothing but public offer generally when a company go for public offer they clearly mention in the Prospectors ring Prospectors they clearly mention for what purpose the company want this fund for what purpose they're going to utilize and in the same prospectus they will also show performa financial information they will also show in the prospect us perform of financial information after the funds were received after after investing These funds for company proposed plans how however balance sheet and P are going to be proposed balance sheet and PN nothing but I I want 100 CR fund from you you asked me for what purpose I told by taking 100 cres fund from you 50 CR I will use for marketing 20 CR I will use for so and so 30 CR I will use for so and so by using like this our business turnover will increase in the next 3 years like this I I told you you asked me present it in the form of a statement presented in the form of a statement performa financial information are you getting the point prospective performa financial information I showed in the prospect that that that that we showed in the prospectus so for that 34 3420 standard is what dealing with it getting it Auditors I mean how to give Assurance on perform a financial engagements to provide Assurance on perform a financial information included in prospectus that is 34 3420 anyhow we'll discuss there so for what purpose company have raised for what purpose company has utilized so whether the money raised from IPO are they utilized for the purpose for which they were raised if not why where is the default they utilize it wrongly so that you need to show or they utilize it late like there is a delay in utilization they didn't utilize or subsequent rectification if any shall be reported so default delay subsequent rectification of course initially you delayed but you ified later on you utilized it for ultimate purpose ultimately so that also you should Rectify so initially you violated but you rectified later you violated and rectified both should be reported so the fact that they violated and rectified you should not ignore just because they're rectified getting it preferential allotment or private placement whether the company has made any preferential allotment or private placement of shares may be fully or partly PID partly conver which may be convertible or not so company has raised money from preferential allotment if so verify section 42 compliance amount raised whatever the amount you raised private placement have you utilize it for the same purpose or not if not provide the details in respect of amount involved and nature of non-compliance section 40 to non-compliance if at all anything is there special resolution has to be passed like that some rules were given if at all that procedure is not followed under company act we should qualify next reporting of frauds reporting of frauds whether any fraud by the company or whether any frauds on the company getting it company means management committed frauds on third parties or management committed fraud on the company or third party committed fraud on the company whatever it is either our company involved in a fraud or somebody made a fraud against the company and encast something getting it whether are there noticed or reported during the year for this no you ask management get a written representation regarding all the frauds that are identified or reported by the management get a representation if yes nature and amount to be in nature and amount nature and amount involved has to be indicated in t Motas know they report this during the year vend related fraud happened 15 CR rupees amount involved three three staff members were involved in the fraud like that they report clearly in tataa Motors World audit report whether the auditor has considered visil blower complaints if any received by the company during the year company know they might be receiving VIs blower complaints so whether any visil blower complaints received by the company you have to check as a part of risk assessment procedure you should consider complaints received by the company look at the complaints see whether those complaints are useful for you to plan your audit properly so have you considered visz blower complaints or not they are asking 143 subsection 12 whether is there any 143 subsection whether any report filed with the central government for fraud identified by auditor here fraud is identifying by AUD aitor more than 1 CR in each an individual item in an individual circumstance how much fraud happened more than one CR it has to be reported to central government under 14312 ad4 whether such a form has been filed or not they're asking you should report in Caro see if at all this point is not there suppose in the company frauds happened we reported and fraud is properly adjusted in the financial statements they rectified also they wrote of all the things whatever happened they wrote of we reported to central government but people will not know right that s of fraud happened we reported central government this much serious thing people will not know so through Caro we are telling people that during the year we found a fraud for more than one which we reported to central government so take a look at the list of r that we reported we are giving a list here clear or not company I will discuss straight away in nbfc audit related party transactions compan is doing so many related party transactions whether they are in compliance with respect to provisions of companies act whether related party transactions are as per 177 audit has to approve getting it 188 related party related specific provisions and whether the details were disclosed as per applicable Accounting Standards all the related party relationships and all the related party transactions has to be adequately disclosed in the financial statements so whether they disclosed or not you need to check internal audit system whether the company has an internal audit system commensurating with the size and nature of the business compan is doing so much big business a formal appointed inter auditor because 138 section says it is mandatory for a formality inter Auditors were appointed but the intern audit department is not effectively functioning because there is no Manpower at all you should qualify here getting the point whether the reports of internal auditor were considered by stat auditor have you considered their reports because internal audit report is one important source of information for risk assessment and when you are planning the Auditors very important Source even SC 610 says using the work of internal auditor in the type one using the work formed by internal auditor getting it non-cash transactions uh this is not required nbfc 16th clause also nbfc point I will discuss in nbfc chapter cash losses whether company has incurred any cash loss cash loss means very simple profit after tax for that add back depreciation addback Provisions add back Provisions you will get some number this is called if at all this is still loss after adding back depreciation and after adding back non-cash EXP expend getting it if still the amount is lost then only that loss is called as cash loss cash loss comes now how cash how a loss can be there in the I mean how cash loss can be there how come how come the business profit can be negative simple company borrowed loans and paid expenditure company borrowed loan and paid the expenditure that's what cash loss represents suppose after adding back depreciation and after adding the provision also still there is a profit suppose originally 10 CR loss depreciation 20 CR added back now 10 CR profit typically speaking in this year operating wise we don't have any negative cash flow operating cash flows are positive so just if you if you reduce depreciation also getting it if you reduce depreciation then profit is turning into loss it's a non-cash loss depreciation is a non-cash loss this is something similar to income tax in income tax no you calculate business loss and absorbed depreciation loss right exactly so in income tax how do you calculate business loss what is the profit as per pgbp for that addback depreciation if still there is a loss that's a business loss and that depreciation loss whatever depreciation you you added back you which means you didn't claim that's called as unabsorbed depreciation carry forward for infinite number of years yes or no so exactly now whether the company has incurred cash losses see company P account show loss that's not what important to that loss add back depreciation add back noncash expenditure still there is a loss then that is called as a cash loss if so is it is cash loss in the financial year for which you're doing audit or is there a cash loss in the previous year getting it both the years it is there or any one year it is there you must report are you getting it see we are alerting people that company is facing cash losses company is facing negative operating cash flows cash loss indicates negative operating cash flows by default next is there any resignation of auditor happened during the year see existing auditor retired sorry resigned from the the company whatever reasons he he resigned and we were appointed as a Auditor in replacement of the existing auditor now existing auditor resigned right he might have given some reasons right he might have filed 83 83 83 form and all right so have you considered those reasons or not the resignation why he resigned you might have you might have seen the reasons right have you considered the reasons when you are doing your audit Che of course anyhow we consider this as part of clause number eight yes or no communication with previous auditor if previous auditor has resigned we have to get it is much more important for us to communicate with him then material uncertainty material uncertainty so material uncertainty this point a very important Point see many Auditors are avoiding their Duty for pointing that they have not identified any events or conditions that cast a significant out on entity's ability to continue as a going concern they simply avoiding going concern standard by simply mentioning that they did not find any event or conditions generally Financial indicators is something that we can find easily but operating indicators and other indicators we cannot find easily unless we investigate getting the point operating indicators other indicators we cannot find so easily so Financial indicators are not there that affect going concern Auditors are simply saying going concern is fine now in this standard earlier also even if some Financial indicators were there earlier even if some Financial indicators were there Auditors are saying okay loss is a parts of part of a business sometimes working capital might be negative it's a part of the business but it is not affecting going concern so Auditors are cleverly escaping from this getting it is not affecting going concern now on the date when you're signing the audit report as on the date of audit report you need to see not on balance sheet it remember on the date of audit report you are signing a balance sheet right that everything is true and fair in the balance sheet so many liabilities and assets were given right whether the company can discharge whether the company can discharge all the liabilities that they showed in the balance sheet as on 31st March can they can the company can still discharge these liabilities you should check this assessment on which Daye when you are signing the audit report you check I know as on 31st March you were not aware subsequently some fire accidents and all big big accidents happened Insurance claim also did not company is not getting on the date of audit report you know all this company cannot pay the liabilities that are there on balance sheet date but if at all this Clause is not there what you will do as on balance sheet that the information is true and fair you will give unqualified opinion and proceed forther able to understand so under 570 any you have to check this in fact this is what 570 requirement exactly speaking but under company law under Caro they're specifically asking you please based upon financial ratios based upon aging schedule based upon dates of realizing the assets Financial assets means trade receivables loans and advances getting it and payment of financial liabilities means creditors and borrowings based on inflow pattern you know outflow pattern you know based on that information and based on the knowledge of board of directors you know you spoke to directors they have given you so much of information whether whether the auditor is still of the opinion that no material uncertainty exist means company will not default getting it as on the datea of audit report that company is capable of meeting its liabilities existing as at the date of balance sheet as and when when they fall du within a period of one year from the date of balance sheet all the current liabilities or current liability of long-term loans getting it current maturities of long-term borrowings whatever they showed in the balance sheet current maturities of long-term borrowings current liabilities whatever they show in the balance sheet and these current liabilities are becoming due in the next one year will the company has the ability to repay them on time do you agree with that check this point not on 31st March check this on the date on which you're signing the audit report on the date of signing the audit report also you know what is a financial position of the company inflows outflows statements all that you are aware of you please report it are you getting the point point in McQ know they'll give you okay this this know they will mention it as balance sheet date this they will mention it as audit report date in one McQ they will mention audit report audit report in another McQ they will mention balance sheet balance sheet another option so one option they will mention audit report and balance sheet another option they will mention balance sheet balance sheet another option they'll mention audit audit reput another option they'll mention date of approval of financials and audit reput unless you observe this how do you answer getting it you should check on which date audit report date you should check this what you should check as on balance sheet date whatever liabilities were there that were becoming due within one year can the company honor getting the point can the company honor this question is there right when you should question on audit report date you should question clear then then actually CS no it requires little introduction and 21st clause also requires little bit discussion shall we continue the next session okay yeah fine so we'll continue in the next session these two Clauses then I'll complete 610 620 then we'll start remaining standards are you all fine comfortable yes take care so let's begin in the previous session we are discussing the Carrow and in that two more important Clauses are pending one regarding CSR CSR expenditure as we know every company has to spend especially the company which meets the criteria for CSR committee appointment so those companies has to spend 2% of average net profits on social responsibility expenditure and you know that that CSR expenditure you will not get deduction under income tax also because that is considered as a personal expenditure for the entity so no deduction for CSR activities further how the CSR expenditure can be incurred how a company can spend CSR expenditure it depends it is uh it can be in two ways one you can directly spend it on the social responsibility activities given under schedule 7 within the same Financial year on or before 31st March by the time of reporting date you should have spent it that is one option two CSR expenditure can be in terms of rural development infrastructural development in these aspects also you can spend if you see the schedule 7 list of activities for CSR they have given certain long-term projects also they have given suppose a company has adopted some Villages and they want to lay down roads infrastructure water tanks all that complete some sort of you know water networking getting it so all sorts of developments in a village they want to do so it cannot happen in the same year imagine a company called Reliance their turnover is somewhere around 70,000 CR 80,000 CR sorry their profit is somewhere around 50 to 60,000 CR getting it into 2% means th000 CR they need to spend at least at least the minimum CSR expenditure that they are supposed to spend is th000 CR now th000 CR if they adopt certain Villages the company have chosen certain villages to spend CSR expenditure it cannot be spent within the same year so there project mode is permitted CSR expenditure can be spent in the form of a project you take up a project spend on that so when CSR expenditure is spent on a project mode you need not complete entire expenditure within the same year there is no restriction of that you if at all the project takes more than one year you can take a permission and deposit that money in a special bank account and there is some time Li bit like 2 years or 3 years within that you have to spend that entire money for that project if at all any money is left even after the time limit if at all in when you you allocated some let us assume 1,000 CR that you have to spend you have to spend some, CR out of which 200 CR you already spent you have bills everything within the same year and still 800 CR is there you allocated for project site this you kept in a separate bank account this must be spent within one to three years some time limit they have given so within that time if you spend that money no problem if at all even after expiry of third year from the end of the financial year if you're unable to spend that money you need to transfer that money to the funds to the funds or to the trust that is specified under schedule 7 getting it if you want to spend on your own you have to either spend it with in the same year or you have to spend on a project for which you can get a permission and then spend suppose no you could not allocate money to project you could not allocate money to project from the end of the respect VI if at all money is not allocated for project which means unspent unutilized money is there unspent CSR money is there which is not allocated for project in that case within 6 months from the end of the financial year you need to transfer to schedule seven funds this is the provision if you allocate to a project then you are having additional time limit to spend that money for the project whatever you have adopted getting the point even then if at all you're unable to spend even allocating after allocating the money even within the time limit permitted you are unable to spend then from the end of that particular time limit within another 6 months there's a time limit you need to transfer to the schedule 7 fund suppose you don't want to take all this headache you want you want to spend CSR expenditure but you don't want to spend on your own you directly donate to the fund given under schedule 7 one of the fund is prime minister National Relief Fund one of the fund in PM this C CSR expenditure activities PM Relief Fund you can directly donate to PM Relief Fund getting the point and that donation you can even claim under atg probably getting I don't know that nexcess whether income tax atg deduction will be coming for CSR activity or not I'm not sure exactly but so that's the main provision of CSR entire brief of the CSR provision how in car what they asking is whether the company has like whether any amount remaining unspent whether any amount remaining unspent because of Any ongoing project has been transferred to special account in compliance suppose if at all you kept any money for a project have you transferred that money to a special bank account that is one they're asking there is some unspent money 1,000 crores is a amount you have to spend 200 CR only you spend 800 CR unspent money is there one one option you have is transfer to project special account you create suppose if it is not related to ongoing project suppose you still have some unspent money but you're unable to allocate to any project which means you end up not spending that money for any purpose the company has transferred unspent amount to a fund specified in schedule 7 within a period of 6 months from the expiry of the financial year so the rule is if at all you unable to spend the money and you're even unable to allocate for a project where you you have to transfer to a special bank account if you are unable to do that that entire unspent money will be treated as unspent money for the from the CSR and that has to be transferred to schedule 7 funds they have given a list of funds you have to transfer there that's it so as an auditor what you have to check company how much they have to spend have they allocated it for project and then transfer to special account if so fine if not it must be transferred to schedule 7 fund within 6 months from the end of the financially getting the point here so much of interpretation and all can we can discuss that this is enough next modified opinion in other group companies this is something applicable for Consolidated financial statements mainly you know I think uh in the introduction to car I didn't speak about applicability of caro to Consolidated financials Caro do not apply for Consolidated financials which means when we are giving audit report on Consolidated financials we need not look at we need not report on car so but the 21st CL CL is applicable even when you are giving audit report on Consolidated financial statements this 21st Clause is still applicable now what is this 21st Clause read it carefully many do not have Clarity on this whether there have been any qualifications or adverse remark by respective Auditors in the car reports of the companies that are included in Consolidated financials if yes indicate the details of companies and paragraph numbers of the car report containing the quality qualifications or adverse remarks nothing but suppose T Motors is preparing Consolidated financial statements I'll show you the directly so this is uh consolidated financial statements related audit report remember AR will not apply but here they have given still NX Char in the audit report but that only contains only one Clause you see here anext a to Independent audit report this is regarding report on legal and regulat requirement and you see directly they have numbered 21 21st Clause so 21st Clause is predominantly applicable for what financial statements Consolidated financial statements getting it for stand on on financials you need not apply technically speaking you need not apply getting it now tataa motor since it has so many subsidiaries it is supposed to prepare Consolidated financials and on that Consolidated financials also auditor has to give audit report now the consolidation object itself is what individually are performing good but I want to know as a family sir we want to look at you as a family how are you performing because if any issue happens to any subs you are the one who are going to pay them you are the one who are going to repay the loss that you are suffering Jaguar land R is suffering so many losses and tataa Motors is only bearing the loss so tataa Motors individually might have so much of profit but what is the point of having profit when your child suffering with losses where you are compensating your profit with the child able to understand so Consolidated financial statements gives that picture that is the main objective of Consolidated financials we want to see the group position group performance as a whole now now like you know here this is like a aggregated information this is nothing but aggregated information of all compan compies that are included in Consolidated Financial so in tataa Motors financial statements what are all the companies were included in consolidation process like some jackar R rber range rber you see they have given few list of companies of course in Consolidated Financial start mot the original company and tat Motors Body Solutions limited jlr tat Motors finance TMF Holdings T Motors finance limited and automobile Corporation Goa and so many companies there are so many companies remember these are all these are not exhaustive list of companies included in consolidation these are the companies where respective Auditors have given some observation in their car reports now suppose you see the to jaar Land Rover the Jaguar Land Rover India limited the forther for that company Clause number 7 year auditor has given some disqualification I mean audit sorry auditor has given some qualification getting it some Undisputed statutory dues regarding some Undisputed statutory dues jlr company related auditor has given some qualification you see Clause number of caro report belonging to these companies getting it which is unfavorable or qualified or adverse remark getting it where Auditors have given unfavorable remark so Clause number 78 likewise every company that is included in Consolidated financial statements so wherever under caros of the respective companies what under what Clauses there is an adverse remark so people directly open that company their car report and open that respective clause and if if at all they want to know they'll get to know able to understand so so as a consolidation see you see how cleverly generally car do not apply for Consolidated Financial State but by showing this indirectly are we see if everything is remaining rest everything is complete by all the respective companies rest everything is complete all other companies which are included in Consolidated financials what Clauses they have not complied that is only important for people also right indirectly car is applied for all the Consolidated financials also by this particular Point getting it so in this point we are trying to convey all the companies that are included in consolidation respective Auditors have given audit report respective Auditors have included car 21 Clauses and under what Clauses they have given a qualified opinion or adverse opinion or unfavorable remark that entire list we are listing out here with Clause numbers and company names and even corporate identification number all that so indirectly we made car applicable to Consolidated financials also able to understand that's why we need not comment on all of the remaining 20 Clauses because here we are giving complete list of all the companies where car remarks car car has certain remarks that's it clear all of you that's it and we all know the reporting requirement in car is what whether the matter is positive or negative getting it you have to reply both suppose if the matter is negative you want to talk unfavorably you need to give reasons also whenever the comment is unfavorable or adverse remark or qualified opinion you want to give on any particular point in car you have to give you have to mention reasons also if at all you unable to express any opinion you shall mention the fact together with reasons why it is not possible to for you to give opinion on particular Clause suppose a company has not given you access to fixed asset register how can you comment whether compan is maintaining proper records of fixed assets getting it containing quantitative details and situation if they do not provide fixed asset register access to you you will qualify here and if at all this this nonavailability of regist is also material as a whole for financial statements you will also qualify an audit report able to understand whenever you are qualifying in Caro you should cross check whether that brings a question about qualification on the overall fin financials also that also you should suppose no Undisputed statutary use compan is not regular they not regularly depositing you qualified but that is not required for you there you are not required to qualify on the financial statements financial statements when you are supposed to qualify only when there is a material misstatement in the financials or some financial information information is not given to you only on these two occasions you can give modified opinion apart from that you cannot give yes or no that's it so with this car is also over next we'll go to 16 the page number is 38 so using the work of internal auditor using the work of internal auditor here you need to remember one important point at the beginning itself you can take a note the external auditor shall remain responsible shall remain responsible for the opinion expressed on the financial statements the external auditor shall remain responsible for the opinion expressed on the financial statements the external auditor is responsible the external auditor shall remain responsible for the opinion expressed on the financial statements full stop this responsibility shall not be reduced this responsibility shall not be reduced this responsibility shall not be reduced by use of work of of internal auditor this responsibility shall not be reduced by the use of work of internal audit most important thing even SCS 600 it starts with different you know the statutory or the external auditor has a division of responsibility yes or no the external auditor is not responsible for the component financial information which is audited by other auditor whereas here it is not that the external aitor shall remain shall continue to be responsible for the whole opinion on the financial statements this responsibility in no way shall be reduced this responsibility will not be reduced for the I mean of the fact that you have used the work of internal auditor whether you want to use work of internal aitor or not your choice but look you cannot blame him tomorrow are you getting the point so internal Auditors cannot be blamed at all so that is what the standard at the beginning itself it starts with so now you take any company big companies especially listed companies of course for them internal audit is compulsory internal audit department will be there internal audit function will be there which is compulsory for them so internal audit department is compulsory just as a formality say they don't keep an internal audit department they generally have internal audit department and staff mbers competence of the staff that commensurate with the size of the entity and in fact we have to comment on the same in car whether internal audit some 19th cluse or 18th cluse some cluse number getting it okay 14 14 okay so we have to so we have to the external auditor has to specifically comment in the car whether the company has adequate internal audit system in its place that commensurate with the size of the entity so internal audit system or internal audit function or internal audit Department you can use interchangeably the standard s610 uses frequently the word function internal audit function so in entities know there will be an internal audit Department that entire department will be headed by one person called a CIA Chief internal auditor what do we call him as chief internal audit now this entire department will have so many staff members some of them are CA some of them are cmaas some of them are from MBA some of them are from some other background whatever because internal auditor there is no qualification I mean there is no requirement of any particular qualification anybody can be an internal auditor what what just needed is do you have that audit skill or not and the objective of internal auditor you see here the definition is so cleverly drafted it is a function of the entity that performs assur and Consulting activities so they provide Assurance on whatever management ask for and they provide consultation to the management whatever doubts they have getting it to evaluate and improve effectiveness of governance risk management internal control processes internal Auditors are providing Assurance they are providing Consulting both they are providing to the company where they are evaluating and improving the effectiveness of governance risk management internal control so they're evaluating your governance systems governance processes control environment getting it they're evaluating Risk Management Systems they're evaluating internal controls at various locations it may be Financial related or non-financial related internal controls no they are three types Financial control compliance Control operating controls getting it on all areas they will work on internal Auditors will be working on all the areas like some team members of the internal Department they'll be working on some Works another set of team members will be working on compliance controls other set of team members working on operational controls some set of team members are working on governance related Works some of them are working on risk management related Works internal audit report if you look at it will be hundreds of pages it is not like audit report five six pages document internal audit report will be very big lengthy because internal auditor object is not to give opinion on the financial statements their objective is to find faults within the systems their objective is to find what is happening in the what is happening in the company they go through almost 50% of the transactions of the entity they verify the processes all that so almost whatever we do in audit like we do purchases audit we do sales audit we verify employee benefit expenses we verify stock we verify depreciation we verify remuneration to directors we verify operating expenses we verify other expenses so many we verify internal aors also verify all the same but the the fact is we we are verifying them to give an opinion on the financial statements as a whole they are verifying to find out where and all the pro transactions or processes went draw that is their objective this is our objective and definitely internal audit function do audit throughout the year and there are tens and hundreds of people who are doing audit and they are doing audit concurrently along with the books of accounts preparation so the number of mistakes that they find is of course higher than stat a whatever works I have to do inter have done already can I use that working as a part of my stat audit yes you can use the standard say you can use now when you're using the work you have to be careful what precautions you have to take when you are using the work of internal auditor that is what SC 610 mainly talks about getting it now you can use the internal auditor in two ways one they already did some work right take those workings you verify those workings and take a documentation of the same you do some basic inquiry analytical procedure on that work and conclude on that particular work suppose internal a up purchases audit completely look at ask their purchase purchase related workings ask them what controls they tested look at their checklist and all what questionnaire they are using what checklist they are using and uh you also verify sampling basis whether they're checking their results whatever remarks they wrote are they correct or not you also on a sampling basis you check take the documentation you also look at purchases data observe apply analytical procedure analytically logically think whether this everything seems genuine or not getting go through the entire purchase register is there any suspicious transactions do that analytical procedure and document it and conclude that purchases or you have used the work of internal auditor and then you concluded that purchase or to tomorrow any fraud was detected in purchases which internal Auditors intentionally suppressed they know that but they didn't discover they know that they didn't identify they didn't report get they reported internally but not in the audit report getting it and you were caught you are held responsible you you should only answer you cannot say inter AIT work I have used you go and ask them you cannot we are paying you fees because you have to do the a to reduce your work burden you have choose an internal Auditors for to that is type one type two type two using internal Auditors to provide direct assistance using internal Auditors to provide direct assistance under the direction supervision and review of external auditor so the internal auditor will be working under the direction of external auditor will work under the supervision of external auditor and external auditor review his V so what is direct assistance simple suppose my staff members are not adequate suppose we want to do physical verification of inventory suppose example this company has almost some 20 go Downs as for say 51 we have to visit to all the gos example getting it so auditor has to attend physical inventory counting that is being performed at yearend so we want to attend all the 20 go downs we do not have sufficient staff so we asked the company can you provide your staff members intern audit department so next 30 days they will be part of my team I will be allocating the books to them how I allocate to my article assistants getting it how my article assistants engagement team members we allocate the work same way you give your staff some five staff members you give me so these five staff members next 30 days they will be part of my engagement team and I will give them certain works I will direct them how to do I will supervise how they are doing once they completed a particular work which I delegated I will review how they did able to understand so this is called direct assistance so once internal Auditors know whoever Tak whoever I have taken within my team I will give them I will allocate them work as part of my audit plan and I will direct them how they have to do that and I will supervise how they are doing it getting it how I supervise my articles getting it like once my article completed the work I'll review how he work how how he worked whether he what are his observations all that same way what whatever work this person has performed under direct assistance I will verify his work able to understand this is called direct now the standard objective You observe the standard objective is very simple here I'm not giving all that content the objective of the standard is very simple when external auditor decided to use the work of internal auditor under type one to evaluate whether the work is adequate for your Hest see in purchases when we are auditing no our objective is what in purchases when we are auditing whether company control system is proper or not so that all the purchases are properly captured into the systems and all the purchases are captured into the system at right values only authorized purchases are recorded unauthorized purchases are not recorded grn purchase order EV controls we will verify this is the objectives for us when we are doing purchase audit internal Auditors have the same objectives similar objectives getting it so when they when they are also verifying purchases they verified these elements in addition to that so many other also they verify whatever internal auditor work is there right that is add for are you getting the point suppose another work is there GST reconation we need to do DDS reconation we need to do this compan is having 15 states this compan is operating in 15 states naturally they have to take 15 registrations since they have 15 registrations 15 into 2 into 12 30 into 12 almost 250 returns they will file 300 returns they will be filing in a year how many returns they'll be filing somewhere around 300 GST returns GST are 13B and for 15 states they will file annual returns now as a part of Arrow reporting requirement I need to comment whether the company is regular in depositing GST one of the statut is what GST so if the company regular in depositing D I have to comment now I need to check entire this 300 bus related 300 approximately 12 months for all the 15 into two two months two returns in a month so I need to verify all these 300 returns only then I can comment so this is a significant difficulty in audit so much work I need to do but don't worry internal Auditors have already performed the reconation take that reconation check the reconation on a sample basis see whether the you know they have clearly mentioned what is the due date when the company actually paid what is the due dat for return When the company has actually filed the return return is there any excess payment or short payment any interest appable very clearly they did complete working which I want in external audit the level of assurance I want in external audit for GST compliance entire that work they did completely so that work is adequate for my audit whether the work is adequate for your audit or not how do you check that point is covered here when you're using direct assistance what precautions you should take that is what they have covered so now you see here using the work performed by internal auditor that is type one the external auditor will evaluate the following the external auditor will evaluate the following one I will use his work only if the following three conditions are satisfied I must be convinced regarding Independence and objectivity of internal audit function in overall organization actually they use the word what I mean the internal Auditors organizational status is it supporting their objectivity that is what actual sentences internal Auditors organizational status is it supporting their objectivity so what is their status in the company getting it are they are they at par with top management or below top management or below middle level management where in the organizational hierarchy where are the situation what is the level of competence all the internal Auditors Department whoever is that they're all ched accountants so definitely I will have some Reliance getting it whether they follow a systematic and disciplined approach so do internal Auditors when they're doing audit do they have any systematic disciplined approach yes for everything they have a quality control policies and procedures though they are internal Auditors how to verify purchases they have some 20 checklist item how to verify sale they have checklist for everything they have a questioner or checklist to verify they are not just verifying by their professional judgment whoever verifies whoever comes within the internal audit team whether it's a new joiny or senior person whoever it is then they verifying checklist they verify for sure 20 parameters when they verify sales they verify for sure some 18 parameters so they have standardized the audit procedures which means they are following a systematic and disciplined approach yes they're having systematic approach they are competent they are independent and objective happily I can use I get answer for all these three posi suppose if at all they are lacking Independence or they lacking competence or they do not have a systematic and iined approach including quality control they don't have a systematic approach better not to use their work because it is not organized now suppose you decided what nature and extent of work of internal audit function that can be used what can be what should be the nature of the work you know some Works know you should not use internal Auditors work areas where high risk is areas where High judgments are involved significant judgment related areas significant risk related areas significant transactions to verify them don't take the help of internal auditor suppose in 20 2122 or 2021 Reliance Industries limited they have changed useful life of plant and missionary from 30 years to 50 years their PL and missionary was originally how many years 30 and they revised that PL and missionary life to how many 50 and what is the value of plant and missionary 3.9 lakh CR what's the value of plant and missionary 3 9 lakh CR worth of historical cost of plan and mystery maybe some revalued impairment everything put together that's a value getting it the useful life is revised from 30 to 50 years here on this useful life also inter have worked on whether this this is correct or not they work on but don't use their work better you work directly you can use the work of internal aitor in spite of this it should appear for the management that external auditor is sufficiently participating in audit for everything you're asking interal Auditors work what are you doing then getting it that's what the standard also says the external auditor shall make all significant judgments and he should prevent undue use of work of internal auditor he should prevent undue use use less of the work of the inter function perform more of the work directly you perform the work directly more as much as possible try to use less the functions work you should not unduly depend on internal auditor for everything getting it and see that ensure that you are eff sufficiently involved in audit in spite of using the internal audit function as planned you are planning to use internal audit function in spite of it ensure that you are still doing the work properly and communicate with top management how you are going to use the work of internal auditor getting it the nature and extent of work of internal audit function that can be used by external auditor what factors audit has to keep in mind this question four marks question getting it and finally they'll give you this question the external auditor decided to use a work of internal auditor and so and so location so and so thing what are the areas of the work the external auditor can use the work of internal so areas of work for testing operating Effectiveness or performing substantive procedes involving limited judgment inventory counts testing of compliance with law regulation regulat requirements reviews audits or reviews of financial information of subsidiaries that are not significant IM material subsidiaries and all no for them financial information you want to verify because that is what that is also included in Consolidated financials that verification work you can delegate to internal auditor suppose if it's a material subsidary don't delegate if an area of work involves significant judgments don't delegate that if an area of work involves you know significant risk don't delegate that so for clerical works like operating effectiveness of controls controls testing where limited judgments inventory count getting it in all these cases you can use remember only these you have to write in exam you should not write others getting it so what are the areas of the work that external auditor can use the work of internal straight question only on this a point four marks question might come or they may ask you nature and extent of inter function that can be used by external auditor is affected by various factors what are they in such case in in such a case you need to write B CD main points the B CD getting it and as a last point you should write this in such a case then now how will you use the work what is a manner how do you use to discuss with internal auditor first discuss and coordinate with intern coordinate means okay you decided to use work ask him workings send him the workings through mail coordinate with him read the reports of internal audit function read the internal audit reports to obtain an understanding of what procedures they performed and what they found you read the report what they did what they found verify whether internal audit function properly planned properly performed properly supervised properly reviewed properly documented the work check how they planned performed and executed the work how the documented get EV evidence to draw reasonable conclusion see whatever conclusions internal a are reaching right yes purchases are appropriate sales are appropriate they they giving the audit report in internal audit report summary report is inside that in that summary they are commenting so many things that if this is positive this is positive see what whether their conclusions are appropriate or not check out reports prepared by them are they consistent with results of the work purchase are appropriate they said when you go inside the workings no they found so many mistakes mistakes are so many but you're saying appropriate whether the internal auditor final report is consistent with the workings that it cross check now here there's a question can external auditor ask the working papers of internal auditor very simple if internal Auditors are employees of the entity their working papers are nothing but books of accounts you have access to books of accounts you have a right if internal Auditors are an outside audit firm suppose an audit from outside has been appointed as an internal auditor now can you demand their working papers no because that's a different engagement understood so I think this answer justifies next suppose you decided to use direct assistance what points you evaluate here only two points I'll evaluate if I am using them for direct assistance third Point systematic and disciplined approach I will not check why I'm not using your work right I I'm directly using you you will work as per my systems you will work as for my policies because they now my team member so only two points here we will check whether they have whether they have objectivity and whether they have necessary skill and competence getting it prohibition you should not use internal auditor for direct assistance if there is a threat to objectivity or if they're lacking competence okay you decided you will use internal Auditors direct assistance but certain Works don't delegate certain Works don't neate them what works areas that involve significant judgments areas related to higher risk areas related to work with with which already they have performed these people have already performed tedious work you are again giving them tedious work verify whether TDs is paid correctly or not don't delegate them and there is another Point actually here I didn't mention intentionally but there's another point now in the standard no you need to take a decision right whether to use type one which works of type one you should use where type two work can be used you need to take a decision right who responsibility to take that decision external auditor this decision making can you delegate to internal auditor that's what the fourth point the fourth Point says the procedures that are required under this standard that procedures cannot be delegated to external auditor the decision making process where the work of internal auditor can be used by external I mean external auditor that decision making process don't delegate to internal auditor get the that's it predominantly we covered entire the standard comfortable all of you that's it so then the next one is SE 620 okay just 2 minutes we'll begin yes uh let's begin s 620 using the work of an auditor exper even in this standard also they have clearly stated the auditor has sole responsibility for the audit opinion expressed this responsibility is not reduced by the auditor's use of work of an auditor expert so this responsibility will not be reduced remember there are various standards which are governing this point specifically see 220 it says the engagement partner has complete responsibility for the opinion expressed the fact that you are using article assistants you are using paid assistants you cannot shift them the responsibility you cannot say My article did mistake not me yes or no you have the take you have taken the fees not him okay then 500 in that there is a point regarding management experts 500 talks about management expert usage even if you're using the work of management expert if at all you're using their workings still you are only ultimately responsible 610 even if you using the work of internal auditor you are only ultimately responsible 620 even though you're using the work of audit is expert you're only responsible 580 you are taking written representations from management for various things still you are only responsible for the opinion that you are expressing you should give opinion so only after you convince that it is true unfair and whether whatever you convince it right you should be able to prove how you convinced documentation is your responsibility able to understand so all the standard says you are ultimately responsible whereas 299 joint Auditors have divisible responsibility 600 principal auditor and component Auditors have divisible responsibility these two standards are saying divisible responsibility these five standards are saying the ultimate responsibility is with the external auditor got Clarity this is a summary that you need to remember no need to remember just understand try to understand first of all who is an expert can we call somebody as expert if they say we are expert in accounts and audit who are not from CSM background obviously we don't agree yes or no because we believe that we are experts in accounts and audit whether we know it or not honestly that's what even standard says expert is a person having specialized skill or talent in any field other than accounts and AIT if that expert work is used by management for Preparation and presentation of financial statements if the expert work is used by management for assisting them in preparation and presentation of financial statements we call him as management expert audit is expert if a a person having specialized skill or talent in any field other than accounts and audit whose work in that field is used by auditor for obtaining sufficient and appropriate evidence most of of the students know they study only up to management only up to auditor they don't read the subsequent part they'll give you you know McQ uh which of the following statement is true an expert work used by management I mean a person's who is expert in any field other than accounts and audit if whose work in that field is used by management for obtaining sufficient and appropriate evidence B for obtaining for Preparation and presentation of financial statements that is correct answer so they'll give you confusing so you need to read entire definition always up to the last Point getting it if an expert work is used by management For Preparing financials we call him as management expert if an expert work is used by auditor Auditor's objective is what ultimately whatever procedure we do ultimate objective is what to get evidence to get reasonable Assurance so for obtaining sufficient and appropriate evidence you see that's what so an individual expert is an individual or it may be an organization a law firm it may be a lawyer or it may be a law firm getting the point processing expertise in a field other than accounting an audit for example law getting it who work in that particular field in the law is used by auditor to assist the auditor in obtaining sufficient and appropriate evidence and this expert no like auditor expert no it can be either internal expert or external expert in our F only one of the partner is a law graduate getting it so I I want to take a conclusion on some pending litigation whether it's a contingent liability or a provision is required I want to take a conclusion on that so I can approach my internal lawyer internal expert who is a lawyer law graduate getting it if I don't have like that or if I want a better evidence I can go for external law form which is not related to my form so we call him as external exper remember Auditors internal exper means your partner or your firm or network fir or partners of network firms all of them comes under internal experts even net netor form related another form advice you have taken that will also come under internal expert external expert means what you or your network F don't have any connection with that with that particular party then we call him as what external expert who is a management expert he is also an individual or it may be an organization processing expertise in any field other than accounts and audit whose work in that field is used by entity to assist the entity in preparing financial statements see how clearly they have drafted yes or no now so the auditor has sole responsibility for audit opinion expressed this will this will never be reduced by use of work of audit expert or even management expert for the matter even sa 500 says that now why we need an expert assistance simple we are not familiar in everything suppose a pending litigation is there we don't understand legal ter minology suppose you try to read a document in the you know any supreme court judgment or high court judgment or tribunal related judgments you check you can't understand the terminology completely you can't interpret the status of the case by reading that particular case document you can't understand exactly so take a help take the help of a lawyer that is one example another example in some entities know valuation of inventory is not that easy especially work in progress how do you value how do you decide stage of completion suppose a company is manufacturing air conditioners as on 31st March some air conditioners are pending they are in work in progress how do you evaluate what is the percentage of completion of the air condition you don't know how to technically evaluate the percentage of completion production manager will say some percentage getting it but you're not able to believe him so because work in progress stage of percentage completion will affect the valuation of inventory because overheads allocation all that is based upon percentage of allocation percentage of completion getting it so stage of completion is very important so take help of that expert Engineer Expert in that field whoever is there some companies know they maintain oil reserves suppose you're doing audit of ioc Indian Oil Corporation limited they have crude oil reserves they have underground crude oil reserves so many like what gallons of crude oil is there you want to measure how much exactly is there how do you measure because the tank shows some number digitally some number is shown how do you know that management manipulated it there are so many occasions where we require experts assistance getting it so now so that that that's what so these are the various reasons where experts assistance is required for valuation of inventory for valuation of Provisions for valuation of contingencies all that so many reasons getting it now so what are the factors for determining need of an expert remember here the question it can be either audit's expert or management expert whatever it is first of all why you require an expert on what basis you say that you require an expert this answer is different this question is different there is another question considerations when deciding whether to use an auditor expert considerations factors both are same so what are the factors what are the factors that influence your decision regarding you use of auditor expert that question is different what are the factors that determine what are the factors that help you to determine need of an expert first of all first of all do I need an expert suppose I need an expert already management has employed an expert I can use his workings if possible I need not go for auditor expert every time why should I go for auditor external expert again and again already company appointed a registered value a company has appointed a legal council company has already appointed a special engineer for valuation of so and so things management has already appointed and you based upon their working only they valued why should I go for audit expert only thing first I should check should I need an expert company valued inventory company classified some pending litigation as contingent liability so is it correct or not I want to know so first of all to to know this is my competence enough I need to check if my competence is not enough then I need an expert now the question is I need expert now which expert already management employed can I satisfy with this working that is what question if at all I'm okay with his workings everything he's competent he's governed by external Professional Standards and all he's having all you know responsibilities code of ethics everything just like me getting it I can believe his opinion suppose if I feel if I'm having doubts about management experts objectivity I feel somewhere this management expert is biased towards management then I will go for audit as expert are you getting it so what factors that are required for deciding need of an expert the question is different what fact fa s that are deciding getting it need of auditor expert both are different observe the difference getting it now do I need an expert or not first of all an Auditor's expert may be needed in one or more of the following situations to understand the entity and its environment including internal control suppose you are newly appointed as an auditor for a Pharma company you don't know how Pharma company Works how Pharma company operates you don't know because the drugs they manufacturing are liable for compliances with so many regulations norms and all International norms and all will be there you don't know exactly how Pharma industry works so better take one expert help there getting it identifying assessing risk of MMS identifying and assessing risk of MMS today so many new business models are coming yes or no suppose you are appointed as an auditor for bat pay that's a UPI payment company or you are appointed as an auditor for 197 communication PM how do you know in PM what are the risk factors suppose in a normal Kiran store or a normal super I mean super supermarket I can easily understand where mistakes can go wrong but in a PM like a company where frauds can happen how do I know so sometimes experts are required depending upon the risk of to evaluate risk of Ms you need an expert determining and implementing overall response to the SS risk at financial statement level nothing but for identifying risk you need a help help of an expert suppose you find risk how to answer this risk how to respond to this risk how to verify so that I can identify whether this risk is materialized or not whether this risk turned into reality or not responding means further audit procedures they're nothing but what further audit procedures see there are two standards we have one is 315 and another one is 330 315 330 315 talks about identifying theing of risk of material misstatement through understanding The Entity and the envirment risk of MMS is divided at two two levels financial statement level assertion level financial statement level risk which is a significant risk generally when we identify financial statement level risk we don't do audit we withdraw from audit getting it financial statement level risk example going concern risk top management are not with Integrity top management those who are running this company are not working with Integrity they are doing frauds in every way which we cannot discover these risks are called as what fin IAL statement level risks assertion level risk what are they in go down inventory Warehouse controls are not proper that's an assertion level risk if controls are not proper in Warehouse that affects existence of inventory that affects existence of inventory which is not a financial statement level which is not a pervasive level able to understand purchases processes vend our Master do not have proper control that's an assertion level risk if vendor Master is not proper there is no proper control in the vendor Master there's a possibility that unauthorized vendor may be created unauthorized purchase order may be created unauthorized payment may be created so some wrong purchase might be processed assertion level risk are you getting it suppose if you find so many assertion level risks and all of them put together may be treated as financial statement level risk able to understand so the risk assess assment whatever risk you identify no you need to assess it is it a high risk is it a medium risk is it a low risk you need to assess it getting it so you need to identify and assess the risk of material misstatement at the financial statement level at assertion level whatever the risk you identify what can go wrong you do that assessment anyhow we discuss entire this in risk assessment procedure risk assessment chapter getting it so you do this this is called risk assessment to do this risk assessment you can you may need a help an expert okay fine you identified so many risk how to answer this risk how to verify whether this risk turned into a fraud how to verify response to assessed risk getting the point so response how do you respond so 315 says risk assessment procedure 330 is talking about further audit procedures audit procedures are two types risk assessment and further 330 is further audit procedures response to the SS risk how do you respond you have to perform further audit test of controls test of details that is what 330 says clear next so designing and Performing further audit procedures to assess risk that itself is called as what what overall responses we should Implement overall responses nothing but you perform further audit procedure you found some lapses in purchases you do test of transactions of purchases and finally for evaluating sufficient and appropriate audit evidence whether evidence is proper or not suppose company valued inventory workings and all they have showed you you also verified whether this working is proper or not you want to verify you may take help of an expert clear so this is the straight question that can be asked as a four marks question it was asked actually once it was asked in the very recent attempt in the past three four attempts only it was asked either this or this either this or this any of these question has been asked not only that you should consider one of you should consider one or more of the following and not only that how you how far is your understanding of the other field if told you're having very good understanding of the other field suppose I'm working as an auditor for this company for past 10 years I know how valuation of oil reserves happens so initial days I don't know so I took help of an expert initial 3 four years I worked with expert I learned the skill of valuation of oil Reserve crude oil reserves now I know how to evaluate getting it so experience in auditing the entities that requires such expertise so what is the level of experience you have in auditing these entities where you felt expert work is required education or professional development in that particular field suppose you studied a guidance note on crude oil valuations suppose you got a certification course from petroleum board getting it regarding crude oil valuation so or so you may you may get this development through formal courses or by discussion with people having that expertise and discussion with other Auditors who performed similar engagements if at all you're having access to all this now you may don't take the help of an expert able to understand out of all this any Four Points so sometimes no and what are the areas where experts assistance is required this question might come in that case any of these four points you have to write sometimes the question will be factors for determining need of an expert in that case you write mainly the second point and in and first point any two points you write getting the point see remember the question is only for four marks most of the questions are for four marks where they expect you to write relevant to Four Points any four points if write enough one point one Mark clear what happened fine all of you so next one what are the considerations when you are deciding to use auditor exper so on what basis you decide auditor expert it depends upon nature and significance of the matter risk involved and uh if at all management has used management expert you consider additional factors what is the objective of management expert whether he is employed by The Entity or a third party getting it how far management is controlling or influencing the management expert and what is his competence and capability whether management expert is also subject to standards like how I am subject to auditing standards getting the point every profession has their their own standards their own code of conduct so if at all man agement has already appointed management expert can I use that expert work what factors these points you will decide getting the point so you just check how far management is controlling him what is the nature of the work what is the scope and objective of that expert is it is he employed by The Entity or is he a third party form management expert so and how far he is competent how far he's independent from The Entity and what are the standards that govern his work if at all everywhere I got positive aners why should I go for audit expert I can happily convince with his work getting the point suppose if I have a negative answer on this and I want to I want to and it's a significant matter and with respect to management expert I'm having a negative conclusion then I will go for Auditor's expert understood how these points are different from above points in the above points do I need an expert in the below point do I need an auditor expert getting the point which means do I need to recruit EXP expert on my own that's a question and what is your knowledge of and experience with work of experts in relation to such matters in relation to that matter suppose know I for the first time I'm doing audit of a Pharma company related to some drug related research and development okay I need to decide whether it's in research phase or development phase I need to decide so in that field I don't have literally no knowledge to whom I should approach to have an idea on this all that getting so and management also have not appointed any expert clearly on this in that case I will have to take some additional precautions ask industry experts and then recruit an expert and get an opinion on this particular question which I have able to understand all this have you observed all this earlier the simplest book that you follow is highly risky book that you're following the more simpler the book that you follow the success rate will reduce I don't say that you fail but success rate will reduce everything is a probability right so what what we should do we should do we should do those kinds of activities that increases our probability of success getting it fine next one nature timing and extent of audit procedures influenced by Auditors expert work obviously the way I land my audit now it obviously changes because I'm using now Auditors expert work so in determining nature and timing and extent of audit procedure the auditor shall consider nature of the matter to which expert work relates to is it relating to closing balances or is it relating to opening balances if it is relating to opening balances expert work I have to wait until his report comes I cannot start the audit getting it so your nature Ty and extent of audit procedures are influenced by where the expert work is getting it risk of MMS in the matter significance of the work Auditors knowledge and experience with that expert whether the expert is subjected to fors Quality Control only our internal experts are subject to our FS quality control policies why external expert and all is subject to our F quality control procedure generally if at all the lawyer is there in our F only he already know how what kind of evidences people want what is our quality control policies is well aware of so if at all he is my internal expert my audit procedures nature and timing will be much simpler generally in the following cases more extensive procedures would require even though you're using experts work you require more the work of an auditor the work of an auditor expert is related to a significant matter that involves subjective and complex judgment some complex significant judgment are involved there your audit procedures extensiveness will increase because you cannot just like that auditor expert opinion you can't you need to work on it you need to verify that also and auditor has not previously used that particular expert no prior knowledge of his competence and capability if at all expert do not have competence and capability I cannot simply delegate and relax I need to continuously monitor him how he's working is he properly working is he colluding with management I need to put an eye on him always Auditors expert in performing processes that are integral to the audit is he performing anything that is integral to my audit integral as a whole my audit which means only his work only after his work I can do certain other works and expert is an external expert not subject to form quality control policies obviously since he's an outsider our quality control procedures and all he is not aware of what kind of evidence that we want what kind of level of assurance that we desire of is not aware of in that case whether he is working properly or not my nature timing and extent of procedures will enhance like anything got Clarity I'm only giving you an understanding you have to read though I'm trying to summarize but you have to read later on and you need to evaluate competence capability and objectivity of audit's expert before you using his word first you need to evaluate what is his competence what is his qualification what is his credibility in the market evaluate whether expert has necessary competence and capability in case of an external expert inquire regarding relationships he may have with the entity suppose you're appointing an external lawyer and that lawyer is a director's brother so you need to look at what relationships you know what are the relationships that external expert is having with the entity we are doing audit we are independent he should also be independent getting the point get a written representation that from the expert get a written declaration from the expert that whatever relationships and interest that he is having with the audit client should be disclosed to you and nothing is omitted he should give a declaration representation inquire The Entity whether do they have any relationship with the external expert two-way inquiry ask him whether he has any relationship with entity ask entity whether they have any relationship with him if relationship exist discuss with the expert any safeguards to reduce the threat to an acceptable level getting so definitely if some relationship is there don't directly boycott him don't directly avoid him see whether that threat can be mitigated or not suppose uh he is having a relationship with some production manager but the work that we are dealing is regarding some pending litigation getting it so probably we we can take chance not an issue get a representation from the expert that about any interest or relationship with the entity of which expert is aware of so expert will give to the best of my knowledge and belief me or my family or my relatives are not having any relationship with the entity he'll give a representation like this get a representation and see whether expert is subject to technical performance standards and other membership requirements suppose he's a lawyer he's govern by Bar Council of India he's gone by code of ethics if at all he do something wrong tomorrow if at all proven guilty he is also liable for punishment like how we are liable for punishment so I can believe his work because he's been controlled by some regulatory evaluation of competent is a continuous process remember competence is not a onetime evaluation you should be regularly checking his competence getting it finally once you decided once you evaluated competence capability all that once you decided nature timing and extent of audit procedures once you decided to use an Auditors expert you recruited formalities enter into a written agreement getting it so auditor shall agree in writing because you are the one who is recruiting of course fees for this you will collect from from the company and then pay him as an outof pocket expenditure you collect from the company where you're doing audit and then you pay to the expert you are the one who is engaging this expert understand so when you're engaging the expert when you are engaging with the company you had a terms of engagement engagement at same way you should have an engagement letter with the expert there in that letter you should clearly tell what is the nature of the work what is his objective what is the scope what are his responsibility what are my responsibilities I should clearly mention in the letter to avoid confusion in future so nature scope and objective role RS and responsibilities nature timing and extent of communication we should tell in the letter itself how you should communicate with me what times you should communicate with me all that and auditor expert to observe confidentiality I should also tell him in the engagement letter remember whatever data that you are collecting you have to keep it confidential because as an auditor I have to keep the entire data of the entity confidential you should also bound you are also Bound by confidentiality requirement that's it okay fine everything is over finally expert has worked on it he gave you workings will you directly blindly document it don't you evaluate the workings you will check the workings whether his workings are proper or not what you will check look at his findings are they reasonable are they relevant what are the what are his conclusions talk to him he will explain you the report review auditor expert working papers and reports you check his working papers and collaborative procedures observation third party confirmation if you want take a second opinion also getting it and the relevance and reasonableness of assumptions and methods in the circumstance so in that particular entity he he will also take some assumptions while while valuing some crude oil reserves he will take some assumptions whether those assumptions are reasonable or not in that circumstance check out and relevance competence and accuracy of the source data he has gave his ultimate report based on some data how far the data used by him is reliable check out that and finally suppose if you work of expert is not adequate you decided after evaluating his Works no no no it is not still I'm not convincing ask him to work more suppose he he is still working in spite of it also you're not getting convinced there is a limitation on the scope you understood based upon this there is a limitation on the scope you understood that limitation is created by management or circumstances ultimately you not getting sufficient appropriate evidence on a particular item on a particular assertion you will give a modified opinion that's what so if auditor determines that work of auditor expert is not adequate request for further work suppose no evidence no evidence you give modified opinion are you clear then finally F okay suppose I have app point I I felt there is a need of an expert and I felt that there is a need of an auditor expert I found one expert in the market I evaluated his competency all that I planned I changed my audit plan procedures everything I delegated him some works I entered into return agreement he worked on it final results and findings he gave a report I evaluated the report everything seems fine based on his report no I found that inventory valuation is wrong I found that inventory valuation is wrong management of course disagreed with me management replied me sir our expert have taken this assumption your expert has taken so and so management when you say that material misstatement invent is material M they ask you sir how come you prove look at my expert report management saw the expert report sir no sir he is using different assumptions and all which is not correct no management as for my understanding he is industry leader so he's having very good reputation is very scientifically methods and all your expert is only not having that competence and all I believe my expert work and I conclude that the financials are materially misstated management is not correcting it they are not amending the financials so that they'll be free from material misstatements I will give a modified opinion in the financials getting it so I will give qualified opinion or adverse opinion depending upon the pervasiveness in the basis for qualified opinion basis for adverse opinion the question is should I talk about the expert name if you think bringing expert name will help the people to understand better why you gave a qualified opinion then talk about it otherwise there is no necessity remember whether you talk about his name in the audit report or not doesn't matter your responsibility same he will not have any responsibility at all to the people shareholders you are the one taking the fees remember this point so generally suppose based on Expert work you concluded everything is true and fair unmodified opinion you give why reference and all anyhow you concluded everything is true and fair auditor shall not refer to the work of an expert in audit report containing unmodified opinion unless required by law in India there is no such requirement getting it remember just because you're referring in the audit report shall indic you you shall also indicate that in the audit report when you're referring his name you should also indicate indicate that the reference does not reduce your responsibility for the opinion you should clearly indicate that in the audit report suppose based on Expert report you gave a modified opinion on the financials and refer refer if necessary for better understanding if you want to make people understand better why you give a modified opinion you can talk so so oil Reserve is there valuation is highly subjective so because we are not having the technical competence we have taken help of an expert so and so F name getting it by the way just because we are ring about this F name doesn't reduce our responsibilities our our responsibility to obtain sufficient appropriate evidence regarding valuation of inventory still with with us only it will not be transferred it will not be shifted to the expert so if the auditor May refer May refer to the work of an expert because such reference is relevant for understanding remember the reference does not reduce your responsibility they'll give you this question also possibility they'll give you a story at the end of the story they'll give a they'll give a question the auditor wants to refer about Auditor's expert name in the auditor's report comment four marks question so you need to write this answer clear all of you what what is the procedure what would be your response if work of the Auditors expert is not adequate they'll ask you this question four marks question you see anything that you read you just imagine how it can be tested I'm telling you whatever the questions I'm telling you in the entire CA history final examination this will come anywhere it will come so I that's why I don't tell people to follow question marks when you're reading main concept itself imagine how it can be tested how it can be tested getting it if you read like that you don't require question Mar you naturally develop that observation skills and that you know grip on the subject clear that's it sa 620 is over with this AIT report chapter is over okay so we'll begin the next Topic in our book is 11th chapter that is standards on auditing actually if You observe the ICI book they are nothing but initial seven chapters entire standards on auditing initial seven chapters If You observe in the ICI book they're actually dealing with standards on auditing up to 7th chapter in the module one total up to 11th chapter if you look at they are all dealing with engagement and quality control standards 1 to 11 chapters of IC book so chapter number one to 11 they are all dealing with what all standards on auditing sorry all engagement and quality control standards whereas one to seven chapters they're exclusively dealing with standards on auditing and quality control standard now let's once list out what are the standards that we have and out of that uh uh what are the videos that you're supposed to watch I'll tell you here for for certain standards getting it and I'll I'll show you in the Institute material so how it is covered okay many do not have Clarity on this they are blindly reading the content but they don't understand clearly what they expected to read this is something instructed in the ca material itself the final audit material itself it is instructed and I'll show you with the proofs so first of all let's list out what are the standards that we have have 200 210 220 240 250 260 265 and 299 yes or no then we have 300 315 330 sorry 320 and 330 42 450 and 500 51 55 510 520 530 5 550 560 570 580 then we have 600 610 620 then we have 700 71 7 75 76 710 720 then we have 800 85 810 then we have 2,400 2410 then we have 3,000 3,400 3,4 2 3,420 yes or no then we have 440 4410 that's it these are the standards that we have and one standard that we have is standard on quality control that is one standard these are the total 46 standards that we have getting it now out of this all these standards anyhow I am specifically discussing in this class getting it all these standards nothing but these are all newly added into the new scheme of C final audit getting it so this chapter is called as specialized areas this chapter is called as review this chapter is called as Assurance this chapter is called as related Services yes or no this is what the chapter names are nothing but 8 9 10 11 chapters in the Ia module one book now now if You observe I opened this particular uh you know weightage related skill weightage related document inside this I will show you certain points you see here what are they mentioning contents of 200 210 230 they are covered in depth at intermediate level thus application may be discussed in the form of a case study in C final so 200 210 230 let's list out that 200 and 230 2 10 getting it then next SEA 300 planning of an audit getting it content is covered in depth at intermediate therefore application will be discussed at final level but in CF final audit strategy chapter also most of the content they covered in audit strategy chapter they covered most of the chapter but anyhow so so that that uh so let let's highlight that also 300 nothing but audit planning okay then materiality risk assessment inside that you see here 315 320 both these contents are in-depth discussed at CA inter but I'm telling you 315 content most of the content is once again repeated at final level repeated at final level that in fact we call it as risk assessment chapter so I only select 320 I only select what 320 and of course 330 also of course 330 also then in audit evidence find 500 51 55 510 530 550 So You observe here 500 51 and 55 510 530 55 510 530 550 these are all covered in depth in CA int that's what they're saying then completion and review inside this all the standards 560 570 580 all the three all the three so so 560 570 580 all these are covered in depth in CA in so they have given a list like this then 7th chapter all these standards we freshly have to discuss now by the way let's leave and list out what are the topics that we already completed what standards that we have already completed let's highlight them in green 700 701 75 76 720 600 610 620 agreed yes or no and we even finished five 70 and we even finished 299 so these are the chapters these are the standards that we finished okay now what I request you there are some CA inter revision videos that you are supposed to watch that is what institute material also says application part will be tested as a descriptive question when they're asking a descriptive question I'll tell you very simple example how they ask a question you are appointed as an auditor of so and so entity and as a part of the it you have found some risk of MMS in purchase processes you want to apply sampling technique to the purchase processes what are the factors that affect in determining sampling size for test of details this is the question what are the factors that affect Auditor's judgment about test of details there's a question on this that you can find only in sampling only in the sampling chapter revision you will find that now 320 by the way before I talk about that I have given material for most of these standards even though they are covered at CA inter with these standards I have not given material at all because insute material also it's not there so I applied little judgment here getting it like these standards are not at all relevant at final level one is 200 I didn't cover in the material 210 I didn't cover 230 I didn't cover getting the point rest all other I have given in the standards on auditing index if you check out so just open the 11th one so 240 I'm covering 250 260 265 is there in risk assessment chapter 265 standard is covered in risk assessment chapter so typically speaking in our material I have covered 220 240 250 260 265 all these were covered in our material in the smart as well as main material then 315 is also I will say that it is covered because risk assessment chapter entirely is based on 315 further I even gave 320 material if you look at standards and auditing index you will find 320 material also I have provided then 402 I have covered 450 is again covered in CA inter only so which I have not provided the material getting it it is covered in CA inter so this is not provided this is not covered because because it is covered in CA inter in depth 500 material I have given only as a diagram which Institute gave Institute just simply gave if you look at the particular chapter they just gave one page diagram for 500 they just gave one page diagram for 51 they give one page diagram for all this getting it for all this they just give one page diagrams you know I have covered them somewhat better getting it not so in depth like in C but not so less like in C final I covered like a medium getting it that is Enough from exam point of view If You observe I have given you the materials for 51 51 55 510 and uh 560 580 for these standards whatever I highlighted in green lines green letters I have given content I have given fullest content maximum content relevant that I have provided but in The Institute book they have not provided this much content which I provided in our book so first you must understand what standards that we have what institute it here final material says what source you have to refer get it so for that no what I what I tell you is very simple very recently I have uploaded latest new scheme CA inter audit Marathon two parts videos I've uploaded in these two parts most of the standards have come most of the standards I have covered just uh if possible I will just show you so you will I will show you the time stamps also please uh you can just uh observe it observe it that's enough you just observe it enough just go to my YouTube channel so just go to our YouTube channel then there is a playlist so inside this May 24 marathons per CA int here I have uploaded close to 11 + 9 20 hours of marathon in C still part three also will come part three will be some four five hours will be there inside that sampling revision will be there materiality topic revision will be there getting the point if possible I'll cover materiality here itself if possible I'll cover here itself I'll cover there separately now if you open this so there are some standards which are again covered here audit documentation you need to read just take a note so in part one in part one marathon and CA inter the last time stamp audit documentation you should refer rest everything you can ignore rest everything you can ignore no problem at all audit documentation 230 you should refer you should watch this this is in addition to this class getting it so 230 you should watch for sure you should watch it's hardly 40 minutes a standard but you watch you don't read anything it's not required also just watch you will have an observation any McQ you can answer that McQ answer the the ability to answer McQ that skill set you will get from this for sure getting it maybe you cannot write a descriptive question but descriptive they won't ask for sure because the paper Setter will not have that much patience to open C enter book and test he also want to uh he also want to go to lunch break as quickly as possible so he'll try to finish from the same material which is given in the ca final so whatever content is there in the ca final material only that he will test 99% I'm sure getting it because in the world scheme also the structure of standard is something similar to this not exactly same but similar to this even in the world SCH book also if you see CA final audit they will say some standards refer CA inter material getting it they specifically tell that the list has changed now the list has been changed now next go to part two then in the part two If You observe If You observe in the part two I have given more many standards here you see uh in this probably I say 550 in this you can see the time stamp 550 standard you have to 550 standard 500 these two standards you have to for sure watch sea 500 Sea 550 maybe if possible I'll try to cover 55 briefly here getting it and I'll specifically mention that please watch this again so when you're watching the YouTube video also later on after a week or 10 days maybe when when I upload after 10 days you can comfortably watch getting it then part three video I will upload I will upload part three Marathon inside that sampling video analytical procedure video I'll upload inside that sampling analytical procedure I will cover getting it so I think what are the standards that I told you know and is 230 500 and 550 2 uh 530 520 these five standards related content you should go to ca inter getting it now uh so which means I will eliminate from this list those standards now I will eliminate from this list those standards what are the standards which I've told and by the way one more thing I forgot sorry sorry uh in the same the first video just uh just in this first video nature objective and scope of audit chapter is there in that only so in this know time stamps if you go here there there is a topic called 3 hour 14 minutes if You observe ethics and terms of Engagement inside the terms of Engagement part that is 21 that you should study nature objective and scope of audit this is last priority in this when you're watching video nature objective and scope of audit should be the last priority if you have time you watch it that is 200 standard so now I listed you 200 210 230 500 550 520 530 these standards I have listed for you so that you have to refer CA inter Marathon rest all other standards I will try to cover within this particular session itself okay actually 51 55 also covered in C same material only here getting it but I will briefly cover here if not going in depth at least I'll cover neatly decently I'll cover okay so what we have uh identified so 1 200 200 210 I'll highlight with green I'll ensure I make I mean I will write like mention it as completed so that you can watch those videos 200 210 230 actually 330 also comes and see a inter only that Marathon only it will come risk assessment chapter there it will come uh in audit evidence topic we will bring 330 Topic in risk assessment chapter we will bring 330 topic getting it then uh 300 will discuss in this class 320 we will discuss preferably 450 again I will cover in C 450 I will cover in C either in part one part two part three somewhere it will be there if possible the time Stamps no it I will make sure that sea number is also reflected there for some chapters essay number have not given in CA inter Marathon now I will modify that so that essay number will be there so you just open time stamps you will find s number just open that watch that so either in CF final Marathon or in C inter Marathon that's standard every standard will be covered in depth maximum I will try to cover here few few standards which are exclusively in C enter in fact there are many which are there in CA inter only still I'm covering some of them in the final book though it is not there in our final IC study material getting it so then we have a 500 520 530 so these you have to refer and even 550 but I'll not round of 550 but I'll just uh briefly give an idea on 550 in the session itself because they gave a diagram here so at least that diagram we will go through so that's it so whatever I highlighted in green I'm not touching at all the rest all other we need to discuss so rest all other means what are they 221 2 3 4 5 6 7 8 and of course 9 10 11 12 13 14 15 almost 16 16 more standards and one sqc round figure 15 standards so we are still still having 15 standards on auditing to be discussed once we complete these 15 standards the standards on auditing topic will be over then immediately I will start these review standards all this confident got an idea now yeah so now let's uh let's first begin with 250 standards 250 standard what Institute know what they did a mistake is I'll tell you what mistake they did when you're coming in C final under new ski CA inter old scheme you wrote and in CA final you're writing you coming with new scheme and some standards in CA inter old scheme which you have studied were not were covered exclusively in CA final some standards which are there in the world Gem and final were transfer to C inter in the new scheme and Institute thinks you have already read that standard which you have not got got got the like you understood what I'm saying so in the ca inter new scheme some newly they have added some new standards actually 260 was not there in C earlier 265 is not there in C inter earlier but now they have added that slight slight 260 in-depth discussion is there in C getting it in C final it is depth of the depth is even more depth discussion is so this is Introduction to the standards that we have okay 1 minute I'll start immediately so whatever the standards I am covering now in the same order only you revise later on getting it this is one of the best order to understand the standards first we are discussing some standards which do not have any relationship with other standards then we'll be discussing interrelated standards okay first thing I'll discuss is 250 so consideration of laws and regulations in an audit of financial statements the standard at sometimes is referred heading is referred as auditor responsibilities relating to laws and regulations in an audit of financial statements so in both the ways it is referred as now when we are doing audit of any entity for that entity there so many laws and regulations that are applicable why we are conducting this class right to conduct to organize a class like this getting it there are some laws and regulations that are applicable municipality Corporation law is applicable first thing you should not throw anything outside getting it in the break times whatever it is and some traffic related laws we need to comply getting it and we need to comply with the safety related laws there must be fire extinguisher which is not there I'm just telling you see of course depends upon possibility all that but as per uh you know this uh municipality laws and all every commercial organization must have a fire extinguisher getting it so here itself while conducting for the class itself revision class itself whatever it is when students Gathering is there we must have a stop we must have to we have to comply with various laws and regulations riots and all should not happen here we have to take precautions for all that getting the point and when you're running a coaching Institute you must have a playground you know that there's a rule huh otherwise you will not get recognize recognition from the state government schools and all they will not get recognition without they having a playground but of course they get registration that's a different thing even without playground they show some ground as playground okay yes so there are laws and regulations that we can't even predict we can't even identify that there are some kind of laws like that okay most of the companies know they do compliance audit they they do appoint compliance Auditors their duty is only to figure out what are the laws applicable for the entity suppose a manufacturing entity for them at least some 40 50 laws will be applicable the laws and regulations that we know is income tax companies act GST act some 5 to 10 laws for that itself we are doing so much of overaction in Instagram okay but the laws and regulations applicable for the entities so many so many laws were applicable environment laws are applicable pollution related laws are applicable if it's a manufacturing unit okay and if at all the factor is located in nearby any Forest Area some forest related protection act laws are applicable garbage how they're treating the garbage some law is applicable different law is there workers some different laws there scavengers if if they appoint for scavengers protection there is a different law for Municipal workers there's a different law when you're recruiting their service so there are so many laws which a company is liable for now the standard is asking what what is the responsibility of auditor relating to laws hello my responsibility is to give opinion on financials why am I bothered about laws and regulations but remember failure to comply with laws and regulations will attract penalties and fines sometimes it even questions your continuity going concern which happened with PTM because they failed to comply regulatory requirements their license payment Bank license PTM bank's license has been cancelled it's been suspended getting the point so the standard divides the laws and regulations into two two types type one laws those laws and regulations which we professionally aware of those laws and regulations which have a direct effect on amounts and disclosures in the financial statements type one law laws the standard classified type of laws those laws and regulations that have a direct effect on determination of material amounts or disclosures in financial statements example tax loss commercial loss all that labor loss also getting it then we have other laws and regulations that do not have a direct effect on financials but compliance with them is fundamental for the business continuity otherwise we are liable to pay penalties fines or sometimes we may have to shut down the business for example consumer safety loss product safety law getting it establishment safety related laws these laws and regulations are called as other laws and regulations under this standard so this standard refers two types of law those LW that have a direct effect on the financials those LW other losss that do not have a direct effect on financials very simple if I fail to comply with certain pollution emission standard is there any material misstatement in financial statements any current asset liability asset will it affect no but if I fail to determine right GST rate applicable for my commodity the company whom we are auditing they failed to identify right GST rate for example it's it's manufacturing some ointment the company is manufacturing an ointment that that ointment no it Cur some let's assume pimples the company classified it as a medical product which attracts zero GST but in come the GST Department says it's a beauty related product getting the point because it is not curing it is only for care so some sort of negotiation so it is liable for 28% GST rate the company assumed it as zero and they didn't create any provision for GST whatever sales they collected amount they collected they are directly transferring full amount to pnl account but whether you collect from customer onor doesn't matter whatever you collect we assume it is inclusive of GST that's what GST law assumes so you have to create a provision now because company failed to interpret the law properly they did not recognize a material liability 28% of the turnover they have to create a provision for GST they didn't create getting it now you see if those laws commercial and tax laws labor laws if you fail to interpret them properly if the company fails to interpret them properly it directly results in a material misstatement in the financials either overstatement or understatement of performance or position what is auditor responsibility I one loss get reasonable Assurance get reasonable Assurance whether the company has complied with all type one laws and regulations type two get limited Assurance type two laws what is the standard says get limited Insurance nothing has come to your attention that causes you to believe that type two laws and regulations are violated in type two loss we get only limited Insurance because that's what we can do we cannot do reasonable insurance and all first of all we cannot understand those laws and regulations first of all we cannot figure out those laws and regulations for type two law no you need to get it the standard clearly says the standard clearly says you see here the auditor has to obtain sufficient and appropriate evidence regarding compliance with the provisions of those laws and regulations that are recognized to have a direct effect on determination of material amounts and disclosures in financial for this you should get sufficient appropri dividence whereas you have to perform specified audit procedures limited audit procedures to identify incidents of non-compliance with other laws that may have a material effect on financials but not a direct effect on financials that may not have a direct effect but they materially affect the financials at a future date may not be immediate but it will have a material effect at a future date going concern issue is there because of some non- compant it will not immediately affect if you not not comply with some regulat requirement but tomorrow it will suddenly PM Bank are you clear so for type two the standard has given some procedures you just have to perform those procedures enough and these procedures are simply like inquiry and analytical procedures the procedures which they listed is inquiry and analytical procedures that's it they didn't listed out any anything else getting it you just have to get an assurance that nothing is not complete getting it that Assurance if you get that's enough for type two loss that's why for type two the assurance that we get is what limited Assurance why are we getting limited Assurance to get reasonable Assurance it is outside scope of our competence moreover we are not doing compliance AO by the way here we are verifying laws and regulations not to give an opinion on the entity's internal control system regarding compliance control here entity has established some compliance control some companies know they do separate compliance audit they appoint some firm audit firm or some Law Firm okay where they will list out all the laws applicable where they will list out all the provisions applicable in that law they will list out and then they will do actually I have an example for that real realistic example I have where they have listed out 42 laws and they have listed out 2,000 compliances under these 42 laws 2,000 compliances company has to satisfy getting it the Auditors will check all those 2,000 compliances whether company satisfied or not that's a compliance AIT what is it actually called as compliance so we will ask management whether they established a separate Department to identify laws and regulations applicable and whether they are verifying laws and regulations compliance or not this is what the basic overview of the standard now finally okay you have to get a sufficient appropriate evidence regarding compliance with the direct loss nothing but direct effect to loss you have to perform limited audit procedure specified audit procedure to identify non-c compliances in other laws in other laws no whether everything is complied or not you need not check is there any non-compliance you should inquire is there any non-compliance you should inspect documents enough there you have to try there you need to try to pinpoint the issues it's simple whether a car is working properly or not I need not be an automobile engineer for that I need not open the pet and check each and every component of the engine and all I will just drive I will just drive on speed Breakers I will just drive on highway I will just drive on different different terrains if it is smoothly going on everything is fine I will say that car is working good but am I an automobile engineer there no that skill is not required but by driving the car or driving the bike we can pinpoint the issues that are there in that yes or no but doesn't mean do do we know all the issues in that we don't know that's the kind of assurance that you should get in type two laws whereas in type one law you must have an expertise like an automobile engineer suppose if it is GST how I should verify I should do complete reconciliation for GST getting it if internal have already performed I will take their work but I will have to check complete GST record the consolation completely I have to check April month so and so state so and so number so and so GST number what is the date when they file how much amount they they calculated how much they are liable is there any excess payment or short payment I need to get an assurance that they complied with everything getting the point I will check what rate is exactly applicable I will check whether they paid correctly or not I will check whether they created provision in the books correctly or not their accounting is proper or not reasonable insurance I will so for direct effect related laws and regulations we get reasonable Assurance by the way who responsibility primarily obviously manage so management is responsible to ensure that entity business is conducted in accordance with laws and regulations including compliance with those laws now the company know in order to comply with laws the company has to establish policies and procedures to help in prevention and detection of non-compliance straight question they will ask four marks question give few examples of policies and procedures that are will be that will be established by entity to comply with laws and regulations so what policies company should have a monitoring legal requirements monitoring legal requirements one department they will appoint they should they should appoint a system appropriate systems of internal control nothing but they have listed out all the laws due dates compliances list all that they listed out and they appointed a dedicated person to check all this which means company implemented proper system company developed and Publishing a code code of conduct for employees with respect to employee related law company ensuring employees are properly trained and understand the code of conduct see code of conduct for example um sexual harassments for women's at workplace there is an act for that you take infosis you take TCS you take any company where like co-working like where female and male both of them work getting it they have they have to implement a strict code of conduct not not only implementing and designing code of conduct you should tell people also to follow the code of conduct getting the point so see whether company has developed a code of conduct and compliance with code of conduct monitoring the compliance company should have a process to monitor the code of conduct whether employees are satisfying with the code of conduct or not operational audit team will be there compliance audit team will be there they will be checking that and engage lawyers to help in monitoring legal requirements also call lawyers take recruit lawyers many big companies will have internal legal council many big companies will have internal legal council they continuously assist the company whether they are satisfying law and regulations or not and companies have to maintain a register of Law and regulations with which entity has to comply in a particular industry and what are the complaints that are there with respect to these laws and regulations these are the controls the company has to implement policies and procedures the company has to implement four marks St question any four points you have to write understood next in larger entities these policies may be supplemented by assigning appropriate responsibilities to internal audit function within this department some compliance audit team will be there they will be checking all this next fine now what is auditor responsibility in relation to law we are not responsible for preventing non-c complains we cannot do that compan is emitting pollution will you go and cover yourself no okay and we are not responsible to detect all non-compliances that is also not possible inherent limitations of audit so the auditor what auditor is responsible obtain reasonable assurance that all the laws and regulations that have a direct effect on financial statements are comped reasonable Assurance we will get and you know remember there are inherent limitations of an audit due to inherent limitations in an audit there is an unavoidable risk that some material misstatements may not be detected even though audit is properly planned and performed the potential effect of inherent limitations on auditor ability to detect misstatements are greater for such reasons are following they'll give you this question straight away what are the limitations relating to laws and regulations non-c compliances identification by auditor what are the inherent limitations that affect Auditor's ability to identify non-compliances remember there are many laws and regulations that typically do not affect the financials and generally not captured by entity's information system entity also will not have knowledge of what laws applicable to them because there are so many laws in India yes or no so non-compliance may involve any conduct to conceal it like through collusion forgery deliberate failure to record transactions management overring control intentional misrepresentation made to auditor company knows that they have violated so many laws but they didn't give representation to us they didn't disclose it to us under 250 we need to get a written representation that whatever knowledge of non-compliances the company is aware of they should disclose to Auditors and the non-compliances shall be disclosed in financial statements also all the non-compliances they have to disclos it in the financial this is an implied requirement this is not an explicit requirement this is an implied requirement by default people think that you are doing business in compliance with laws and regulations nobody will get even this thought also so whether compan is doing business legally nobody will get this thought whether an act constitute non-compliance is ultimately a matter of legal determination by law first of all is it a non- compliance or not ultimately Court will decide you need to apply professional judgment see they'll ask you a question the potential effect they'll give you a question they'll give you some story the potential effect of inherent limitations on auditor ability to detect the material misstatements arising due to non-compliance with laws and regulations there are various limitations what are they you need to write these three points are you getting the point you need to write these three this will be asked as a four marks question clear next now sea 250 IT distinguishes the loss into two different categories type one which have a direct effect on material amounts and disclosures in financials type two other laws and regulations which do not have a direct effect but compliance with which is fun fundamental to operating aspects of the business to continue the business or to avoid material penalties so non-compliance with these laws have a material effect on the financials though direct effect is not there but they have a material impact on the financials may not be at present but at future date getting it so auditor is limited auditor responsibil limited to undertaking specified procedures to identify non-compliance with those laws that have material effect nothing but type two loss so for type two loss what auditor responsibility perform limited audit procedures why are you doing that limited work also just to identify non- compliances whether they complied or not is difficult for me but whether they not complied or not is easy for me to find able to understand very simple very simple what I will do in case of uh limited audit procedures limited audit procedures what I will do is very simple here I think that list is not given here limited audit procedures what we will perform one of the point inquire management second Point inquire entities legal council legal council next you know inspector legal expenses account what is it legal expenses account so you will understand for what purpose legal expenses are incurred whether that purpose is any non compliance related to law you will understand and uh uh you will you will refer regulatory regulatory authorities any communication that received and you will inspect internal Auditors report so these are the points generally you perform in limited audit procedure this is standard content only this is what the standard G content so what are the limited audit procedures so you need to write like this getting it so in inquire management inquire entities legal council in inspect legal expenses account and uh internal Auditors report and this is a what what it huh ah Communications with regulatory authorities correspondence with regulatory authorities so whether any correspondence happened between the company and Regulatory authorities getting it that's it here you can even consider visil blower complaints all that getting it that's it and the standard says you have to be alert to the possibility that other audit procedures applied for forming an opinion may bring instances of non-compliances to the auditor attention suppose you're doing some GST reconation or you're doing some Ledger review or you're doing some risk assessment procedure there you identify that company is calculating GST wrongly immediately what it should strike non-compliance with law getting it and Main skepticism throughout the audit in the context of LW these are all something like we don't do consciously when we are working if you identify something immediately you should be able to sync with the standard now Auditors Auditors consideration of compliance with laws and regulations to obtain sufficient appropriate so first know look at legal and Regulatory framework applicable to The Entity so what is a legal and Regulatory framework that is applicable whether entities complying with that framework see whether the entity legal and Regulatory framework means ask management what are the laws and regulations applicable they will generally have a register of laws and regulations so legal register will be there inside that they will give you list of laws and regulations get a legal opinion also whether the company has listed exhaustively all the laws and regulations applicable or not and auditor shall obtain evidence compliance with the provisions of those laws generally that are having direct effect on financial statements those laws which are having direct effect on financials whether those laws are comp or not get evidence for that only we do TDS reconation GST reconation Provident fund reconation ESI reconation all that we do why because of s 250 requirement moreover only after doing that reconciliation only you can comment in car 7th Clause Undisputed use whether they paid regularly or not the auditor shall perform specified procedures to identify non-compliances with other laws specified procedures means what I already told non-compliance with other laws no they have a fundamental effect on operations of the entity so that entity operations can seize or they may question continuity going concern there are many laws and regulations that are relating to operating aspects of the entity typically do not affect financials and are not captured by entity information system audit procedures applied to form opinion on financials may bring instance of non-compliance or suspected non-compliance to the auditor's attention maybe when you're doing audit you will you will identify some non-compliances so auditor shall remain alerted to the possibility same matter is covered above this is something nothing but audit procedure here they're talking about audit procedures auditor consideration with compliance of laws and regulations whereas here it is responsibility in both the cases they are discussing in responsibilities as a part of inherent limitations they have covered this in inherent limitations responsibility of auditor they cover the same matter the same thing auditor has to consider that's what once again they are covering suppose if you identify non-compliance what you have to do if you identify any non-compliance as a part of audit procedures as a part of inquiry with management as a part of discussion with lawyers as a part of checking legal expenses account as a part of doing reconciliations for GST TDS and all if you identify non-compliance what you have to do what is the nature of the non-compliance nature of the ACT is it a GST overstatement or understatement or is it a GST wrong rate or is it pollution related not non compliance what is the nature of non-compliance further information to evaluate the possible effect on the financial so how this non compliance impact the financial statements you should get information for that suppose if auditor suspects there may be non-compliance discuss with management and top management those charged with governance is nothing but top management getting it and if they are not providing sufficient information you need to obtain legal evidence suppose on the non-compliance they are also not able to understand what is a non-compliance exactly so you communicated with them you you're not getting proper data proper Clarity then take a legal opinion if sufficient information about non-c compliance cannot be obtained what is its impact on the overall auditor opinion identity suppose ultimately you are ending up with no information regarding the non-com you know that there is a non-compliance but what is its impact on the financial statements you're unable to determine first you try to take legal opinion if even through legal opinion you're not getting Clarity then what is this impact is it material or pervasive what is its impact on the financial statements can I still give the opinion you need to consider that and auditor shall evaluate implications of non-compliance including the risk assessment and reliability of representation now management give a representation that everything they complied for example now you found some non-compliances how far the representation given by them is reliable now they said everything is complied no non-c compliances they even said compliance audit team is there we have audited we found every non-compliance all the non-compliances they listed you in that list you you did not find some new non- compliance which you identified getting it so now when you identify some new non compliances whatever management gave a letter declaration that declaration become doubtful right because in the Declaration they didn't list it so that's what they're saying here then finally finally suppose you ident IFI non- compliance you understood what is its impact on the financial statements all that is over now you are you liable to report in the audit report yes you are liable to report first of all before reporting it in the audit report first whenever you identify non-c compliance first you have to report to top management those charged with governance getting it and suppose if you think the non-compliance is intentional and material is communicated to top management as soon as practicable if auditor thinks that management or top management themselves involved if next higher level Authority is there report them getting it suppose where there is no higher authority and if auditor believes that even though you communicate there will not be any action getting it and you are not sure as to person to whom you report take a legal advice in that case getting the point take a legal advice means suppose in case of listed entity you may have to report to S you may have to report to some other Authority able to understand so you need to take a legal advice there you don't know exactly what to do suppose if board of directors are involved intentionally for certain laws and regulations non-c compliance they know they should not emit certain you know pollution related things and so and so locality but they're doing all that getting it one day it will bring into full stop one day it will Full Stop The Entity getting it so you know that top management also aware of it what you should do so take a legal opinion take some lawyer who is expert in that so what is this consequence take his opinion what should I do this is the position where where I in top management itself is involved in non what should I do then the lawyer might tell you report it to so and so Authority getting it because it's a going concern issue or some other issue whatever now in the audit report what should I report suppose if auditor concludes that non-compliance has a material effect on the financial statements remember they're using the word material effect on the financials it doesn't mean amount or disclosure is affected it doesn't mean amount is wrong or disclosure is wrong material effect some pollution related NM not comped PM bank has not complied with some RBI regulations regarding liquidity maintenance all that or regarding Somey kyc norms and all all that they didn't maintain properly and uh it is not reflected in financials properly indirectly the standard is mentioning that all the non-compliances with laws and regulations a company whatever they are aware of it must be showed in financial statements honestly if they do not show the non-compliance and financials auditor will give either a qualified or adverse opinion because non-compliance is not disclosed non-disclosure is a misstatement suppose you are unable to get evidence you are unable to decide whether there is a non-compliance or not you are ending up with no information then also you will give which opinion qualified opinion if the non-compliance related information which is not available and the possible effect is material but not pervasive qualified if it's both disclaim getting it so you're unable to get evidence not only for that even if you're unable to determine non-c compliance you're unable to decide some means evidence is there information is there but is it a non-compliance or not you're not having that ability you try to get Auditors expert opinion you try to get management expert opinion expert opinion is not adequate expert work is not adequate ultimately you are ending up with no information which means you will give again qualifi or disclaimer and above all you should also keep in mind there is a requirement from certain laws and regulations that if an auditor becomes aware of any non-compliance you may have to report to concern regulatory so if auditor has identified noncompliance auditor shall decide determine whether he has a responsibility to report to Outside The Entity to any Authority Outside The Entity you need to check you identified some pollution related law in that La uh in the pollution related act know immediately the company every officer of the company have responsibility to report it to regulatory Authority it's there offic definition do not include auditor auditor has no responsibility to report so he can simply without reporting just qualify the report enough suppose if they said every officer every auditor internal or external they have to report suppose RBI there is a guideline every auditor whether internal or external when they aware of any fraud in the bank irrespective of the size of the fraud you have to report to RP able to understand and finally auditor has to document what are the non- compliances identified what are the suspected non-compliances and what you discussed with management and top management and what at all you discussed with Outsiders like lawyers and all all that you should documents now so fine we do risk assessment related to laws and regulations right so when you're trying to understand the entity and envirment there will be some symptoms there will be some symptoms that there is some non complaints example payment of fines or penalties company paid a fine or penalty some penalty Ledger account is there so much of amount is there that it that itself indicates company has failed to comply with so many Norms getting it unusual payments in cash unusual payments in cash unspecified services or loans to Consultants related parties and all unspecified expenditure unspecified means you are paying some other expenditure miscellanous expenditure you writing for that voucher only is there no supporting documents and all that may be a break that may be an indication that some non-compliance might be there getting the point and purchasing at prices significantly above or below market price that may be tax related fraud tax related non-compliance might be there some investigation is going on from a regulatory organization that itself is an indication that some non-compliance is there aters media comment hidden BG report on other example that may be an indication for the Auditors of aani group to investigate further regarding any non-c compliances with any Norms they did unauthorized transactions transactions with companies engaged in tax Heavens this is this is linked with sa 550 again so if you're transacting with tax Heaven jurisdiction companies so frequently so big big amounts that may be an indication that you are transferring funds to them shiping of funds so they'll give you this indicator also as a four marks question so one here one question they'll ask you is write about reporting of non-compliances with those charged with Covance this itself can be asked as a four marks question or they'll ask you write about reporting of non- compliances in the audit report this itself can be asked as a four marks question then write about audit procedure when non-compliance is identify reporting non reporting non-compliance to top management is a different audit procedure when non- compliance is identified is different when non- compliance identified you will try to understand what is the nature of the non-compliance what is its effect on the financials getting it you will discuss with management and try to get EV evidence try to get try to get evidence try to get information to evaluate his impact on the financials if you're not getting you will take a legal opinion that is a procedure that we do when we find any non-compliance the procedure what will do we find a non-compliance what is it what is the non-compliance what is it impact on my audit so I will take a legal opinion I will discuss with management get more information and evaluate what is Ultimate impact on my audit this procedure I do once I do this procedure once everything is over I need to report the non- compliance to top management and I'll see whether they're acting upon or not what acting upon means they need to disclose the same in the financials I will see whether they disclosed adequately or not if they not disclosing adequately then I will report it in auditor report suppose I found some non-compliance what is exactly the non-compliance I Tred to get information I am not getting information I'm unable to decide whether it is a non- compliance or not ultimately qualified or disclaimer suppose I am not getting information behind this non-compliance to decide its impact information not available qualified or disclaimer information available non-compliance is clear it has an effect on the financials like this everything is clear but financials are not disclosing qualified opinion or adver speed clear everyone that's it so they'll ask you this question also as a four marks what are the Auditors consideration of compliance with laws and regulations to obtain sufficient and appropriate by the way for this standard don't follow question Banks because the standard is completely newly drafted in the new scheme from pronouncement book it is taken and give you see old scheme audit book 250 itself is not there but 250 related mcqs they have asked because they expecting you to read pronouncement book that time where you will not read main book itself yes or no but now we are at least certain there is no pronouncement book happy so whatever they are going to ask it is certain now only from the IC main book it will be asked so earlier students are in dial whether to read pronouncement book or not they'll ask me first I'll tell you read main book first then you think about pronouncement book you know pronouncement book right so bulky 1500 pages not 15,000 Pages approximately all standards put together th at the time we don't have special areas 2,000 2,000 series 3,000 series 4,000 series and all we don't have that's it 250 is over I'm giving you remember this is a revision class every 10 minutes recollect that this is a revision class why s is why why he's going very fast a revision class which which Itself by definition it's a fter class yes or no but still I tried my best to cover everything okay so 2 minutes we'll begin with the next standard so let's uh continue with uh next standard but before that before I begin other standard in 250 there is one interlinking point which I thought of covering when I'm discussing ethics chapter but let me cover right now itself that nolar also in nolar also entire content is not that relevant very few points alone if you are familiar with that's enough so come to 64th page non-compliance with laws and regulations no CL that's what see this this standard no originally if you look at sorry not the standard this concept of Ethics this is nothing but code of ethics it's part of code of ethics when this nolar is introduced this is there across the world in all other uh you know uh accounting bodies they have already implemented in India we have implemented very late but typically speaking this particular no do not have uh that relevance even if you read this you will get you will get this doubts should we report or should we not report because the standard the way they discussed this content is in such a way originally when noar has been brought what they said I'll tell you in a simple story whether you are whether you are a member in service or whether you are a CA in practice whatever it is on any engagement that you are performing or in any employment you are in if you identify any non-compliances with laws and regulations identify whether do you have a responsibility to report that non-compliance to any regulat authorities only when you have responsibility to report you have to report now a specific indication like this earlier was not there earlier a explicit indication that you should report to regulatory Authority if you have a duty to do so like this they didn't specifically tell you but it's it's an implied requirement understand it's an implied requirement suppose so and so law is there for example in that law the auditor has a duty to report is there and you don't know about that law ignorance of law no excuse yes or no so you have to report for sure whether there is a non-compliance like this in the entity that you're doing audit or not you have to report because that's a requirement in the law but you don't know the law now through nocl what they're saying is a company an entity is subject to various laws and regul ations you may be an auditor of the entity or you may be an employee of the entity whatever it is if you came across any non compliances while doing the engagement or while rendering that employment work you have to report to respective Authority if there is a responsibility for you the noar concept says if you have a responsibility under that respective Authority a respective law to report then you have to report failure to report in spite you have a responsibility to report is a professional misconduct this is the main loar main concept later what they amended loar is applicable only for the senior employee not for everybody you see applicability of noar responding to this is very important this is only important in fact okay applicability of Nar responding to a non-compliance with law regulation applicable to professional accountant in service of course it is applicable for professional accountant in public practice but professional accountant in service it is more important to which professional accountant senior professional accountant being employees of listed entities okay so just because tomorrow infosis appointed you okay they recruited you newly appointed chared accountant okay you were appointed as a you you just went you took some Finance role in the infosis campus selection you were selected for you no clar is not applicable because you will not fall within the definition of c senior professional accountant who is the senior professional accountant director officer senior employees able to except able to influence over and take decisions regarding acquisition deployment control of the employing organizations human Financial technological physical and intangible resources simple if you can take acquisition and implementation of resources all resources human technical production all the resources if you're able to influence decisions regarding you res resource acquisition resource utilization you are a senior account senior employee senior professional accountant you will come under senior professional accountant definition the senior professional accountant in service or directors officers and by the way which director charted accountant director you don't apply this to some other director Amani need not comply with nolar why he's not a member of The Institute nolar is given by whom ICI so I guidelines are applicable only for whom sat accountants they themselves are not following why do you expect others to follow that's it so it is further explained that senior professional accountants refer to e manager persons who are Ched accountants that is that is an implied meaning actually see professional accountant itself means charted accountant they're referring getting it so just because director is covered don't think every director those directors who are Chartered Accountants the moment you are a chared accountant you you are coming under the purview of CA act schedule 2 schedule one all these will be applicable to you yes or no now what about professional accountant in public practice what about practicing people for practicing people also no clar is applicable only when you're doing audit of listed entities and who are having a net worth of 250 crores or in listed entity it should be listed entity and it must be having net worth of 250 CR and above almost any listed entity whose net worth is less than 250 CR nothing but defaulting listed entity for example you need not report technically speaking now you remember only for audit engagements only for audit engagements what is an audit engagement they give reasonable Assurance engagement which means if at all you're appointed to conduct a review engagement no CL do not apply this ability is very important now what is the difference between nocl and SE 250 both are almost similar sea 250 we specifically apply in the context of Standards on auditing when we are doing an audit engagement it may be a tax audit engagement or it may be a financial statements audit engagement nothing but company audit engagement so sea 250 is applicable in SE 250 what they say they divide laws into type one and type two where you have to get evidence regarding whether laws and regulations are comped or not whereas in nolar when you're are performing the duties if you came across any non-compliances in nolar it is not your duty to detect non-compliances getting the point if you came across any Duty any non-compliances please report it if there is a requirement for you to report no you see SE 250 is applicable only on audit whereas no CL is applicable on for even for professional accountants and service SEO 250 do not apply for employees right who are chattered accountants sea 250 talks on responsibilities for loss that have a direct effect and loss that do not have a direct effect whereas no clar even though it is like 250 it is further ahead it takes into account non-compliances that cause a substantial har resulting in serious consequences of Financial and non-financial terms all laws are covered in noad in fact in noar they didn't divide type one to kind of anything in se250 they divided at least and said type and reasonable type to Limited in no there's no such Clarity sea 250 does not define any stakeholder there you are only doing audit in the you're doing audit in the context of financial statements only whereas in noar non-compliances relating to investors non-c compliance related to creditors non-c compliance related to employees general public everything is covered that is what in fact se250 type two loss also covers type two law and type one both are covering all laws and regulations typically speaking just like nolar as per nolar the professional accountants became aware of any breach of law that would cause substantial harm to investor creditor employee or general public whether it would be appropriate to discuss the matter with management or top management and exercise judgment and determine whether they have disclose a matter to Authority in order to prevent or mitigate the consequences indirectly no clar says only when you have responsibility to report to authorities you have to report otherwise you need not report so now what are the steps for responding to NOLA suppose if there is a non-compliance you identify how do you respond now we have seen when you identify non-compliance what is the audit procedure in 250 first what is the nature of non-compliance what is its impact on the financial position communicate with top management take legal opinion if possible that is audit procure here if it is a nocl you an employee in a listed company senior accountant in a listed company you find non compliance what you should do what are the steps first what is the non-compliance look at that matter take an advice whether further action is required whether you have you can disclose the matter to appropriate determine you see they use word determine determine determine means what just because you find a non- complain you need not report to the respective Authority only when you have a responsibility to report you have to report if you do not have a responsibility to report you have to obey the company you have to you know you are employee in that company so you have to keeping Qui you have to keep quiet only when there is a responsibility for you to report on that you have to report on that imminent Bridge what is the bridge exactly and documentation steps for responding to noar four marks question might be asked are you clear and remember when you reporting under nocl you have to keep in mind confidentiality requirements for a member in service confidentiality is required for a member in practice also confidentiality is required for a member in practice part one will be dealing with for a member in service part two will be dealing with in both schedule one and schedule two or no that's it finally documentation requirement relating to no clar I don't know whether they'll ask this or not but if at all when he's reading he fail that this question can be tested they'll test it don't think that Trend analysis and all examiner not the paper Setter he will not see the trend analysis every time ethics and all 15 marks they are asking now I will also ask 15 marks he will not be in that assumption very simple ethics is almost 180 pages of the total 1500 pages material close to some 15 percentage of the total material so as the marks that marks are reflected with respect to the content size so what is the content size marks generally you see any subject this is how it is what is the total number of pages that chapter is having in a total subject generally the average weightage from that chapter is same in the total vage also it is as simple as such every chapter will be tested simply okay maybe 20% of the chapters only will not be tested in exams 80% of the chapters will be tested in exam most of the times especially in the past six seven attemps paper patterns have changed be clear documentation requirement suppose you found non- compliance you discussed with the management how they responded documented what is the action accountant considered as per accountant what you have to act upon you have to document how accountant is satisfied that responsibility in public interest is fulfilled how do you make yourself how do you satisfy that yes you complied with nolar this documentation is in addition to complying with auditing standards related documentation sa 250 says you have to document certain things in addition to that for no class separate documentation you should have and prepare documentation to enable an understanding of significant matters during the audit the conclusions reached significant judgments made in reaching those conclusions here significant matters everything is in relation to laws and regulations and finally document what are the non-compliances you identified the results of discussion with management or top management and third parties see this point is there even in SCF 5250 also documentation Point same point is copy pasted here clear main applicability provision is very important in nolar this is the difference between nolar and 250 so typically speaking what is the difference we cannot figure out because sa 250 type two loss says other loss type one loss say specific loss type two loss say remaining loss obviously all laws are covered indirectly you and others everybody come to class means what everybody has to come no classes everybody say you and others that's the only difference getting it fine with this uh no CL is also completed are you confident on this 250 is over and uh one more thing many are nowaday worried about their fure future a lot I think I think this is a phobia which everybody's having in fact for me also once upon a time now I'm not worried much okay once you cross 30 you will not worry okay because things takes its own I mean you will realize that everything fall in its place in its time okay the world is abundant opportunities are abundant and uh just that you have to look for opportunity getting it there's a saying opportunities are visible only for those who look for it only if you're looking for an opportunity it will be visible to you so you'll be having so many struggles so many mental trauma getting it like the your pleasures Financial Pleasures everything especially the 99% of the problems are financi related problems for everybody whoever it is even Mukesh am money too otherwise why he'll be working 18 hours in a day yes or no so typically speaking these business people who are so-call very rich Ultra Rich they are most hardworking than any of us we are the one who are Lazy H we are lazy buggers where we say that we are working hard actually person who really works hard he never thinks that he's working hard only a stupid thinks is working hard honestly in Instagram how many stupids were there you found out only stupid things is working hard generally those who really work they don't even feel that they working because they do generally with lots of passion passion is not something that you you take it from outside it should come within getting it so those of you who are feeling inse you who those of you who are having that insecurities in you know how is my career is going to be all that nothing to worry a carer you will have a beautiful career as long as you are dynamically working not like a dumbo as long as you're working so strategically dynamically see whatever field you have choosen in that field discover what is the root for Success see in my field since I'm in teaching my my my only thing is I need to have commandable knowledge on whatever the thing I'm talking about getting the point I need not know all the laws and regulations for explaining 250 for example but I must understand the context of discussion that's enough for me for you as a student as of now you are objective should be you need to read thoroughly understand thoroughly remember thoroughly you know I heard from some students who what they say is like you know I teach us very in-depth what I'm teaching in depth I don't understand I'm teaching what is there in book only now am I going anywhere outside until you saw right I'm not teaching anything from outside technically speaking I cover I stick to only the book but the point is I make it understandable you are reading without understanding honestly you are reading without understanding you're switching off your brain and reading reading reading 10 times okay one time writing is equal to 10 times reading this fellow assuming that he read 10 times and when he see the question in the exams obviously he will be shocked he'll not understand anything he'll read the question somewhere I saw this somewhere I saw this but where it is he don't recognize that some answer he'll write and he'll expect two marks out of four he'll get zero for that this is what happens in audit any subject for the matter so give time sufficient time that it requires whatever you are studying evaluate yourself whether you're whether you're able to understand or not so are you getting proper understanding or not you have to evaluate you may think this is not relevant for exams who said it is not relevant without understanding this how come you like uh retain it so to retain without understanding is much much harder task than to retain with understanding if you understand the content properly you can retain it easy so remember these are something not just for educ these are important for anything you know there is a reading skill you need to adapt good reading skills when you're reading the way you read it should give you the clarity getting it you say I don't know how many of you observed the way I'm reading I read very specifically each and every word I observe when I'm reading I process when I'm reading each and every word I just don't I just don't blindly read suppose 250 consideration of laws and regulations in an audit of financial statements everybody reads consideration of laws and regulations who by who who is considering Auditor in where he is considering in an audit of financial statement this is conceptual understanding getting the point everybody understand the sentence but understanding the context is very important and this kind of reading skill if you develop you learn things quickly tomorrow even when you're when you're doing a practice or job or when you're doing any business also the way you read things will be different completely you will easily pinpoint point the terms the way you read that reading skill gives you lots of benefit in carer also and even in exams also you can qualify very easily you know that thing that requires 20 days for you generally you will finish it within 12 13 days that's the smart work I call it as smartw work means who is using brain while reading hardw work means those who are not using the brain while reading that's a only difference any any any any standard you take for the matter it has an overview it is dealing with some purpose understanding holistically how that will impact in the understanding how it is holistically impact in the overall audit you see OBS almost at every standard I I connect with audit report because that's what we are responsible right we are ultimately responsible to give opinion and at every standard when some issue comes in the standard I'm discussing I'm linking it with reporting getting it so you should this is for auditing standards auditing subject for some other subject suppose you're reading indas ind's ultimate objective is what preparing and presenting financial statements so you need to always remember the ultimate objective of why you are learning any any particular component of that subject you're learning you should understand how this component has an impact in the overall subject uh implications you need to understand the implications of each and every part that you are learning that's how you learn easily if you learn like this you require less revision efforts some students they do watch classes at higher playback speed this is one big mistake everybody does higher playback speed means 2x speed he'll watch where he will not understand anything I bet he will not understand if you if you if if somebody ask a question on the same class he cannot answer he will once again go and look at it ah okay okay I forgot to observe this you didn't observe because you're watching it at a higher speed highest speed in fact one and half speed when you are watching classes whether it is YouTube free video or a paid video Whatever It Is watch at standard speed connection with the subject is important when you're watching lectures see why you feel some of you face to face class is effective is because it's at standard speed you don't have in mind speed playback speed rate you cannot increase the playback speed rate if you can do so you need to consult a doctor getting it so there is no such playback speed and all that's why you feel face to face is effective but the same principle you apply in a online class also the same how what kind of attention what kind of care you're taking in face to face same you apply uh online you will get the same result getting it so observe what you're doing always be conscious consciously evaluate what you're doing everything whatever you do consciously why are you doing this just question yourself don't blindly do are running notes why running notes it is it is it is good I'm telling running notes is good provided after I spoke something you sit another 15 minutes and recollect everything and write running notes that's running notes when when I'm saying something you're not listening and writing notes only is not running getting the point that is not a proper notes when you're listening to class your focus should be on listening are you carrying n notes to movie theater to write important points in the movie no right understand everywhere the brain works in a similar level just that you should realize that every task whether you're listening to a class whether you're watching a movie your brain is ready to receive the information getting it but unnecessarily you're disturbing it by writing running notes that's a problem those who are writing running notes I'll tell you they will reproduce the content but they can't explain the content you can explain content better when you listen to it properly right so you know long I mean long story short be hopeful and uh you will have plenty of opportunities believe me India is growing like anything I'm not bothered about the world but India growth is like something extraordinary we are still at the beginning stage there is there is much more to grow further and you know I recently I came across this um Instagram pages and Dr veum something okay so India we know it's a poor country so we are only the one having eligibility to become rich rich countries becomes poor only a poor country become rich a rich country only become poor getting it once upon a time India is a rich country so we become poor now we are poor country so we can become rich the opportunities are abundant for us especially believe me so don't worry about your future it is safe as long as you're Dynamic enough okay if you're lazy you're gone the world is so fast and don't worry about Automation and all artificial intelligence Automation and all system cannot understand system can only figure out exception suppose you give 10 numbers one extreme number only it will figure out it doesn't have any other Ability Beyond that no matter how much automation comes it cannot interpret the results properly like you getting it only a human being can interpret results properly so there are so many articles that are being published on social media I'm telling you 10 years before they said CA course is not there now today CA is having highest number of admissions for the first time four and half lakh students are writing for the May 24 highest number ever 15 years back also I heard from people saying the course is over nobody will join 10 years before I heard 5 years before I heard 3 years before when I started also people told me why are you sticking into this why are you coming into this field why are you staying in this field but 3 years later the picture is different altoe so so if you work on it you will get it believe in that as long as see you know Market may be low or Market may be high you should think in such a way that whatever the market I should get it it may be low or high doesn't matter whatever is there how to get it it may be in any field whatever the product you are dealing with Interiors so much competition let it be there are still people who are earning crores in that there are people who are not even able to make lacks in that so whom you're looking at that is important okay so be aspirational you will do well next let's begin with SE 240 auditor responsibilities relating to fraud in an audit of financial statements relating to fraud what responsibilities you have are you liable to prevent a fraud no management is primarily responsible for prevention of frauds and errors in the financial system statements your liability is what your responsibility is what you have to be skeptical the standard says you have to be skeptical auditor shall maintain skepticism throughout the audit auditor has to be alert for possibilities of frauds or suspected frauds situations of frauds and if auditor suspects any fraud he should investigate further and detect whether there is a fraud that causes a material mistake material I misstatement in financial statements and evaluate the implications on the financial statements of the fraud report it accordingly this is what the actual entire standard talks getting it so this entire thing is articulated in multiple steps this 240 is covered very in depth now so what is a fraud SE 240 what is a fraud mostly many of you would have cleared C inter somewhere in 2020 2122 yes or no and I hope you have not gone through in the world scheme fraud chapter you have a chapter in World scheme CA inter fraud we have a separate chapter if you have gone through that this standard becomes dead easy for you because it the same if at all you've gone through it but you didn't understand then Focus here okay SE 240 what is a fraud fraud is nothing but an intentional act by one or more individuals among management top management employees third parties to obtain an unjust or to obtain an illegal Advantage unjustified unjust means which is not justified so unjust or illegal advantage to get some illegal benefit to get some unjust benefit they do some commit an act intentionally knowingly and that's called a fraud error is an unintentional thing we Al the person who committed error don't know that he committed error that's what error characteristic is of now remember fraud if you take Indian Penal Code or if you take criminal code procedure fraud definition is much more broad a very broad concept but in audit we are concerned about which type of fraud those frauds that causes material misstatement in financial statements if a fraud is resulting in a material misstatement in financial statements amount classification presentation disclosure any of these four is affected in the financial statements then only it is called as fraud in the context of sea 240 in the context of audit itself are you getting it suppose no companies cheating you know multi-level marketing companies multi-level marketing companies they do cheat customers and all that fraud and all audit of that multi-level marketing company is not bother about but he may be concerned with no clar there getting the point business FRS some businesses know they manipulate their customers and clients getting it and they do frauds there no CL is applicable other type of laws and regulations are applicable not 240 and we all know that misstatement can arase either from fraud or error the distinguishing factor between the fraud and error is what underlying action that results in misstatement whether whether the underlying factor is intentional or unintentional so what 240 says 240 objective is very simple you have to do risk assessment you have to conduct risk assessment to identify fraud risk factors to identify fraud risk factors auditor has to identify and assess risk of MMS and financials due to fraud nothing but you have to identify fraud risk factors one example of fraud risk factor we have of course a specific discussion there but at the beginning suppose company is facing so much of pressure from competitors from holding company from investors the directors are facing huge amount of pressure that compan is not having proper sales they gave a target of let's assume 100 CR turnover our directors achieve 90 CR the 10 crores they may manipulate to make sure that they achieved the Target and one of the director is having incentive if at all he met with 100 CR Target if at all the company reaches 100 CR the director will get an incentive so he found an opportunity in sales by entering transactions with related parties at higher prices manipulated sales now you see here a fraud has been committed because of three reasons one the person is having pressure two he has a motivation incentive three he has an opportunity called related party relationships and transaction through which he can achieve the objective getting the point so there are three risk factors for frauds Treasures incentives or opportunities pressures or incentives opportunities and fourth import another important characteristic attitude there's another risk factor rationalization of attitude of the individual how far the individual is ready to change his attit getting it so if at all he having a com see there are many though they have pressure though they have opportunity because they don't their attitude do not support this culture they don't do fraud they're honest people some people have a bad attitude but they'll not have an opportunity they'll not have a pressure they may not do fraud so in order to fraud a fraud has to Mater in order to materialize a fraud in order to get a fraud to be materialized these three ingredients or must you need to figure out you need to figure out whether uh any of these indicators are there and that's what the standard says the standard says you have to identify and assess risk of MMS due to fraud nothing but fraud risk factors okay you identified fraud risk factors get sufficient appropriate evidence about the risk you identified implementing proper responses compan is facing a pressure okay so there is a there is a indication that turnover is manipulated so investigate into the turnover in depth especially yearend transactions next year beginning cut off transactions and all specifically evaluate whether they really happened or not that is your response to the risk you assessed and respond appropriately suppose you investigated further sales you found dummy sales how you should respond the standards is very simple discuss with management tell them to rectify tell them to rectify if they're unable to rectify they don't want to rectify you modify the opinion in the audit report all these three related guidance is what the standard is given the standard is giving you how to identify risk relating to fraud how to respond to fraud how I mean how to respond to the risk and how to respond to the fraud if you identify any fraud that is what exactly the standard is dealing with and the standard also says frauds can be two types two types of frauds will impact financial statements one manipulation of accounting which is also called as fin fraudulent financial reporting what is it fraudulent financial reporting nothing but manipulation of accounts books of accounts they are manipulating financial reporting they're fraudulently doing so fraudulently they reporting means they're modifying some numbers this is what very popular fraud in big companies in small entities and mediumsized entities Miss appropriation is one fraud of course in begin duties also misappropriations might happen both might happen now how misappropriation of assets result in material misstatement in financial statements suppose stock register shows 10,000 units of stock in the warehouse but some employees stole some there is a theft of some 100 units this 100 units value is approximately 10 CR let us assume it's a jeweler industry getting it as for the jewelry um the closing stock is 10,000 CR 100 CR worth of jewelry has been stolen by some employees now will they report about the theft to anybody no obviously not now theft happened the company on 31st March also didn't uh identify this fraud they showed in the balance sheet 10,000 crores only now tell me is the balance sheet overstated or not because there is a theft already but which is not recognized in books of accounts because of which the actual value is 99,900 CR but the balance sheet value is showing 10,000 CR misstatement by misappropriation of asset suppose this jewelary value NRV is 9,000 CR value 10,000 CR is the cost of the Zary NRV they need to valuate 9,000 suppose they ignor that intentionally they valued 10,000 this is fraudulent financial report able to understand the difference in how both will impact the financial statement that's what I told now what are the fraud risk factor it may be incentive or pressure it may be an opportunity rationalization of the ACT nothing but attitude why people do fraudulent financial reporting why people do fraudulent financial reporting fraudulent financial reporting involves intentional misstatements like intentional vission of amounts intentional vission of disclosure intentional Commission of mistakes getting it it can be caused by efforts of the management to manage earnings influencing their perception as to Performance and profitability they want to change people's perception on entity performance and position earnings manipulation may start with small actions pressures and incentives may lead to these actions to increase the extent of fraudulent financial reporting if at all they're having so much of treasures they may do frent financial reporting that is what hidden BG also qualified on adani adani is manipulating figures yes or no why he's manipulating because he want to get Major Market because he want to get major contracts from the government so he's manipulating that's what hidden BG report also says they mentioned all these Brad risk factors in other adani Enterprises adani ports adani power everywhere due to pressure to meet Market expectations suppose if a company is publishing quarter results you know how D especially those who are trading in stocks you understand how impactful are the qu results sometimes in stock market if the results are positive stock price will come down it is also because it is not not as for the expectation anything that is not as per the expectation stock market re stock market reacts adversely there's no guarantee that if company published profit price will grow company publish it loss price will be reduced because when I'm doing options trading earlier not now okay once upon a time I lost some money but it is because I don't know I lost money simple getting it because I'm not expert I lost money don't try all that okay that with your stpe and all don't try so due to Market pressures because the on the company there are so much of expectation from the people from the public so they may they may want to meet public expectations so they may do fraudulent financial reporting management sometimes are motivated to reduce the earnings for tax reasons in order to avoid payments of tax they are uh they may be manipulating the records to show lesser profits to show losses able to understand now how they will be committing this ffr how fraudulent financial reporting will be committed why they're committing we understood how they are committing very simple alteration of Records manipulation of Records falsification means wrong wrong information forgery and all intentional omission of some important transactions and events misapplication of accounting principles Revenue new recognition principle you are preponing it or you're postponing it according to your convenience overring of internal controls they'll give you this question four marks question culan financial reporting often involves management override of controls that are otherwise appear to be operating effectively when you look at them it is operating effectively but actually management is overring the controls management is overring the control best example for overring of the controls means for example you take Avenue supermar dmart itself or big baz itself you take suppose if a customer is taking out the goods the security person will stop him because he's a customer if the store manager is taking out the goods will the security guard stop him obviously not the security the store manager is overriding the control he's he's using his power and overriding the control this is an overriding of control fraudulent financial reporting Can Happen by overriding of the control accountant of a company cannot pass any transaction without authorization of the CFO but CFO can pass any transaction without anybody's authorization getting the point that's overring of control so ffr fraudulent financial reporting involves often involves top management overrating controls generally the controls look operating effectively like uh recording fictitious entries to manipulate operating results inappropriately adjusting assumptions changing the judgments vomiting or advancing or delaying either you omit a transaction or you recognize the transaction early or you delay the transaction from recognizing it on time getting it concealing not disclosing fact that amount that could affect amounts in the financial statements complex transactions that are structured to misrepresent suppose tataa Motors want to buy Iron and Steel for cars manufacturing they can directly buy from tataa steel but instead suppose tataa Mot bought iron from so so and so intermediary that company has bought Iron and Steel from another intermediary that intermediary bought from Tata steel why are you engaging in such a complex transaction when you can directly buy from them able to understand so engaging so when a transaction appears very complex that's a fraud risk factor altering records and terms related to some unusual transactions getting it all these ways they can do fraud Four Points any four points St question might come fraudulent financial reporting often accompanied by management by overriding of controls which are otherwise appear operating effectively generally they look like operating effectively accountant is not able to pass any voucher also without authorization very good excellent but CFO is passing in the back end able to understand next Miss appropriation of assets misappropriation involves stft of assets generally in small and IMM material amounts getting it and that are ways difficult to detect but remember many immaterial amounts become a material amount P stealing not a big deal 5 CR people 5 P 5 five times onion onion Sr wrong that's a material amount now how people do misappropriation of assets embezzling receipts means they are collecting money from customer but not recording but not submitting to the company they are saying suppose no our sales collection agent might collect some one one one lakh rupe from so and so customer they will report 95,000 only customer G 5,000 then is appropriate noway all these were you know the overcome because of the digitalization all this emling resist and all have reduced a lot because of the digitalization wherever they go they take company scanner that b pay phone pay UPA scanner they'll take other party will pay through UA only so there is no and in fact most of the companies on every invoices every walls they clearly mentioned do not pay money to anybody on other we will not consider and at some stores also you will see if you do not get the bill your purchase is free I will always wait when he will not give Bill they'll give a bill now indirectly they're saying like in in fmcg like food sector food food business no they can they can give you the food and take money without giving the bill and they will not account it the salesp person to avoid that they alert the customer it's a control through the customer so customer after looking they give me May bill at least he'll ask no for that reason next theft of assets stealing assets causing the entity to pay for goods and services which are not received dummy fictitious transactions using an entity's assets for personal use unauthorized usage all these comes under misappropriation of assets they'll ask you a question what is misappropriation of assets and what are the ways to commit misappropriation of assets sometimes misappropriation of assets will be happening with supporting evidences there is a purchase order there is a Goods received note there is an inspection note there is an eay Bill stock register update everything is there but goods are not received getting it that's reality but we don't know so sometimes misappropriation happened with perfect documentation in fact when you see the documentation so perfect that itself is a triggering factor that there is a fraud a genuine transaction will not be that perfect only a fake transaction will have perfect documentation you see in investigation in Tamil movies and all they'll be showing some investigation everything is so perfectly arranged d movie you know this is the point where they focus on actually yes or no in rishia movie the investigation that SP whatever is she focuses on this point only exactly everything is so perfect that's why they're getting doubt so remember you cannot make legal determination whether fraud has actually occurred or not in many cases because you don't know exactly the person who committed fraud will come and tell you no you can't determine why it happened is it intentionally happened unintentionally happened you can only judge whether it's intentional unintentional appear to be intentional appear to be unintentional you can only judge you cannot determine legally because you're not an investigator understand you're only an auditor you cannot take uh narcotic test and all next so who responsibility management is responsible both those charged with governance and management is responsible for prevention and detection of fraud management has to place a strong emphasis on fraud prevention that reduces opportunities fraud to take place and fraud deterence means they should make sure that they should Implement controls policies procedures code of conduct you know ethical principles teaching employees of ethical culture once you recruited in any company from one month and all they'll give training what they will teach you in training on all this all these things is what in companies they'll teach you they'll give you what is the company's code of conduct how you have to behave in the company what you should do what you should not do all that they will mention committing a commitment to create a culture of honesty and ethical Behavior which can be reinforced by an active oversight by top management look at how what is the actitude of top management you know in essay 220 there's a question acceptance and continuation of client relationship what points you consider the first first point is integrity of the key managerial persons and top management how far the top management are with Integrity with ethical Behavior how far they are creating the culture of honesty in the employees Minds y yes or no how is the king the people are like that the king is idiot people are stupids yes or no it's as simple as such if if the top management is emphasizing on ethical Behavior proper work culture employees also will do the same now what are the responsibilities of Auditor in relation to fraud now you see how the standard is drafted first they told what is fraud then they told what are types of frauds why each type of fraud happens and how it happens yes or no and who is primarily responsible for preventing and detecting fraud so initially they are giving you they are making you understand basic background related to fraud now they are entering into the actual standard content what is now respons of auditor fine I agree management is responsible for all these things I agree Now what is my responsibility your responsibility is uptain reasonable assurance that financials as a whole are free from Material misstatement whether due to fraud or error your responsibility same to give opinion only your responsibility will not change it is exactly same but you know there are inherent limitations some material misstatements may not be detected even though your audit is properly planned and conduct planned and performed Med properly and in case of misstatements especially resulting from fraud actually this is a continuation and one more thing detecting fraud detecting error which is easy ah error because the person who committed error doesn't know he committed so he will not conceal so error maybe you can easily find out because nobody have tried to conceal it if some documentation is missing you can find that something error is happening but in fraud perfect documentation will be there perfect coordination and Collision will be there you can't detect so not detecting a material misstatement resulting from fraud is higher than the risk of not detecting from error detection risk for fraud is more than detection risk for error true or false statement is important getting it McQ format only one minute you know some students are asking in mcqs when they're solving like uh yesterday one one of the student has asked also like uh two answers are very close to each other how to figure out how to figure out the an sometimes all the four answers appear similar how to figure out orange is a fruit of color getting it that's how our mcqs are like so what is an orange option A is a fruit option b is a color so that's how yes or no that's why you need to understand the context both of the above is not given none of the above is there okay you know some mcqs know generally you think McQ means four options will be there option a incorrect I mean option A wrong option b wrong option C wrong option D right this generally you expect another McQ right right wrong right this is another McQ only these two is what you are expecting but Institute gives this McQ not wrong not wrong not wrong right getting the point I'll give you yeah under SE 240 fraud includes fraudulent financial reporting option A it's not wrong option b under 240 fraud includes misappropriation of assets that is also not wrong option C under SE 240 fraud includes both fraudulent financial reporting and misappropriation of assets this is right you see option A and B are they wrong actually no yes or no so ah yes look at these four options which is most appropriately describing the context of the question that is how you should select so sometimes know you will find three not wrong answers means they're not right they're right only but you will feel one option even more right that is the right answer getting the point which of the following is most appropriate they'll ask these questions especially you will find this in uh now practice online mcqs you will find these kinds of questions some questions know some others know they will give that question only he can understand that question nobody else okay people know when they're giving any McQ they should also think from other person's perspective they should think how General how it is clearly conveying the context another McQ another McQ pattern is uh not right not right not right wrong getting it it's not right not right not right and wrong like three answers they'll give you you feel like they are not right absolutely speaking they are not right but one is absolutely wrong so that you should pick getting it for example option a sea 240 Deals Only with fraudulent financial reporting it's not wrong actually it is dealing with that also or or else you see SE 240 is dealing with uh fraudulent financial reporting sea 240 is dealing with misappropriation of asset sea 240 is not dealing with both SE 240 is dealing with so and so not dealing with so and so like this they'll give you four this is worst possibility this kind of questions are very difficult these two categories of questions are very difficult so when you're solving McQ remember this technique if you unable to get if if the McQ do not fit in this parameter it will either fit in the third parameter or fourth parameter if you understand that you will figure out the right answer able to understand one stupid no he asked a question like this you know I I'll tell you that question 143 subsection 12 fraud is there in RTP I saw this question so I call him stupid because it's really stupid I'll show you this reason when auditor identified any fraud for less than 1 CR he has to report to which of the following option A to audit committee option b to the management option C A or B option D A and B this is a question okay actual answer is a or b that is the answer which is given I will report both is there any violation then how come you say that's wrong answer see some cases they will use the word r they will use the word end but these words will not have relevance there getting it you can write notes or you can listen to me is there any relevance here or get the point one no yes or no you listen to me and write notes it's not that so sometimes we use the word and and or so generally there is no specific relevance to it in in that particular 143 subsection 12 the specifically used auditor actual act if you see if the auditor has identified any fraud reason to believe that any fraud exists for an amount not exceeding one CR he shall communicate it to board of directors or audit committee as the case maybe that is the full sentence since they have used the word r this fellow tested R and you don't understand that why that R has been used there like this there are many mcqs like this there are many mcqs which are being prepared by some people who do not understand the context of learning getting it if that McQ comes in exams what to do nothing you have to do right answer you'll not get mark That's inherently limitation in exams getting it I hope I think this will help you right maximum any McQ comes in these four combinations only any four most of the mcqs will be in the last to two combinations at CF final they'll ask in these two combinations that's why they named it as application oriented mcqs getting application means nothing but they'll give you everything right it looks everything same but you should select the most appropriate thing fine next uh they'll give you the C Point as a three marks question C point the risk of not detecting a material misstatement resulting from fraud is greater than the risk of not detecting a material mistake from error comment what should I comment you should write the next part of the answer that is what they're expecting so you should write the same sentence and continue this is because fraud involves carefully organized scheme to conceal it like forgery failure to record the transaction deliberately intentional misrepresentation making it more difficult to detect even though when it is especially accompained by collusion collusion may cause the auditor to believe that evidence is persuasive when in fact it is false when all the documents are perfect prepared by multiple people with collusion I don't know that collusion exist getting it I believe that they fine convince I will convince persuasive getting point so they're expecting you to write this they're expecting you to comment this you will write yes the statement is correct I agree with you you will write like this some students they have this mentality compulsorily for 100 marks you attempt and come have you seen this what you will attempt only when suggest answer matches only you'll get a mark why are you unnecessarily getting a bad impression of the examiner in the last page of the paper don't write something getting it you write 70 marks perfectly you write you'll get 55 plus believe me getting it 70 marks 75 marks or 80 marks entirely if you write perfectly you get 70 plus 40 marks perfect 40 marks average average means by the way not irrelevant answer completely two points are relevant two points are irrelevant that's an average answer according to me means perfect answer means all four points are perfect points so for a perfect answer you will always get full Mark for an average answer you will get quarter Mark for an average answer you'll get half mark suppose if you write three points out of four don't think step marks Four Points four marks no sometimes one point will have two marks weightage one point will have half a mark weightage one point will have zero mark weightage this culture is now institutes following some sometimes you think some eight points were there question is for four marks any four points they asked so you wrote four points out of this four one point is having two marks one point is having one mark one point is having zero another point is having one let's assume in the suggested answer scheme of valuation you wrote 0 point marks on all the four so in some cases no though they're having multiple points some points will have high weightage that accurately describes that context better in uh certified internal audit course CIA getting it CIA course and all they will give 200 mcqs 4 hours is the exam time out of 200 mcqs uh some mcqs carry zero marks some mcqs carry 10 marks weightage some mcqs cost carry four marks weightage some mcqs cause only half a mark weightage and which McQ carry how many marks that breakup will not be given to you CIA exam that's how they evaluate no this is there in certified ID course us related course there is and that culture is being adopted in India by IC thinking we are at par with us of course we are superior okay we will break US economy very soon honestly honestly just another 10 to 15 years it takes so we will break look at the population of India obviously we break yes or no next the auditors abil now fine next I'm Patriot only whoever is anybody thinks that I'm not a I'm obviously Patriot okay that's why I'm do passionately my job okay so and obviously country grows obviously we all grow Happ and if we grow country grow by the way sorry not otherwise the auditor's ability to detect a fraud depends on various factors now whether an auditor can detect a fraud or not it depends on skillfulness of the perpetrator who committed the fraud how skillful is frequency and extent of manipulation degree of collusion relative size of amounts manipulated seniority of those involved I'm not going in deep it's a very easy point you can you can understand and further risk of not detecting management fraud is greater than employee fraud if top management has committed a fraud you can't even identify if employee committed a fraud internal control some other cross checking will be there there you can easily detect it so they'll give you this question when obtaining a reasonable Insurance the auditor is responsible for maintaining skepticism throughout the audit considering potential impact of management overriding the controls and recognizing that audit procedures that are effective for detecting error may not be effective in detecting you see they are articulating very beautifully what are the auditor responsibilities relating to fraud they night they are not St away saying his responsibility they are saying First Look fraud is like this fraud detection is difficult than error detection whether we detect a fraud or not depends upon so many things not our skill alone who did the fraud where he did the fraud how much amount involved how many times it is committed what is his seniority and further top management fraud is even more difficult than employee level fraud because stop management will be in a better position to manipulate all the records so considering all this it is not that easy for us to detect a fraud but remember the standard says what is your responsibility the standard says your responsibility is to maintain skeptic remember these are all the issues that you are having so be alert for any possible negative unusual situations you be alert if something you found immediately investigate forther so that is what the standards is so now tell me what standards is what is the responsibility of auditor auditor responsibility is to be skeptical that is what entire sea 240 says getting the point be skeptical if you find any risk how to investigate that risk so that is what fraud risk factor questions syst Brad risk factor means what it's important for McQ broad risk factor is a condition or symptom or indicator or an event that indicate an incentive or pressure to commit a fraud or provide an opportunity to commit a fraud if at all a fraud risk factor exists and the person is having that attitude fraud will materialize so the auditor shall evaluate whether one or more fraud risk factors are present fraud risk by the way just because risk factor is it does it been fraud definitely happened no fraud risk factors may not necessarily indicate the existence of fraud whether a fraud risk factor is present whether it is to be considered assing risk of MMS requires professional judgment for somebody it may not appear as a fraud risk factor for some Auditors it may appear as a fraud risk factor some Auditors may find few risk factors another auditor may not find these risk factors because everybody is risk risk assessment risk appetite risk perception or different getting it when we see this traffic and all we don't get anything when an environmentalist see the road he will get a different perception yes or no maintaining skepticism so ultimately it says Auditors shall maintain professional skepticism and uh not withstanding the auditor's past experience of honesty Integrity of the management all that I know you are doing audit of this entity from past 5 10 years you know that they are honest but still don't ignore be skeptical are you getting it unless the auditor has reason to believe the contrary the auditor May accept records and documents as genuine what it is saying is you need not suspect the books of accounts from day one you can trust them unless contrary information you uptain unless you found some symptoms of fraud no need to think with a perception that everything is fraud you have to be skeptical skeptical means when when you have to be more alert skepticism you see skepticism definition alert to unusual circumstances alert to unusual circumstances critical assessment of audit evidence skepticism definition this is professional skepticism refers to alert for unusual circumstances critical assessment of audit evidence getting it you have to be alert for unusual things if everything is usual you need not be that much but remember only when you're alert throughout the audit you will find unusual things alert means what not like sober like don't casually like we do watching right without alertness How We Do watching amount matching amount matching date matching date matching letters matching letters matching that's it that's not how we should do vouching we should do vouching from whom it is purchased easy in the approved vendor list purchase now how much amount purchased for this is the purchase order how much is the purchase order what is the value who has to authorize this value suppose if the purchase order is 10 laks who can authorize who authorized below who signed that this is vouching me but for us how would we do Ving we all know yes I know many of many of us getting it suppose if you're responding suppose if you're inquiring management you are getting responses which are inconsistent investigate the inconsistency the finance manager told budget is for so and so amount the CFO told budget is for so and so amount which is correct you should investigate alert for inconsistencies that is also one of the definition ingredient of the definition in fraud and the discussion among engagement team shall take place particularly emphasis on how and where the entity financial statement may be susceptible to material misstatement the discussion shall occur not withstanding that engagement members believe that management are honest whether management is honest on doesn't matter engagement team should discuss this so formally they discussion should takes place within the engagement team regarding fraud risk factors this is not that important no this is important risk assessment procedures in identifying risk of MMS relating to fraud so how do you identify risk how do you identify the fraud risk P inquiries of management within the entity like talk to them try to understand what they're doing what business they doing what processes they are establishing how sales will process how purchases will flow how payments will flow how receipts will flow to the company how how they are collecting payments from customers how they are remitting payments to suppliers look at the processes see whether in these processes is there any vacuum is there any gaps in the processes who are approving it look this is a company where promoters ownership is only 30% 70% ownership is belonging to Outsiders who are not part of the company so promoters will have an intention to manipulate expenditure everything and make money out of it because they're only 30% owner but they can get 100% benefit they want to get 100% benefit understand how top management exercise oversight of processes for identifying and responding to the risk of fraud whether company established any formal system for fraud visle blower mechanism visz blower complaints they are receiving so especially for fraud deterrence fraud prevention what specifically they are doing ask them by ask asking all this you will understand whether is there any fraud risk factor suppose company you're asking sir have you established any procedures to have you established any formal procedures to identify frauds the management replied they didn't understand the question itself which means there is no formal culture in the company for frauds getting the point there is a high risk at that time frauds might happen look at the internal control management has established internal control is nothing but the process how they're collecting how they paying how the sale is being processed how purchase is being made how how expenditures are incurred how assets are purchased how current assets are purchased how liabilities are incurred everything there's a process there's a system for the entity suppose in dmart or big Bazar if the store some particular grocery item is out of stock he cannot go to dmart and bring and keep it so there's a system for that so they need to file they need to make a request to the head office so item is left left it's over or it reach to reorder level so there's a procedure for everything you go suppose you want to exchange articles there's a separate counter for exchanging articles after you purchase and there's an authorization mechanism for that article getting the point for everything they do in a business there is a process for that there is an established process for that so the auditor shall evaluate the information obtained from other risk assessment procedures and related activities that indicates one or more fraud risk factors so you'll be doing any other risk assessment fraud related risk assessment specifically you do fraud related risk assessment means what inquir management whether do they have established any formal systems for fraud prevention all that enquiring management whether they are aware of any frauds getting it and uh asking them I mean look at the internal control and finally you will be doing some other risk assessment procedure you are doing some scrap related assessment you're doing some sales related risk assessment what can go wrong what can go wrong there you might have found some fraud risk factors consider that also so this is risk assessment related to fraud risk factors risk assessment procedure in identifying risk of M due to fraud four marks question straight they might ask getting it now someone asking how to present in the exam nothing you have to present as it is as it is means see here inquiries of management and others within the entities there suppose you can skip the word others if you didn't remember but inquiring of management within the entity how do you write an alternative answer for that ask management so okay at least even if you write that it's okay is there any other alternative for this is there any other alternative discuss with management getting it so any of these three combinations you can write but you cannot outr ignore this and write your own point and say I wrote my own language yes or no so same meaning should convey how top management exercise oversight of processes for identifying and responding to fraud how top management has established systems to monitor fraud risk factors this alterntive answer you can write point is you can present answer well if you understand this context and remember it now students are ask how to remember it obviously even if I tell you you will feel like it is vague there is no technique to how to remember you have to remember how to eat you're asking how to remember also the same I'm telling you some some intelligence so-called intelligence they give I inquiries of management B those charged with the governance and internal control ah IC example getting it and auditor whether information obtained from other risk assessment procedure orp and all this they will comile and put some keyword student will forget that keyword itself getting the point this and all will not work neonics they call it as what pneumonics pneumonics approach will not work it will work only for four out of 100 only four out of 100 demonics you study you remember and you only remember that full observ full form only you remember you will not remember the entire sentence what you will go and write he'll remember this remon right he'll go and write enquire B option two those charged with governance discuss with those charges with governance option C evaluate internal controls option D other risk assessment proc if he remember that that two okay he will write these four he will think that pneumonic I reproduced the abbreviation correctly so I'll get four out of four you'll get half mark getting it you see the sentence how can you represent it with the one word this entire sentence so don't run behind neonics that will not work if you want you can try Okay one chapter one standard only at least only for one standard you try demonics I hope I think that culture has gone now mostly but still some students are using pneumonics and many are in the YouTube promoting pneumonics pneumonics all this quotes it will never work okay considering the subject size within fraud only I have to develop 15 to 20 pneumonics to remember all the points and you will never remember the effort you put to remember this particular shortcut if the same effort you put on the main content you remember better understand you see see so so cleverly risk assessment related to fraud you see that heading question is asking in exam what risk assessment procedure auditor will do in identifying risk of MMS due to fraud whether fraud will happen or not possibilities of fraud how will you identify ask management and others within the entity getting the point to look at the internal controls they implemented see how top management is monitoring how top management is monitoring the fraud prevention fraud deterrence all that four whether any other procedures that you performed indicate fraud in these four no fourth point is only difficult to collaborate with this only fourth point is difficult for us to sync with this this is an artificial Point technically speaking but remaining three are common sense points so observe visualize you will understand now for this standard since the content is very huge I will summarize at the end of the standard a summarization technique might help you next okay you did risk assessment for fraud for identifying fraud risk factors you found some risk how to respond to the risk how to respond if at all you found any risk at financial statement level they'll give you this question write about responses to assessed risk of MMS due to fraud at financial statement level this question they'll ask you four marks question how to respond to risk of how to respond to uh assessed risk of material misstatement due to fraud at the financial statement level first you need understand what is financial statement level I told you already just before in somewhere in 250 or somewhere I told you suppose if top management itself is not with Integrity it's a financial statement level risk getting it because which item in the balance sheet and pendl might affect because if the management is top management is not proper any item any item and every item might affect that's a financial statement I will if a production manager is not a honest guy production related FES only he can manipulate if a store manager is not a honest guy stores related only he can affect if CEO is not a honest guy everything will be affected so who is not honest who is not with Integrity look at is it affecting financials as a whole or is it affecting any specific assertion so if at all it is financial statement as a whole if you identify risk at financial statement level you have to assign and assign the person having the knowledge and skill and ability for the significant engagement responsibilities and the auditor's assessment of risk of Ms due to fraud for the engagement so when you're assigning any person your your staff to address this risk see generally purchases you found some risk for that you will appoint some article or senior article you do purchase vouching all this like this and all will time if it is financial statement level fraud look at the knowledge skill and ability of your engagement team member considering the significance of this engagement take into account take into account their knowledge skill ability to assess this kind of R risk factor getting the point accordingly assign and supervis that's what they that's what they're saying and see whether selection and application of selection and application of accounting policies by entities are the indicative of any ffr resulting from management efforts to manage earnings whether accounting policy selected by the management are they indicating any fraud account see generally if accounting policy method which they following is relevant suitable method no risk if at all the asset which they purchase for furniture WV method is not suitable method for buildings WV is not a suitable method because for them straight line method is what best methods for plant and missionary straight line method is not a best method why they have chosen straight line method in company act schedule to they have given single shift how much rate of depreciation double shift how much of depreciation slm what is the rate of depreciation WB what is the rate of depreciation theyve discussed so much about rates of depreciation check incorporate an element of unpredictability this is called surprise checks in the selection and nature of selection of nature timing and extent of audit procedure remember the best way to respond risk factors is surprise checks if you feel in warehouse and all frauds might happen do surprise visit to the warehouse and count the inventory that's what so how auditor should respond to a risk factor by these at assertion level how do you respond by performing further audit procedures that are responsive to assessed risk suppose in purchases purchase order control and grn there is no interlinking there is no mapping in the software so I need to check various vouchers whether grn is more quantity than purchase order getting the point so that is the response to this control weakness in doing so auditor may change nature timing and extent of procedures to obtain evidence that is more reliable so here he can change the nature timing originally based on risk assessment you plan audit so and so days for purchases two days you allocated but now after you find these loopholes you may increase it to 4 days that's it so that's a response at assertion level next what are the audit procedures responsive to risk related to management overriding the controls remember earlier Al we have got this earlier also we have got management overring control I told you that itself can be asked as a question fraudulent financial reporting often involves management overriding controls and how they will commit they record fictitious entries they adjust assumptions they adjust all this they conceal data they enter into complex transactions by these transactions management is overring controls and then committing fraudulent financial reporting you found these kinds of risk factor you found management is overriding the control how do you respond to it the question is different getting it what are the examples of management overring the controls this answer you should write what is the audit procedure if auditor has identified management can override the control you need to check you need to test appropriat of General entries what are the adjustments made look at the revenue accounting estimates whether is there any bias in the accounting estimate how the accounting estimate is made for any big transactions what is the business rational for the transactions whether they engaged in fraudulent financial reporting to conceal any misappropriation you see here they are talking about audit procedure whereas in the above thing they're talking about how they commit you know misstatements through fraudulent in the I mean misstatements in the financial statements by overring controls examples of management overing controls the answer is different audit procedures to a a procedures responsive to management overring the controls answer is different if you don't observe like this you will confuse so when you find a similar word already which you came across once again go back there what it is talking about what this is talking about try to observe carefully you will figure out understood or not maximum from the standard they'll ask a question I'm thinking so but if Don't Ask Don't Judge Me Okay but because this is uh so much of content entire pronouncement s 240 they copy pasted they didn't do minimum basic due diligence also whether this student can study or not also they didn't observe They just added it finally once you respond once you respond respond means what we do verify things by verifying things what we get audit evidence how to evaluate the audit evidence the Auditors shall evaluate whether analytical procedures that are performed will are they giving an overall conclusion are they consistent with audit's understanding of the entity and its environment so analytical procedures you will apply analytical procedures whether analytically If You observe suppose very simple very simple best example of analytical procedures I'll tell you this is previous year this is current year this is operating expenses list getting it Auditors remuneration last year 2 CR this year 2.5 CR okay tax Auditors remuneration some last year 20 lakh this year this year some 30 lakhs some repairs and maintenance last year 2 CR this year 18 CR some electricity expenses last year 5 CR this year six CR office maintenance some last year four CR this year 5 CR like this you found now tell me when you Analyze This you found this is something unusual the deviation is something unusual everything are in Trend with business but this alone this alone is something extreme deviation is there so in analytical procedure you know only with analytical procedure I investigate generally when I do risk assessment I may not get this I may not by the way one more thing I'll tell you risk assessment procedure includes what what are the examples of risk assessment proced what it includes risk assessment procedure means meaning is different risk assessment identifying and assessing risk of material M statement through understanding The Entity and its adment including internal control and risk assessment procedure includes inquiry inspection observation analytical procedure getting the point you see risk assessment procedure definition it includes analytical procedures also now what are further audit procedures compliance procedure substantive procedure substantive procedure test of details substantive analytical procedure substantive procedures includes substantive analytical risk assessment procedure also includes analytical substantive analytical procedure means actual data I am checking getting the point analytical procedure means generally as a whole financial statements I'm going through getting the point if I go through the Ledger account in depth that comes under substantive analytical procedure but we use the word interchangeably getting the point we use the word interchangeably for example I visited godo Factory their uniforms are different different colors that's an analytical procedure why that is not substantive analytical procedure but when I'm verifying numbers when I'm verifying vouchers there I'm analytically thinking logically evaluating is it correct is it genuine is it genuine logically I'm evaluating that substantive analytical procedure nothing but analytical procedure is nothing but data analytics the data may be Financial or non-financial if you're are analyzing the data based on facts based on uh uh some documents that's called substantive analytical procedure if you're analyzing data based on observation that's normal analytical proced season you want me to give a exact difference this is clear what what happened you're all okay SN with me huh so when you're when you're evaluating audit evidence especially that you obtained as a respons to fraud risk factor you got some evidence when you're evaluating compare this evidence with analytical procedure both are consistent or not check out getting it now repairs and maintenance I should rate so much deviation is there I will go inside in depth which month it has high expenditure I'll open that which dat it has high expenditure I'll open that which voucher causes more expenditure I'll open that is it a revenue expenditure or capital expenditure I will interpret and take a decision accordingly getting it and why that mistake happened I will decide is it intentionally happened or unintentionally happened when auditor identifies a misstatement the auditor shall evaluate whether the misstatement is indicative of fraud that's what I told right now so if you identify any mistake is it because of fraud you need to check if such an indication is there what is the implication of misstatement relation to other aspects of audit one fraud is found immediately you will get a doubt what about remaining items will you will you get this that's what if auditor identifies misstatements whether it is material or not and you believe that it is because of fraud re-evaluate the assessment of risk of MMS due to fraud when see when a mistake you know have you seen materiality concept materiality is not only quantitative materiality is also qualitative qualitative means what sometimes we don't look at the money we don't look at the amount involved we look at the background intention that's what they're saying sometimes if any misstatement is there whether it is material or not and if you suspect it is due to the fraud re-evaluate once again your risk assessment process getting it once again check entire things once again recheck water all you have done is there any fraud risk factors like this the auditor should consider whether circumstances condition indicate collusion very simple repairs and maintenance they accounted in Revenue expenditure right I saw entity's accounting procedure generally when a when an accountant passes the entry it should be approved by CEO first approval should be by CFO then by the COO then only it will enter into the actual backend data then only audit trial will be recorded getting the point so primary entry is there then finally it went to it of course sorry audit from the beginning it will be recorded but but approvals will be at two three levels because massive amount is involved now when I discover this repairs and maintenance where the capital where they charge to p a capital expenditure they said it is IO by mistake it happened but multiple people approved it multiple people approved means okay one person if at all single authorization he he might have approved it without looking at it carefully I understand but three people approved it only after three persons approved only it it went and sit in repairs and maintenance finally how come I said three people have not observed it it's an indication of fraud are you getting the point so they know that they did this mistake now you need to immediately alert like this is there any other expenditure which is charged to pnl which is not belonging to pnl you should immediately think of it so that's what they're saying suppose if you are unable to conclude whether a material misstatement is as a result of fraud evaluate the implications on the audit suppose you are unable to decide whether it is happened intentionally or unintentionally take some call if you're unable to take a call what is this impact on your overall understanding see generally in reality we should come into one conclusion that to through a natural process we should come into getting suppose if you're unable to conclude means there is some information missing from you there is a limitation on scope circumstances where auditor cannot continue the engagement if you are unable to conclude you see if as a result of misstatement resulting from fraud or suspected fraud auditor encounters exceptional circumstance that brings into question his ability to continue the audit what are the legal responsibilities whether there is a requirement for you to report to any persons see whether withdrawal is possible and communicate the withdrawal with the top level management appropriate level and see you do you have any responsibility to report to outside people example if you want to withdraw from engagement ad3 form you have to file resignation with r finally before you resign communicate whatever frauds and errors you found with top management and and suppose if auditor withdrawal is not permitted this is actually in the IC material they have given this in audit report chapter but I discussed here because it is like a continuation to this getting it sometimes auditor withdrawal is not permitted then you should give what if you are unable to decide whether fraud happened or not unable to decide means what there is no such situation possible you will decide obviously based on circumstance is it fraud or error but if you're unable to decide means management is dodging you somehow they're manipulating you that's why you're unable to conclude you should recogn this fact and decide whether there is a limitation on the scope of the auditor if so you will not continue with that engagement you will withdraw from the engagement because management is limiting the information from your access so if you want to withdraw you withdraw but before withdrawing listed entities you have this 45 days criteria the listing agreements under sebi on resignation of auditor does not permit withdrawing from the engagement without issuing audit every report it provides that if the auditor proposes to resign within 45 days from the end of any quarter before such resignation issue the auditor limited review report getting the point once quarter is completed once you are appointed before the quarter ending from that date within 45 days if you want to resign just suppose today I want to resign from one company audit right now it is uh let us assume 13th march today what is the latest quarter December 13th March from December 31st is after 45 days getting the point that's what you should decide I want to resign on 10th September or I want to resign on 10th July what is 10th July what is the previous completed quarter June 30 now 10th July from June 30 is what within 45 days then first point will apply if you want to resign within 45 days from the end of a particular quarter whatever the latest quarter that you should check if so before such resignation issue review report for that qu you are appointed now at least you should give review report for that quarter at least suppose you want to resign after 45 days from the end of any quarter suppose I want to resign on 10th August or I want to resign on 16th August 16th August is what okay last completed quarter is what June 30 from June 30 to 16th August is what one and half month 455 days getting the point after 45 days I want to resign in such a case give q1 report wait for Q2 completion give Q2 report and then resign immediately able to understand if review report has been issued for three quarters per you you cannot resign then after you have to issue audit report for the full year you should also issue review report for the quarter 4 before resigning then you resign no need to attend AGM are you clear and ICI has given this I think they may give you as an McQ this is this point is something they are supposed to mention in professional ethics chapter but they mentioned in audit report you know when you're resigning no you need to mention the reason right you cannot say preoccupied with some other work sea 220 accepting and continuation of client relationship Integrity of the management ethical requirement competency capability availability of resources such as time you need to check this and then accept the audit now when you accepted the audit we assume that you complied with the 220 and you checked everything whether you can do the audit or not you checked everything now you're resigning and saying you don't have time or you said previously itself I was occupied with some other work you cannot mention that reason you should clear mention the reason correctly what is the what causes you to resign the ICI guidance note the auditor of unlisted entity especially shall not mention professional preoccupation as a reason for resignation getting it because the moment you accepted the audit itself means you consider all your occupations and works and then only you have accepted the audit now you cannot resign and say professional preoccupation professional preoccupation means what already I have so many works I un suppose if there's a statut appointment without your know somebody appointed you there you can resign with this reason but if you have accepted appointment voluntarily a company approached you and you have accepted voluntarily there you cannot mention this professional preoccupation as a reason especially for unlisted entities of course listed entities you cannot resign just like that because there is a regulation like this and in the terms of Engagement these regulation and all will be put in the listed entity this essay 240 is over almost and finally you should get a representation this itself can be asked as a four marks question right about obtaining management representation in the context of fraud auditor has to get a representation from the management that management should give representation first they should not directly tell about frauds first they are responsible for internal control system they are responsible for preventing the fraud they are responsible to do risk assessment and result of the risk assessment shall be disclosed to the auditor and they have to disclose the auditor about fraud they have to disclose auditor about allegations on the frauds the company honest has to disclose the auditor what controls that we implemented to prevent frauds what frauds risk what risk assessment weed in our company risk management committee do all this risk management committee is that those with oversight on all these Affairs getting it so they do this so they have to communicate with auditor what systems they implemented all that what risk they identified what frauds they ultimately identified what suspected frauds they identified allegations all that they have to disclose to the auditor through a represent resentation letter you should get that representation letter that's it finally if you identify any fraud you have to communicate with management you have to communicate to talk Management on a timely basis and uh you have to communicate nature timing of audit procedures because of your suspecting fraud your nature timing and audit procedures might affect you have to communicate that and sometimes you may have to communicate to legal and regulat authorities companies act if there is any fraud for more than one CR in an individual particular cumstance you have to report central government within 60 days by ad4 Form ah that one I'm not reading this but it's important it's important in exam whatever I'm not covering in this revision class don't think it is not important it is important everything is important but I'm covering whatever is technical little bit then finally relating to Sea 240 what you will document what are the decisions that you have taken in engagement team regarding financial statement susceptible to fraud so risk assessment procedure related to fraud you will document so your team and you all of you have done some risk assessment evaluation so that you will document and how do you respond to the SS risk this see this is entirely is nothing but audit plan this is entirely nothing but what audit plan or audit program in audit plan and audit program this is what we document getting it preliminary preliminary engagement activities we document this is what we document getting it it and the auditor has to talk about nature timing extend of procedures and linkage of those procedures with fraud so what procedures you did in audit what verification you applied some vouching you applied some surprise check why you did surprise check it is to find some cash related fraud so you need to document that linkage also so your documentation should convey everything clearly and the result of the procedure okay you performed purchase Ving sales watching have you found any frauds document the results also and the auditor shall come shall document Communications about fraud to the management top management Auditors and I mean auditor has to document where and all to whom you have communicated regarding fraud or suspected fraud document to whom you have communicated what you have communicated and finally this is one standard requirement 240 specific requirement fraud related to revenue recognition is not applicable in the circumstances of the engagement the auditor shall document reasons for the conclusion in Revenue recognition there is no fraud you need to specifically prove that there is no fraud risk factor in Revenue recognition that's why many companies Revenue recognition they select it as key AIT matter many companies you see Revenue recognition is selected as what the audit matter so the auditor has to specifically if the auditor has concluded that there is a risk of Ms due to fraud related to revenue recognition is not applicable in the engagement risk of fraud in Revenue recognition is not there in the engagement how do you conclude that it is not there what reasons causes you there internal control system is so strong company selling only online a customer can buy only online no manual orders and all accepted so by these reasons I conclude that there is no risk of fraud in Revenue recognition you should document like that so I think in exam if they give you this documentation question if this this second Point itself the auditor has to document response to the ssed risk of MMS due to fraud what auditor has to document they have given here I mean sorry main point documentation of understanding of the entity and environment in relation to fraud risk factor they will give High weightage to the fourth point in the marks fine oh my God we spent 1 hour 12 minutes but I'm just telling you this is so lengthy standard so lengthy standard almost 12 Pages it has only one Standard 12 Pages getting it I will take 4 hours discussion in my actual class so once If You observe now you have to summarize you have to summarize this see I'm spending intentionally on this because I want I'm just trying to make you understand how you should summarize everything if you read individually like this and proceed further you will not remember you should summarize what we learned first we learned the definition of Fraud then we learned about what is the objective under this standard what standard is expecting the auditor the standard is asking auditor to do risk assessment and then respond to the risk getting it appropriately then the standard is saying fraud is of how many types and fraud arises because fraud risk factors are there so what are I mean what do you mean by fraudulent financial reporting why it is happened how it is happened what is misappropriation of asset and why it is happening and they are saying a statement that misappropriation of asset with proper evidence and collusion cannot be even detected and then they discussed management is primarily responsible for prevention of fraud all that then they came to audit responsibility auditor is responsible to maintain skepticism and before they conclude this they spoke about characteristics of fraud characteristics of material misstatements resulting from fraud they spoke they spoke fraud is something intentional people will involveed collusion will be involved it depends upon skillfulness of the perpetrator top management fraud is even difficult to detect than employee fraud error is easy to identify than fraud they're giving they're describing the nature and characteristics of fraud next then auditor has to evaluate fraud risk factors now having understood what is our responsibility now my first responsibility standard objective identifying and assing risk of material misstatement through fraud identifying fraud risk factors evaluating fraud risk factor then once I evaluate fraud risk factor I need to do risk assessment I need to do risk assessment to identify risk factors how to evaluate that they have given now you need to First identify before evaluation you have to identify okay you identified risk what you have to do you have to design further audit procedure you have to respond suppose if the risk is at financial statement level what you have to do if the risk is at assertion level what you have to how you have to respond then suppose if the fraud risk is related to management overring controls suppose you found management is overring the controls through that way they're trying to commit fraud how do you respond what procedures you do first of all how management overrate the controls they overrate to do fraudulent financial reporting B to override they have given in the above then now okay you responded you responded means you did further audit procedure you did vouching verification surprise check inspection observation analytical procedure recalculation external confirmation so many things you did now you got some evidence how to evaluate that evidence how to evaluate that evidence finally suppose when you're evaluating the evid you concluded that a material misstatement happened and you concluded that what is the reason behind this material misstatement intentional or unintentional you are unable to decide where you are getting a question that you are unable to continue the engagement itself because company is not giving you proper data what you should do then we understood about you need to communicate about withdrawal to the management and we understood about SE requirement regarding listed entities and for unlisted entities you cannot mention like this preoccupation as a reason then finally your work is stand completely get a representation now it is focusing on documentation part last part get a representation from The Entity what representation management should give they are responsible for see when they're giving representation to you first they should acknowledge their responsibility then they should give you whatever information they supposed to give you so that's what they are giving here then finally you whatever frauds you identified communicate with management communicate on a timely basis and you also communicate because you are suspecting fraud or you identifying fraud which will affect your other audit procedures communicate that your plan is going to change I told you 20 days I finish your audit now I want 30 days to finish the audit communicate that and check whether do you have any requirement to communicate frauds to regulatory authorities so check out and finally document entire fraud related thing see how connected the entire standard getting it now what you have to do spend 2 hours to read this yes you have to Getting It 2 hours 12 Pages content 2 hours is much easy man yes or no in F 12 Pages takes 4 hours audit is very simple 2 hours only it takes now when you're reading observe each and every Point You observe observe and try to understand with the heading it has been used getting it that's it this essay 240 is over and I told you how to summarize also if you summarize like this you remember better so the best way easiest way to remember is first do study detailed I explained you semidetailed in class getting you have to read in a very detailed manner then summarize then and there once entire standard is over summarize as a whole try to observe see in fact I did very fast very quick summarization you have to summarize at least for 20 to 30 minutes getting it out of two two and half hours that you are spending on the standard one and half to two hours for detailed understanding of the standard half an hour for summarizing the standard if you do like this for every standard I bet you will remember very easily this standard 402 standard 540 stand standard are bit lengthy getting it rest all other standards are three four pages standards or five pages standards maximum these standards are only bit lengthy clear all of you confident that's it with this essay 240 is over let's begin with the next standard that is sea 260 communication with those charged with governance see like uh this standard specifically says the auditor has to communicate certain specific things to those charged with governance so that you can do the audit much more effectively in order to conduct the audit effectively it is asking you to communicate certain things to those charged with governments now at many places we hear this word those charged with governance those charged with governance what do you mean by exactly those charged with governance top management is the right representation for the word those charged with governments now who are those charged with governance they have given you know a separate matter it can come directly for four months what do you mean by the term those charged with governance give any four in incidents or instances of what what constitutes those charges with governance so you have to pick any four points from this getting it they just try to explain in different scenar what do you mean by the word those charged with governance so they said very simple the persons with responsibility for overseeing the Strategic Direction obligations related to accountability remember governance is a word which has two things one is accountability one is Authority only both the words are existing only when both the powers are existing accountability is a duty Authority is a power when both of these exist getting it we call it as governance so in an organization who are charged with governance who are having the responsibility for governance the top management nothing but board of directors suppose if in the entity above board of directors there is something called supervisory board like audit committee risk management committee CSR committee CG committee uh remuneration nomination committee so many kinds of committees that are there as per lodl regulations if at all any such supervisory committee is also there then they will be treated as what those charged with governance in a small scale entities proprietary concern LLP partnership firms where multi-level organizational structure is not available they those charged with governance means directly the bers so what constitutes those charged with governance it depends upon case to case now if auditor has to communicate with those charged with governance exactly to whom auditor has to communicate ask the client himself ask the appointing appointing party itself getting it slip of appointing ATI sorry okay because of the club effect okay yeah so ask the appointing party itself what constitutes those charged with governance getting it that's what this entire content is about getting it so in smaller entities one person may be charged with governance so it is not possible to specify for all audits with whom the auditor has to communicate particular matters with whom the appropriate person with whom to communicate sometimes may not be identifiable from legal framework suppose we are doing audit under company act companies act we have a Clarity board of directors or the supervisory board or above audit committee some or there is a Clarity in that legal framework companies act related framework but same kind of clarity is not there in Partnership Act for sole proprietary concerns audit first of all there is no act getting it so the auditor have to discuss and agree with whom to communicate from the engaging party getting it in deciding with whom to communicate you have to understand Auditor's understanding of governance structure and processes is relevant like anyhow you do risk assessment right when you're doing risk assessment you try to understand the entity how the environment is what is the organizational structure what is a management structure all that you try to understand right that you look into this is what they explain getting it so that is what those Chad governance refers to but this is important you have to read later okay I gave you brief overview of most of the points next so what is the significance of communication why we should communicate in order to discharge in order to effectively discharge the audit one point an effective two-way communication is important with those charged with governance so that top management and auditor they both will have a proper understanding regarding matters related to audit and developing a constructive working relationship remember 99% of the evidence that we see in the financial statements audit belongs to entity who has to explain you the affirs of the entity obviously the management of the entity that two top management of the entity are the one who can give you a better explanation about the affirs of the company you must always have a good relationship with them constructive working relationship you must establish that's what the standard says the auditor and that's what why why it is important is because you have to obtain from Top management information relevant to audit in order to get information on time in order to get much more appropriate information you need to communicate with top management and most importantly those charged with governance are responsible for overseeing the financial reporting process like they are the one who are responsible for Preparation and presentation of financials in order to make them to discharge the responsibilities much more accurately because if you find any issues in financial statements you have to communicate them and they will Rectify that so in order to have all this you must have a proper communication with those Char with governance getting it remember in auditing standard is like a manual user manual so they tell everything when you buy an AC the user manual you get any product for the matter you buy electronic matter it will also have the instruction first switch on you know that you know already that we we need to switch on in order to use the product but why user manual specifically says it's a protocol it's a it's a sop getting it auditing standards are also like that only when you read all this no of course this is what we do right even if the standard is not there we do all these elements without even with the standard also when we are planning suppose a client appointed us as an auditor obviously don't be ask him sir from whom we want information like from wh whom we can ask if at all we want information yes or no is this standard required specifically talking no but then it's like a user manual so they will tell you each and everything why communication is important all these points are common sense point so that I can whatever information I want I can get from the management and uh so that they can also fulfill their responsibilities much more effectively we will we should have a proper two-way communication so that we can work in harmony yes or no so all these points are something Common Sense points but remember this is a user manual so they specifically each and everything okay and these are all something that we impliedly do even if the standard is not there we generally do all this next so what is the objective then what is the standard objective the standard objective very simple communicate with the top management what are responsibilities of Auditor in relation to audit so what are our responsibilities in relation to so what are our responsibilities in relation to audit we have to communicate and not only that what is the overview of planned scope and timing of the audit don't have you you might have noticed when you plan for an audit you on a prior note intimate the client that from so and so date to so and so date we are planning for audit why are you intimating so that they make things arrangements for you so they need to dat they need to have some certain staff members they need to allocate their schedules to you like so that they can answer all your issues and all yes or no next and another objective is obtain from them information relevant to audit so one you have to communicate your responsibilities you have to communicate planned scope and timing of the audit planned scope means very simple if the compan is having 10 locations you may be wanting to cover five locations only not all the 10 because we do audit on a sampling basis so what is the planned scope and timing of the audit and to obtain information relevant for audit to provide top management with the time observations from the audit that are significant to discharge their responsibilities and to promote an effective two-way communication between the auditor and management top those charged with governance the standard aiming it very simple don't to audit isolatedly yourself you need to get information from the top management so be clear maintain a proper two-way communication for that you need to establish a communication process also that also we have a question for all these points we have questions able to understand now so okay communication with top management what what you have to communicate the standard says minimum you must communicate these matters in addition to this whatever else extra you want to communicate that's your choice but these are the minimum contents that you must communicate to those charged with governance as per as a formality s at least one responsibilities of Auditor in relation to financial statement audit we already communicate with the terms of Engagement we already Comm we will communicate what are auditor responsibilities through engagement letter yes or no so no need to specifically once again communicate so we anyhow do this as part of engagement letter but what the standard says Don't Give A confusion to top management that you are doing something else getting it tell them that you're only doing audit you will not do anything else you clearly tell them what is your exact responsibility and scope so you need to Comm indicate that auditor is responsible for forming opinion on the financials prepared by oversight with those charged with governance and we should also communicate the management remember I'm only doing audit I'm not preparing financial statements you are only responsible to prepare you only responsible to conduct the business you're only responsible for implementing systems and all so our audit does not Rel management or top management of their responsibility you should also communicate the statement getting it first thing one you have one you have to communicate is Auditor's responsibility second one that you have to communicate is scope and timing of the audit third one that you have to communicate is significant findings from audit and another important thing that we have to communicate is Auditors Independence in case of listed entities specifically in case of listed entities the auditor must communicate regarding his independence to top management what he has to communicate that he has complied with Independence code of ethics all the requirements we complied with we should also communicate the entity what sort of relationships that we have with the entity either we our Network forms what kind of relationship that we have with the entity or our Network forms are the entities components Associates all that getting it so either the auditor or his relative or his partner or Auditors associate company Auditors associate firms nothing but a aors related Enterprises so what are all the interest we or our Network forms or our associate Enterprises have relationship with a client and his Associated Enterprises you should communicate this you know we all know in professional eics you might have seen um suppose if you providing any uh other services also to the client along with audit non- audit Services you are providing the fees charged for other services shall not exceed the fees charged for audit or if the fees charged for audit is less than fees charged for other services you should not do audit Network forms it is three times multiplication okay any once I come to ethics I'll cover on that so like this certain relation certain formalities you have to communicate and you are having a team right AUD team right within the team member any of the team member have a relationship with any of the management person in the company that you should communicate getting the point so this is very important four marks a straight question you are appointed as an auditor of a listed entity and as a part of the audit you have understood that audit committee is the appropriate authority to whom auditor has to communicate as per sa 260 and in audit of listed entities one of the important element of communication is Independence what are the points that auditor has to communicate regarding Independence four marks question getting it so what auditor has to uh report here a state that you need you need to mention a statement that engagement team and others in our firm you know and the firm and the network from they all have complied with ethical requirements they all have complied with ethical requirements means what nothing but all our firms me or our firms they are not providing prohibited Services Under companies act if at all we are providing any other service other than prohibited service we are complying with ICI code of ethics Council guidelines Network guidelines getting where the fees charged for other services by me do not exceed fees charged for audit where fees charged by our Network firms do not exceed three times of the fees charged for audit buyers getting the point so we should communicate all this ethical requirements nothing but we complied don't worry and all relationships and matters between the firm network from and and the entity so between the F and the network from and the entity whom you're doing audit or what is the relationships that are there it may be financial interest or it may be operating interest it may be Rel relatives whatever the interest and what is the total fee charged During the period for the financial audit and what is the total fee that you are charging for non- audit Services either by your firm or network firms getting it to the entity to whom you are doing audit and components of the entity controlled by the entity able to understand so through the entity and components which are controlled The Entity actually though here they use the word control maybe associate companies all that will also be included getting the point sometimes when they drafting the standard they just casually use the word control here here control refers to not holding company subsidary control that definition of control not not that probably here I I feel whatever entities that are included in Consolidated financial statements with all those entities what services that you are providing so that and the the fees shall be allocated to categories to help the manage in assessing the effect of services on the independence of auditor how much you are charging for GST Services how much you are charging for income tax comp Services how much you are charging for statutory audit how much you are charging for tax audit you should clearly give the breakup of fees that you are charging either you or your network firms Whatever by looking at the fees they can understand on which fees you are mostly dependent on so management will understand whether my auditor is still working independently if at all audit fees is very dominating than any other then obviously you work independently if at all other service of speech is dominated as a whole then audit obviously intimidation threat yes or no it creates a sort of intimidation threat because you're depending too much on the you know client and what safeguards that you have applied to eliminate the threats okay some some threats to Independence for there what safeguards you applied suppose one of the relationship that you mentioned is in the relationships now you mentioned one point all my relatives together are having shareholding up to 10,000 face value not up to 1 lakh also 1 lakh limit we have in the company act but all our relatives together 10,000 face value only there and we clearly instructed all my relatives and all that not to buy any further shares in this company it's a listed company dmat easily available but I took I took uh I strictly restricted all my relatives from purchasing the shares of the company holding company subsidary company associate Co subsidary so we clearly told this is a safeguard you communicated with relatives right that communication related documentation you show management so these are the points you have to communicate in case of listed entities this is these are all points are strongly communicating to the management that you are still independent getting the point you are an independent auditor so that you have to communicate with the listed entities management clear all of you now you see the word listed entity management like in case of listed entities you have to communicate you have to communicate right this kind of requirement is there listed entity the reference to listed entity in standards and auditing comes at three places one uh sa 220 engagement quality control review for listed entity audits before issuing audit report compulsorily engagement quality control review must be done only after eqc or report is received by the auditor then only he can issue final audit report to the listed entity 2 260 communication of Independence in case of listed entities 71 key audit matters it is mandatory for listed entities at three places in entire standards on auditing 35 standards at three places it comes mainly getting it I don't know at remaining other places whether they used but predominantly what I observed is only at these three places getting it sometimes if at all paper Setter is very very clever they'll ask you like this what are the reporting requirements or responsibilities of the auditor under standards on auditing with respect to listed entities how will you answer unless you observe this getting it so three points you will write here itself three standards so under essay um uh 220 the auditor has to the engagement quality control reviewer shall be appointed and an engagement quality control review must be completed before the auditor making the report on the listed entity that is one requirement under standard 2 under SE 260 auditor has to communicate Independence to the listed entity where he is appointed as an auditor under sa 701 while auditing listed entities communicating key audit matters is significant and remember when you are selecting the audit matter you select the matter from those matters that you communicated with those charged with governance under 260 indirectly yes or no so all are interconnected this kind of question might come who knows don't think that plain questions will come yes or gone if at all paper Setter is little bit you know having this understanding he'll test like this next then not only this you have to communicate planned scope and timing of the audit what is planned scope and timing of the audit so help top management to understand better the consequences of the audit work discuss issues of risks and concepts of materiality what processes that you're going to additionally undertake based on the risk assessment you just communicate them what processes that you are going to undertake by the way don't communicate too detailed also briefly you communicate like on so and so I'm coming on so and so day I'm leaving this is what I planned on these days I'll be verifying these and all don't verify the samp don't communicate the sampling technique that you're going to for don't communicate the selection approach that you're going to follow all some surprise element should be there for the entity on how you are selecting everything you communicate what you're going to do how you are going to do don't communicate getting it and assist the auditor to understand better better The Entity and its environment so if you communicate uh planned time and scope of the audit maybe company will give you a guidance on all this remember when you're planning audit itself you need to understand the entity and its envirment the auditor shall communicate overview of planed scope and timing of the audit which includes communicating significant risks identified by auditor important Point communicating significant risks identified by the auditor helps the top management understand those matters why the requir special audit consideration those requir special audit considerations are the one which are basis for PR audit matter the matters which requires special Auditors attention special Auditors consideration generally those matters are the one attracts under key audit matter but where special audit consideration where we specially Focus areas of significant risk areas of significant judgment areas where significant transaction or EV happen that's what factors determining EIT matter remember you're communicating planned timing and scope of the audit to top management right does it mean they're responsible to or they responsible to assist you in planning the audit no your responsibility your responsibility does not change you are still having the sole responsibility to establish overall audit strategy and audit plan and by the way be careful care is necessary while communicating so as not to compromise the effectiveness of audit indirectly surprise check elements uh sampling approaches selection method you are testing methods don't communicate so don't compromise in the effectiveness of audit in such a way you communicate communicate them entire plan timing and scope but briefly you need not give entire your program audit program you drafted what points that you will verify in purchases what points will verify in sales audit checklist audit question and all is there you need not give them able to understand another important thing that we communicate is significant findings from audit observe broadly four we need to communicate one auditor responsibilities you should communicate two plan the timing and scope of the audit you should communicate significant findings that you did in the audit or you may you found getting it finally in case of listed entities Auditors Independence has to be formally communicated remember even in engagement letter we communicate Independence Point but since sea 260 specifically says Independence related requirement we may have to give an additional letter of Engagement something like a letter of Engagement communication regarding Auditors Independence as required by SE 260 heading getting it we are having we are having the following relationships these are all permitted relationships no safeguards are required these are the have these are the relationships where we require certain safeguards these safeguards we implemented like that you have to communicate for all this guidance notes will be there so in reality when you're doing audit you just go through the guidance note and then follow getting it next so other thing that we are still pending is significant findings in audit whatever important findings you you did you made in the audit suppose you're doing audit you found some Capital expenditures material Ted to PN that's a significant finding you want to do TDS reconciliation where it's a natural expectation that client will be doing it already we just have to take that workings and verify but client did not now I want to know whether TDs is properly paid or not so many sections are there under which company deducted so many due dates were there every month they are paying quarterly etds return they are filing and they're having multiple tan numbers now how can I do all this reconciliation but it is important for me as part of my audit it is client's moral responsibility to do that reconciliation now this is a significant difficulty in audit what do we call it as significant difficulty now information is not there I means it is there but it is not in the that I want now it creates a difficulty for me to create that information all together I asked for management can you do TDS Rec and give me in the next one week they said no sir we are already occupied with some other books now significant difficulty and when I'm asking information management is not giving me on time they're delaying that's a significant difficulty so significant difficulties if any encountered during the audit you must communicate what are significant difficulties straight question you will get it was asked in the past four or five items it was asked once what are significant difficulties that auditor has to communicate to those charged with governance getting it or they'll give you or they'll give you like this as a part of audit you have to communicate significant findings as part of 260 one of the significant finding is significant difficulties that are encountered audit explain any four examples of significant difficulties so you have to write significant delay by management or unavailability of entity staff unwillingness by management to provide information necessary so they're not providing or they're delaying getting it the information I want unreasonably brief time within which to complete the audit they're pushing me sir complete the audit as soon as POS possible we have to file with regulatory unexpected effort required to obtain evidence to do TDS GS reconciliation they didn't do I didn't expect that I need to work from the scratch getting it unavailability of expected information same GST TDS I didn't you know is not available restrictions imposed on auditor Management's unwillingness to make assessment related to going concern or to extend its assessment for at least 12 months they're not these are all sign significant difficulties in audit any Four Points simple in audit difficulty means what difficulty in audit means what when we doing audit we not getting data on time this is some common problem which every auditor faces in every entity yes or no common issue to management their Duty they're not discharging that's a difficulty for auditor to accomplish so few examples they have given here in the standard they given only few examples any four you have to write straight four marks question you will get what what are the significant difficulties that are there sometimes they will not ask you this they'll straight away ask you what are significant findings from the audit in such a case you only have to write main points main point one what is the main point one what is your view about qualitative aspects of entities accounting practices you have gone through accounting systems you have gone through how the company's maintaining accounting records when they are updating the accounting records are they are they periodically updating the records or perpetually updating the records accounting records and invent records all that you know and how are the selecting accounting estimates how are the choosing assumptions you have gone through you have studied management so right now you are in a position to comment on qualitative aspect of accounting practices followed by The Entity you are in a position to answer so what is your view on the qualitative aspect of the entity's accounting practice you communicate what do you mean by qualitative aspects of entities accounting practices s 700 explains in sa 700 introduction this is there what auditor has to evaluate one auditor has to evaluate qualitative aspects of entities accounting practices you have to evaluate see sa 700 standard in this in that I these two points I didn't cover intentionally because I want to cover along with this in sa 700 forming of an opinion reporting of the financial statements what points the auditor has to consider while forming the opinion you have to evaluate certain things one one that you have to evaluate is qualitative aspects of entities accounting practices this is one thing that you have to evaluate two specific evaluations two specific evaluations three in case of fair presentation framework the auditor has to evaluate overall presentation structure and content of the financials so that the financial statements are presenting underlying transactions and events so as to achieve fair presentation three things you have to evaluate one qualitative aspects of entities accounting practices two spe specific evaluations about the financial statements whether accounting policy selected and applied consistently whether changes in accounting policy are properly and adequately disclosed whether information convey of the financial statements are reliable relevant not misleading yes or no relevant reliable understandable getting it comparable whether the terminology used in the financial statements is appropriate Four Points enough able to understand specific evaluations and in case of fair presentation framework you should also evaluate overall how the financials are presenting what is the content covered as of whole overall present how the structure is so are they achieving fair presentation are they truly exhibiting the company picture you should communicate that understood qualitative aspects so so auditor has to check qualitative aspects as per 700 those points specific evaluations all that so here you have to communicate what is your view on the qualitative aspect if at all there is any adverse view you have on qualitative aspect suppose manage man agement is biased management is not neutral in selecting and applying accounting policies in choosing accounting estimates getting the point that bias nature that lack of neutrality nature you have to communicate with management of punishment able to understand I able to recollect then so so one you have to communicate qualitative aspects of entities accounting practices two significant difficulties three significant matters arising during the audit that were that were discussed or subject to correspondence with management already whatever that you are discussing with management any significant issue is there communicate it to top management getting it and uh four whatever written representations you want we want written representations for management respons we want written representations as required by other standards and auditing we want representation Maybe by ourselves other by by our own purposes wherever we feel we want what representations you want you communicate you get it without communicating don't expect they'll give able to understand and circumstances you must communicate circumstances that affect form and content of not opinion audit report so circumstances that affect form and content of a audit report by default form and content of audit report means company think 700 but when you're deciding to use emphasis of matter per other matter per other information par material uncertainty related to going concern you want to modify you want to modify the opinion you must communicate clear all of you next any hey I'll check I thought my my actually my finger is touching here any other significant matter arising during the audit any other significant matter arising during the audit which in your common sense professional judgment relevant for the top management financial reporting process six points have given compulsorily that you have to communicate with management like here totally see in exam they'll give you what are uh just a minute fine so we are we are in discussion of significant findings by the way so what are significant findings a straight question they will ask you in such a case what you will communicate important issues significant findings means important issues in audit one what are what is your view on qualitative accounting practices what are significant difficulties that you have faced what are the significant matters that have Arisen in the audit where and all you want written representations under what circumstances form and content of audit report is affected any other matter which is relevant according to you to the top management for better financial reporting process all these you have to communicate they'll ask you straight that question as a part of s 260 auditor has to communicate significant findings give any four examples only main points have to write sometimes what auditor has to communicate under sa 260 especially significant difficulties then you need to write significant difficulty of points observe both are different and what are the matters to be communicated under sa 260 auditor responsible plann scope plan planed scope and timing of the audit sign findings in the audit in case of listed entities regarding Auditors Independence all the three questions are different clear next what are significant matters any significant event or transaction that has occurred in relation to which you are not having some clarity any the business conditions affecting the entity and business plans and strategies that may affect risk may be related to going concern concerns about management consultations with other accountants or accounting or auditing matters maybe management is uh you know consults About Management consultations like management is Consulting with various other people if at all you think that consultation may not give them right advises or where they are giving a wrong consultation so that you need to communicate um discussions or correspondence in connection with initial or recurring appointment regarding accounting practices application of auditing standards fees all other things any other important issues nothing but significant matters on which there was a disagreement with management getting it wherever you disagree with management sometimes no initially there might be difference but later they were resolved that you need not communicate that's why they used the word accept so on any issue when there is a conflict between you and the management communicate with top management that there's a conflict between me and management on this issue so what is your call on this ask them able to understand they'll ask you straight question on significant matters four marks communication of significant matters the answer is different communication of significant difficulties the answer is different communication of significant findings the answer is different what are the matters to be communicated under sa 260 the answer is different um auditor has to communicate regarding auditor responsibilities and planned scope and timing of the audit comment then you need to write one and two including sub points any combination they can ask clear all of you and finally one more question is in case of listed entities auditor has to communicate regarding Independence what auditor has to communicate what points you should keep in mind and four issues right there are actually two more issues that are there but uh these are not main points but important you have to communicate of course all the four plan scope and timing of the audit significant findings um auditor responsibilities and Independence in case of listed entities terms of Engagement you should communicate terms of Engagement what is the scope and objective of audit what is the management responsibility what is your responsibility all that and you should communicate reporting as per 700 series circumstances in which auditor is required to include an any information in audit report for which communication with top management is required this question was asked in the past three or four attemps for four Mons what are the circumstances in which auditor is required to include an additional information in audit report in accordance with SS and for which communication with top management is required when under what circumstances regarding modifications or to the audit report auditor has to communicate I told you this already auditor has to communicate when you want to modify the opinion auditor has to communicate when you want to include material uncertainty related to going con under 570 auditor has to communicate when he's deciding to communicate he audit matter auditor has to communicate when he's deciding to include emphasis of matter or other matter auditor has to communicate when he's including 720 when there is a uncorrected material misstatement in other information see they have cleverly used the word misstatement in other information you have to communicate if misstatement in financial statements uh is getting it so whenever you are modifying the audit report what what is the reason why you modifying the audit report you have to communicate this itself can be asked as a straight question this itself can be asked as a straight four marks question tell me will you find any one extra question in the question Bank Beyond whatever I'm covering in the class getting the point you see any question that you see in question mark it is within the revision class which I'm covering for sure getting it so the coverage which I do that alternative number of questions is much wider than the question so when you're reading you should always visualize like this not just the subject even for other subjects so here generally in all the above circumstances where you are modifying audit report you don't communicate separately you simply give a draft audit report to facilitate a discussion of how such matters will be addressed so how I am addressing all these issues in audit report you will give a draft audit report suppose management said don't give all that we'll modify the financial statements we'll Rectify other inform then those points will modify later on able to understand now communication process so auditor should also communicate with the management in what format you communicate at what timings generally you communicate expected General content of the communication you just tell them that as per 260 these are the points we generally have to communicate these only will communicate and whenever there is any waral communication getting it you have to document with whom you communicated what you communicated all that the auditor shall communicate in writing especially significant findings from the audit by the way when you're communicating in writing no don't include every matter that ARS during the audit communicate only those that are relevant for top management and auditor shall communicate with time top Management on a timely basis and you should only make sure the communication is adequate management should not be like auditor never consulted us yes or no he never ask any single question to us he will just come verify some records and leave go for lunch break and have tea on time and then leave just not complain like this correct documentation specifically you have to document any any matters you communicated Vally you shall include them in the documentation when you communicated to whom you communicated what response you got whenever you made a v communication of course when you communicate in writing through mail or Whatsapp a copy of the communication keep it as part of documentation that's it WhatsApp screenshots you know mail copies you can take you can take a print out of the mail right the print out of course now we are not maintaining hard copy documentation only electronic documentation so that mail copies and all you keep it in the folders clear that's it with this 260 is over easy or not