COMPILATION OF IMPORTANT SA’s

CA DURGESH KABRA Email Id: [email protected] Website :www.dmkhca.in

C-9, Sanjay Apartment,S.V.P .Road,Near GokulHotel,Borivali (West)Mumbai-400092 Tel No: 28916494 / 95
Why Auditing Standards are
Important??
 Auditing Standards are mandatory to be by followed
by practitioners under the direction issued by the
council of ICAI
 If not complied with Auditing Standards in
performing Assurance Engagement
 CA shall be held guilty of Professional misconduct
under Schedule-II of CA-Act, 1949
 As per the Section 143(9) of Companies Act-2013, Every
auditor shall comply with the auditing standards
Brief Historical Background of Auditing Standards
• Research Committee constituted by ICAI for developing Accounting &
1955 Auditing Practice

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

1964 (SAP)

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

1977 (IAG) later known as ISA - International Auditing Standards

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

1982 the Framework of SAPs & GNs

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

2002 renamed as AAS (Auditing & Assurance Standards)

• Nomenclature of AASs known as Engagement & Quality Control

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

SA 300 Preliminary Engagement Activities Client continuance (SA 220)

Ethical requirement (SA 200 and SA 220)

Terms of Engagement etc (SA 210)

Planning Activities Audit Strategy

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

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

Measurement, Valuation
SA 450 Evaluation of Misstatement, if identified

SA 700 Forming an opinion based on audit evidence

obtained
SA 705 Modifications to the Opinion in the Independent
Auditor’s Report"
SA 706 Emphasis of Matter Paragraphs and Other Matter
Paragraphs in the Independent Auditor’s Report
SA 200: Overall Objectives of the Independent Auditor and the
Conduct of an Audit in Accordance with Standards on Auditing
 This Standard establishes the independent auditor’s overall responsibilities when conducting an audit
of financial statements in accordance with SAs
 Ethical Requirements Relating to an Audit of Financial Statements — The auditor should apply
the following fundamental principles of professional ethics relevant when conducting an audit of
financial statements; (a) Integrity; (b) Objectivity; (c) Professional competence and due care; (d)
Confidentiality; and (e) Professional behavior
 Professional Skepticism— Professional skepticism includes being alert to, for example; (a) Audit
evidence that contradicts other audit evidence obtained;
(b) Information that brings into question the reliability of documents and responses to inquiries to be
used as audit evidence; (c) Conditions that may indicate possible fraud; (d) Circumstances that
suggest the need for audit procedures in addition to those required by the SAs
 Professional Judgment— Professional judgment is necessary in particular regarding decisions
about:
(a) Materiality and audit risk; (b) The nature, timing, and extent of audit procedures used to meet the
requirements of the SAs and gather audit evidence; (c) Evaluating whether sufficient appropriate
audit evidence has been obtained, and whether more needs to be done to achieve the objectives of the
SAs and thereby, the overall objectives of the auditor; (d) The evaluation of management’s judgments
in applying the entity’s applicable financial reporting framework; (e) The drawing of conclusions
based on the audit evidence obtained, for example, assessing the reasonableness of the estimates
made by management in preparing the financial statements
 Sufficient Appropriate Audit Evidence and Audit Risk— To obtain reasonable assurance, the
auditor shall obtain sufficient appropriate audit evidence to reduce audit risk to an acceptably low
level and thereby enable the auditor to draw reasonable conclusions on which to base the auditor’s
opinion
SA 200: Overall Objectives of the Independent Auditor and the
Conduct of an Audit in Accordance with Standards on Auditing
 Ø Sufficiency and Appropriateness of Audit Evidence — Audit evidence is
necessary to support the auditor’s opinion and report. It is cumulative in nature
and is primarily obtained from audit procedures performed during the course
of the audit. Sufficiency is the measure of quantity of audit evidence whereas
appropriateness is the measure of quality of audit evidence
 Ø Audit Risk — Audit risk is a function of the risks of material misstatement
and detection risk. The risks of material misstatement may exist at two levels:
(a) The overall financial statement level; and (b) The assertion level for classes
of transactions, account balances, and disclosures. For a given level of audit
risk, the acceptable level of detection risk bears an inverse relationship to the
assessed risks of material misstatement at the assertion level
 Conduct of an Audit in Accordance with SAs — The auditor shall comply
with all SAs relevant to the audit. An SA is relevant to the audit when the SA is
in effect and the circumstances addressed by the SA exist. The auditor shall
have an understanding of the entire text of an SA, including its application and
other explanatory material, to understand its objectives and to apply its
requirements properly. The auditor shall not represent compliance with SAs in
the auditor’s report unless the auditor has complied with the requirements of
this SA and all other SAs relevant to the audit
SA 210: Agreeing the Terms of Audit Engagements
 Auditor and client should agree on terms of engagement. Agreed terms would
need to be recorded in an audit engagement letter or other suitable form of
contract
 The form and content of audit engagement letter may vary for each client, but
would generally include reference to (a) objective and scope of the audit of
financial statements; (b) responsibilities of the auditor; (c) responsibilities of
management; (d) Identification of applicable financial reporting framework for
the preparation of financial statements; and (e) Reference to the expected form
and content of any reports to be issued by the auditor and a statement that
there may be circumstances in which a report may differ from its expected form
and content. Other matters as per the circumstances should also be included
 In case of recurring audits, auditor should consider whether circumstances
require the terms of engagement to be revised
 Where the terms of engagement are changed, auditor and client should agree
on the new terms. If auditor is unable to agree to a change of engagement and
is not permitted to continue the original engagement, the auditor should
consider withdrawing from the engagement and determine whether there is
any obligation, either contractual or otherwise, to report the circumstances to
other parties, such as those charged with governance, owners or regulators
SA 220: Quality Control for an Audit of Financial Statements
 Quality control policies and procedures should be implemented at
both level — of audit firm and on individual audits
 To implement quality control policies and procedures designed to
ensure that all audits are conducted in accordance with Standards of
Auditing
 Objectives of quality control policies to be adopted will incorporate
Professional Requirements, Skills and Competence, Assignment,
Delegation, Consultation, Acceptance and Retention of Clients,
Monitoring
 To be communicated to its personnel in a manner that provides
reasonable assurance that the policies and procedures are understood
and implemented
 To implement those quality control procedures which are, in the
context of policies and procedures of the firm, appropriate to
individual audit. To consider professional competence of assistants
performing work delegated to them when deciding extent of direction,
supervision and review appropriate for each assistant. Assistants to
whom work is delegated need appropriate direction, supervision and
review of audit work performed by them
SA 230: Audit Documentation
 Audit documentation that meets the requirements of this SA and the specific
documentation requirements of other relevant SAs provides (a) evidence of
auditor’s basis for a conclusion about the achievement of overall objective of audit;
and (b) evidence that the audit was planned and performed in accordance with SAs
and applicable legal and regulatory requirements
 Audit Documentation refers to the record of audit procedures performed, relevant
audit evidence obtained, and conclusions the auditor reached. Preparing sufficient
and appropriate audit documentation on a timely basis helps to enhance the quality
of audit and facilitates effective review and evaluation of audit evidence obtained
and conclusions reached before finalizing auditor’s report
 To document discussions of significant matters with management, those charged
with governance, and others, including the nature of significant matters discussed
and when and with whom the discussions took place
 Auditor may consider preparing and retaining a summary (Completion
Memorandum) that describes significant matters identified during the audit and
how they were addressed. SA 220 requires auditor to review audit work performed
through review of audit documentation. Standards on Quality Control (SQC) 1
require firms to establish policies and procedures for timely completion of assembly
of audit files. An appropriate time limit within which to complete the assembly of
final audit file is ordinarily not more than 60 days after the date of auditor’s report.
SQC 1 requires firms to establish policies and procedures for retention of
engagement documentation
 Retention period for audit engagements ordinarily is no shorter than ten years from
the date of auditor’s report, or, if later, the date of group auditor’s report
SA 240: The Auditor’s Responsibilities Relating to Fraud in an
Audit of Financial Statements
 Auditor is concerned with fraud that causes a material misstatement in financial
statements
 Two types of intentional misstatements are relevant — misstatements resulting from
fraudulent financial reporting and misstatements resulting from misappropriation of
assets
 Primary responsibility of prevention and detection of frauds is of the management as
well as those charged with governance. It is important that management, with oversight
of those charged with governance; place a strong emphasis on fraud prevention which
may reduce opportunities for fraud to take place and act as a deterrent
 Auditor is responsible for obtaining reasonable assurance that financial statement taken
as a whole are free from material misstatement, whether caused by fraud or error. While
auditor may be able to identify potential opportunities for fraud to be perpetrated, it is
difficult for him to determine whether misstatements in judgment areas such as
accounting estimates are caused by fraud or error
 Risk of auditor not detecting a material misstatement resulting from management fraud
is greater than for employee fraud, because management is frequently in a position to
directly or indirectly manipulate accounting records, present fraudulent financial
information or override control procedures designed to prevent similar frauds by other
employees. Auditor is responsible for maintaining an attitude of professional skepticism
throughout the audit, considering the potential for management override of controls and
recognizing the fact that audit procedures that are effective for detecting error may not
be effective in detecting fraud
SA 240: The Auditor’s Responsibilities Relating to Fraud in an
Audit of Financial Statements
 Auditor shall identify and assess risks of material misstatement due to fraud at
financial statement level, and at assertion level for classes of transactions,
account balances and disclosures. Auditor must make appropriate inquiries of
the management. Auditor must discuss with those charged with governance as
they have oversight responsibility for systems for accounting risk, financial
control and compliance with the law
 When auditor identifies a misstatement, s/he should consider whether such a
misstatement may be indicative of fraud and if there is such an indication, s/he
should consider the implications of misstatement in relation to other aspects
of the audit, particularly the reliability of management representations
 When the auditor identifies a misstatement resulting from fraud, or a
suspected fraud, s/he should consider auditor’s responsibility to communicate
that information to management, those charged with governance and, in some
circumstances, when so required by laws and regulations, to regulatory and
enforcement authorities also
 To obtain written representations from management
 To document the understanding of entity and its environment and the
assessment of risks of material misstatement, responses to assessed risks of
material misstatement and communications about fraud made to
management, those charged with governance, regulators and others
SA 250: Consideration of Laws and Regulations in an Audit of
Financial Statements
 To recognise that non–compliance by entity with laws and regulations may
materially affect financial statements. It is management’s responsibility to ensure
that entity’s operations are conducted in accordance with laws and regulations
 Auditor is not responsible for preventing non–compliance. The auditor is
responsible for obtaining reasonable assurance that the financial statements, taken
as a whole, are free from material misstatement, whether caused by fraud or error
 Risk of non detection of material misstatements is higher with regard to material
misstatements resulting from non–compliance with laws and regulations due to
various factors. To obtain a general understanding of legal and regulatory
framework applicable to the entity and how it is complying with that framework
 After obtaining general understanding, auditor should perform procedures to
identify instances of non–compliance with these laws and regulations where non–
compliance should be considered when preparing financial statements. Further,
auditor should obtain sufficient appropriate audit evidence about compliance with
those laws and regulations generally recognised by Auditor to have an effect on
determination of material amounts and disclosures in financial statements
SA 250: Consideration of Laws and Regulations in an Audit of
Financial Statements
 To obtain written representations that management has disclosed all known actual
or possible non–compliance with laws and regulations whose effects should be
considered when preparing financial statements. This SA does not apply to other
assurance engagements in which auditor is specifically engaged to test and report
separately on compliance with specific laws and regulations. Whether an act
constitutes a non–compliance can be determined only by a court of law
 The Standard envisages “engaging a legal advisor to assist in monitoring legal
requirements” instead of “establishing a legal department” as one of the policies to
ensure compliance with laws and regulations. The Standard, in larger entities, also
envisages existence of a separate “compliance function” in addition to internal
audit function and audit committee to supplement policies and procedures for
ensuring compliance with laws and regulations
SA 260: Communication with those Charged with Governance
 To communicate with those charged with governance, auditor’s responsibilities in
relation to financial statements audit, an overview of planned scope and timing of
audit and significant findings from the audit
 Such matters include: Overall scope of audit; selection of/ changes in significant
accounting policies; potential effect on financial statements of any significant risks
and exposures, such as pending litigation; adjustments to financial statements
arising out of audit that have a significant effect on entity’s financial statements;
material uncertainties related to events and conditions that may cast significant
doubt on entity’s ability to continue as a going concern, disagreements with
management about matters that could be significant to entity’s financial
statements or auditor’s report; expected modifications to auditor’s report. Auditors
should communicate matters of governance interest on timely basis
 Auditor’s communication may be made orally or in writing. In case of oral
communication, auditor should document their oral communications and
response thereof
SA 265: Communicating Deficiencies in Internal Control to those
Charged with Governance and Management

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

governance and management deficiencies in internal control that the auditor has
identified during the audit and that, in the auditor’s professional judgment, are of
sufficient importance to merit their respective attentions
 The auditor shall determine whether, on the basis of the audit work performed, the
auditor has identified one or more deficiencies in internal control. If the auditor
has identified one or more deficiencies in internal control, the auditor shall
determine, on the basis of the audit work performed, whether, individually or in
combination, they constitute significant deficiencies.
SA 299 (AAS 12): Responsibility of Joint Auditors
 Joint auditors should, by mutual discussion, divide audit work. Division of work
would usually be in terms of audit of identifiable units or specified areas. Division
of work may be with reference to items of assets or liabilities or income or
expenditure or with reference to periods of time
 If a Joint auditor comes across matters which are relevant to areas of responsibility
of other joint auditors and which deserve their attention, or which require
disclosure or discussion with, or application of judgment by, other joint auditors,
he should communicate the same to all other joint auditors in writing prior to
finalization of audit
 Certain areas of work, owing to their importance or owing to the nature of work
involved, would often not be divided and would have to be covered by all joint
auditors
 Each joint auditor is responsible only for the work allocated to them, whether or
not s/he has prepared a separate report on work performed by them
SA 299 (AAS 12): Responsibility of Joint Auditors
 All joint auditors are jointly and severally responsible in respect of the audit work
which is not divided amongst them, for the appropriateness of decisions taken by
them concerning the nature, timing or extent of the audit procedures to be
performed by any of the joint auditors, for examining that the financial statements
of the entity comply with disclosure requirements of relevant statute, for ensuring
that audit report complies with the requirements of relevant statute and in respect
of matters which are brought to the notice of joint auditors by any one of them and
on which there is an agreement among joint auditors
 Each joint auditor is entitled to assume that other joint auditors have carried out
their part of audit work in accordance with generally accepted audit procedures.
Normally, joint auditors are able to arrive at an agreed report. However, where the
joint auditors are in disagreement with regard to any matters to be covered by the
report, each one of them should express his own opinion through a separate report
SA 300: Planning an Audit of Financial Statements
 Planning an audit involves establishing the overall audit strategy for the
engagement and developing an audit plan. The objective of auditor is to plan the
audit so that it will be performed in an effective manner
 Once the overall audit strategy has been established, an audit plan can be
developed to address various matters identified in the overall audit strategy,
considering the need to achieve the audit objectives through efficient use of
auditor’s resources
 To consider various matters in developing the overall plan like: terms of
engagement; nature and timing of reports; applicable legal or statutory
requirements; accounting policies adopted by the client; identification of
significant audit areas; setting of materiality levels, etc.
 To obtain a level of knowledge of client’s business that will enable them to identify
events, transactions and practices that, in their judgment, may have a significant
effect on financial information. Audit plan is more detailed than overall audit
strategy that includes the nature, timing and extent of audit procedures to be
performed by engagement team members
SA 300: Planning an Audit of Financial Statements
 Engagement partner and other key members of engagement team shall be involved
in planning the audit, including planning and participating in the discussion
among engagement team members so as to enhance effectiveness and efficiency of
planning process
 To plan the nature, timing and extent of direction and supervision of engagement
team members and review of their work. Auditor shall document overall audit
strategy, audit plan and any significant changes made during audit engagement to
the overall audit strategy or audit plan, and reasons for such changes
 Audit planning ideally commences at the conclusion of previous year’s audit, and
along with related programme, it should be reconsidered for modification as the
audit of their compliance and substantive procedures progress. For an initial audit,
auditor may need to expand the planning activities because the auditor does not
ordinarily have previous experience with the entity that is considered when
planning recurring engagements
SA 315: Identifying and Assessing the Risks of Material
Misstatement through Understanding the Entity and its
Environment
 To provide a basis for identification and assessment of risks of material
misstatement at the financial statement and assertion levels, the auditor shall
perform risk assessment procedures. Thus procedures shall include: Inquiries with
management; Analytical Procedures; Observation and Inspection
 Where Auditor has performed other engagements with the entity, auditor shall
consider whether information obtained is relevant for identifying the risk of
material misstatement. If Auditor intends to use his/her previous experiences with
the entity, he shall determine whether changes have occurred since previous audit
that may affect its relevance on current audit
 To obtain an understanding of the following: Industry, regulatory and other
external factors; Nature of entity; Selection and application of accounting policies;
Objectives and strategies and related business risks; Measurement and review of
entity’s financial performance; Internal control
 SA 315 sets out five components of Internal control: Control environment; Entity’s
risk assessment process; the information system, including related business
processes, relevant to financial reporting and communication; Control activities
relevant to audit; Monitoring of controls
SA 315: Identifying and Assessing the Risks of Material
Misstatement through Understanding the Entity and its
Environment
 Usually, those controls which pertain to entity’s objective of preparing financial
statements are subject to risk assessment procedures
 Obtaining an understanding of entity and its environment including entity’s
internal control is a continuous, dynamic process of gathering, updating and
analyzing information throughout the audit
 To identify and assess risks of material misstatement at financial statement level,
and at assertion level for classes of transactions, account balances and disclosures
 Auditors are required to: Relate identified risks to what can go wrong at assertion
level; Consider potential magnitude of risks in the context of financial statements;
Consider the likelihood that risks could result in a material misstatement of
financial statements
 Documentation should cover: Discussion among engagement team; Key elements
of understanding obtained; Sources of information; Risk assessment process; the
identified and assessed risks; Significant risks evaluated; Risks evaluated for which
substantive procedures done
 Auditor uses professional judgment to determine the extent of understanding
required. Auditors primary consideration is whether the understanding that has
been obtained is sufficient to meet the objective stated in the SA
SA 320: Materiality in Planning and Performing an Audit
 SA 320 deals with the auditor’s responsibility to apply the concept of materiality in
planning and performing an audit of financial statements
 In planning the audit, the auditor makes judgments about the size of
misstatements that will be considered material
 These judgments provide a basis for:
 Determining the nature, timing and extent of risk assessment procedures;
 Identifying and assessing the risks of material misstatement; and
 Determining the nature, timing and extent of further audit procedures
 For purposes of the SAs, performance materiality means the amount or amounts
set by the auditor at less than materiality for the financial statements as a whole to
reduce to an appropriately low level the probability that the aggregate of
uncorrected and undetected misstatements exceeds materiality for the financial
statements as a whole. If applicable, performance materiality also refers to the
amount or amounts set by the auditor at less than the materiality level or levels for
particular classes of transactions, account balances or disclosures
SA 320: Materiality in Planning and Performing an Audit
 The auditor shall revise materiality for the financial statements as a whole (and, if
applicable, the materiality level or levels for particular classes of transactions,
account balances or disclosures) in the event of becoming aware of information
during the audit that would have caused the auditor to have determined a different
amount (or amounts) initially
 The audit documentation shall include the following amounts and the factors
considered in their determination:
 Materiality for the financial statements as a whole
 If applicable, the materiality level or levels for particular classes of transactions,
account balances or disclosures
 Performance materiality and
 Any revision of above as the audit progressed
SA 330: The Auditor’s Responses to Assessed Risks
 The objective is to obtain sufficient appropriate audit evidence about assessed risks
of material misstatement, through designing and implementing appropriate
responses to those risks
 Auditor shall design and implement overall responses to address assessed risks of
material misstatement at financial statement level. To design and perform further
audit procedures whose nature, timing and extent are based on and are responsive
to assessed risks of material misstatement at assertion level
 In designing further audit procedures to be performed, the auditor shall:
a) Consider reasons for the assessment given to risk of material misstatement at
the assertion level for each class of transactions, account balance, and
disclosure
b) Obtain more persuasive audit evidence – the higher the auditor’s assessment
of risk
 When the auditor obtains audit evidence about operating effectiveness of controls
during an interim period, the auditor shall:
SA 330: The Auditor’s Responses to Assessed Risks
a) Obtain audit evidence about significant changes to those controls subsequent
to the interim period; and
b) Determine additional audit evidence to be obtained for the remaining period
 Based on the audit procedures performed and audit evidence obtained, auditor
shall evaluate before conclusion of audit whether assessments of risks of material
misstatement at assertion level remain appropriate
 Auditor shall conclude whether sufficient appropriate audit evidence has been
obtained. In forming an opinion, auditor shall consider all relevant audit evidence,
regardless of whether it appears to corroborate or contradict assertions in financial
statements
 If the auditor has not obtained sufficient appropriate audit evidence as to a
material financial statement assertion, the auditor shall attempt to obtain further
audit evidence. If the auditor is unable to obtain sufficient appropriate audit
evidence, auditor shall express a qualified opinion or a disclaimer of opinion
 If Auditor plans to use audit evidence about operating effectiveness of controls
obtained in previous audits, auditor shall document conclusion reached about
relying on such controls that were tested in a previous audit
SA 402: Audit Considerations Relating to an Entity Using a Service
Organization
 This SA specifically expands on how the user auditor applies SA 315 and SA 330
 The objectives of the auditor are (a) To obtain an understanding of the nature and
significance of services provided by the service organisation and their effect on the
user entity’s internal control relevant to the audit, sufficient to identify and assess the
risks of material misstatement; and (b) To design and perform audit procedures
responsive to those risks
 The user auditor should obtain an understanding of the services provided by a service
organization, including internal control
 The user auditor shall modify the opinion in the user auditor’s report in accordance
with SA 705 if the user auditor is unable to obtain sufficient appropriate audit
evidence regarding the services provided by the service organization relevant to the
audit of the user entity’s financial statements
 The user auditor shall not refer to the work of a service auditor in the user auditor’s
report containing an unmodified opinion unless required by law or regulation to do
so. If such reference is required by law or regulation, the user auditor’s report shall
indicate that the reference does not diminish the user auditor’s responsibility for the
audit opinion
 If reference to the work of a service auditor is relevant to an understanding of a
modification to the user auditor’s opinion, the user auditor’s report shall indicate that
such reference does not diminish the user auditor’s responsibility for that opinion
SA 450: Evaluation of Misstatements Identified during the Audit
 The objective of the auditor is to evaluate the effect of identified misstatements
on the audit and the effect of uncorrected misstatements, if any, on the
financial statements
 To accumulate misstatements identified during the audit, other than those that
are clearly trivial
 To determine whether the overall audit strategy and audit plan need to be
revised if the nature of identified misstatements and the circumstances of their
occurrence indicate that other misstatements may exist that, when aggregated
with misstatements accumulated during the audit, could be material or the
aggregate of misstatements accumulated during the audit approaches
materiality determined in accordance with SA 320 (Revised)
 To communicate on a timely basis all misstatements accumulated during the
audit with the appropriate level of management, unless prohibited by law or
regulations. To request management to correct those misstatements
 Prior to evaluating the effect of uncorrected misstatements, the auditor shall
reassess materiality determined in accordance with SA 320, to confirm whether
it remains appropriate in the context of the entity’s actual financial results
SA 450: Evaluation of Misstatements Identified during the Audit
 To communicate with those charged with governance uncorrected
misstatements and the effect that they, individually or in aggregate, may have
on the opinion in auditor’s report, unless prohibited by law or regulation.
Auditor’s communication shall identify material uncorrected misstatements
individually. Auditor shall request correction of uncorrected misstatements.
Auditor shall also communicate with those charged with governance the effect
of uncorrected misstatements related to prior periods on the relevant classes of
transactions, account balances or disclosures, and the financial statements as a
whole
 To request a written representation from management and, where appropriate,
those charged with governance whether they believe the effects of uncorrected
misstatements are immaterial, individually and in aggregate, to the financial
statements as a whole. A summary of such items shall be included in or
attached to the written representation
 The audit documentation shall include the amount below which
misstatements would be regarded as clearly trivial, all misstatements
accumulated during the audit and whether they have been corrected and the
auditor’s conclusion as to whether uncorrected misstatements are material,
individually or in aggregate, and the basis for that conclusion
SA 500: Audit Evidence
 Auditor is required to obtain sufficient appropriate audit evidence to enable
them to draw reasonable conclusions on which they can base their opinion on
financial information
 Auditor normally relies on evidence that is persuasive rather than conclusive in
nature. Auditor may obtain evidence on a selective basis by way of either
judgmental or statistical sampling procedures. Evidence is obtained through
performance of compliance and substantive procedures
 Compliance procedures are tests designed to obtain reasonable assurance that
internal controls on which audit reliance is placed are in effect. Substantive
procedures are designed to obtain evidence as to completeness, accuracy and
validity of data produced by accounting system
 Obtaining audit evidence from compliance procedures is intended to
reasonably assure the auditor in respect of assertions of existence, effectiveness
and continuity. Obtaining audit evidence from substantive procedures is
intended to reasonably assure the auditor in respect of assertions of existence,
rights and obligations, occurrence, completeness, valuation, measurement,
presentation and disclosure
SA 500: Audit Evidence
 To test the reliability, few generalizations are useful such as external evidence is
more reliable than internal evidence, written evidence is more reliable than
oral evidence and self obtained evidence is more reliable than obtained
through the entity
 Auditor gains increased assurance when audit evidence obtained from different
sources is consistent. Various methods for obtaining audit evidence include
inspection, observation, inquiry and confirmation, computation and analytical
review
 Emphasis is to be laid on considering relevance and reliability of audit evidence
obtained during the course of audit, and focus is to be laid on designing and
performing audit procedures to obtain relevant and reliable audit evidence
SA 501: Audit Evidence — Specific Considerations for Selected
Items
 This Standard on Auditing (SA) deals with specific considerations by the
auditor in obtaining sufficient appropriate audit evidence in accordance with
SA 330, SA 500 (Revised) and other relevant SAs, with respect to certain aspects
of inventory, litigation and claims involving the entity, and segment
information in an audit of financial statements
 Inventories: Management ordinarily establishes procedures under which
inventory is physically counted at least once in a year to serve as a basis for
preparation of financial statements or to ascertain reliability of perpetual
inventory system. When inventory is material to financial statements, auditor
should obtain sufficient appropriate audit evidence regarding its existence and
condition by attendance at physical inventory counting unless impracticable. If
unable to attend physical inventory count on the date planned due to
unforeseen circumstances, auditor should take or observe some physical counts
on an alternative date and where necessary, perform alternative audit
procedures to assess whether changes in inventory between date of physical
count and period end date are correctly recorded
 Litigation and Claims: The auditor shall design and perform audit procedures
in order to identify litigation and claims involving the entity which may give
rise to a risk of material misstatement, including:
SA 501: Audit Evidence — Specific Considerations for Selected
Items

a) Inquiry of management and, where applicable, others within the entity,

including in–house legal counsel;
b) Reviewing minutes of meetings of those charged with governance and
correspondence between the entity and its external legal counsel;
c) Reviewing legal expense accounts

 Segment Information: Auditor considers segment information in relation to

financial statements taken as a whole, and is not required to apply auditing
procedures that would be necessary to express an opinion on segment
information standing alone. Audit procedures regarding segment information
ordinarily consist of obtaining an understanding of the methods used by
management in determining segment information and performing analytical
procedures and other audit tests appropriate in the circumstances
SA 505: External Confirmations
 External confirmation is the process of obtaining and evaluating audit evidence through
a direct communication from a third party in response to a request for information about
a particular item
 Before making use of external confirmations, auditor should consider materiality, the
assessed level of inherent and control risk, and how the evidence from other planned
audit procedures will reduce audit risk to an acceptably low level
 To employ external confirmation procedures in consultation with the management.
External confirmations are mostly sought for account balances and their components but
they are not to be restricted to these items only
 The use of confirmation procedures may be effective in providing sufficient appropriate
audit evidence when auditor determines higher level of assessed inherent and control
risk
 The request for confirmations is to be made either at the date of financial statements or
at a date close to it. Requests are to be designed to specific audit objectives
 Auditor’s understanding of client’s arrangements and transactions with third parties is
important in determining the information to be confirmed. Auditor may use positive or
negative external confirmation requests or a combination of both
 To consider whether there is any indication that external confirmations received may not
be reliable. To evaluate the conformity between results of external confirmation process
together with results from any other procedures performed. If Auditor seeks for an
external confirmation and management requests the auditor not to do so, auditor should
consider whether there are valid grounds for such a request and obtain evidence to
support validity of management’s requests
SA 510: Initial Audit Engagements – Opening Balances
 In conducting an initial audit engagement, the auditor should obtain sufficient
appropriate audit evidence that closing balances of preceding period have been
correctly brought forward to current period or when appropriate, any adjustments
have been disclosed as prior period items in the current year’s Statement of Profit and
Loss, the opening balances do not contain misstatements that materially affect
financial statements for the current period and appropriate accounting policies are
consistently applied
 To consider whether accounting policies followed in preceding period, based on which
opening balances have been arrived at, were appropriate and that those policies are
consistently applied. If the auditor concludes that the accounting policies have not
been consistently applied or properly accounted for, the auditor has to express either a
qualified or adverse opinion, as may be appropriate
 Ordinarily, current auditor can place reliance on closing balances contained in
financial statements for preceding period, except when during performance of audit
procedures for current period the possibility of misstatements in opening balances is
indicated
 When financial statements of preceding period were not audited, auditor must adopt
other procedures such as for current assets and liabilities. Some audit evidence can
ordinarily be obtained as part of audit procedures performed during the current
period and for non–current assets and liabilities such as fixed assets, investments and
long–term debt, the auditor could ordinarily examine records underlying the opening
balances
SA 510: Initial Audit Engagements – Opening Balances

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

statements for assessing the risk of material misstatement. If the prior period’s
financial statements were audited by a predecessor auditor and there was a
modification to the opinion, the auditor shall evaluate the effect of the matter
giving rise to the modification in assessing the risks of material misstatement
in the current period’s financial statements in accordance with SA 315
SA 520: Analytical Procedures
 The objectives of the auditor are: (a) To obtain relevant and reliable audit
evidence when using substantive analytical procedures; and (b) To design and
perform analytical procedures near the end of audit that assist the auditor
when forming an overall conclusion as to whether the financial statements are
consistent with auditor’s understanding of the entity
 Auditor should apply analytical procedures at overall review stages of audit as
well as while applying substantive procedures
 Application of analytical procedures is based on the expectation that
relationships among data exist and continue in absence of known conditions to
the contrary. Presence of these relationships provides audit evidence as to
completeness, accuracy and validity of data produced by the accounting
system. However, reliance on results of analytical procedures will depend on
auditor’s assessment of the risk that analytical procedures may identify
relationships as expected when, in fact, a material misstatement exists
 When analytical procedures identify significant fluctuations or relationships
that are inconsistent with other relevant information or that deviate from
predicted amounts, the auditor should investigate and obtain adequate
explanations and appropriate corroborative evidence
SA 530: Audit Sampling
 The auditor should design and select an audit sample, perform audit
procedures thereon, and evaluate sample results so as to provide sufficient
appropriate audit evidence
 The objective of the auditor when using audit sampling is to provide a
reasonable basis to draw conclusions about the population from which the
sample is selected
 When designing an audit sample, auditor should consider the objectives of the
audit procedure and characteristics of the population when designing an audit
sample. To assist in efficient and effective design of sample, stratification may
be appropriate. Stratification is the process of dividing a population into sub–
populations
 When determining sample size, auditor should consider sampling risk,
tolerable error, and expected error. Tolerable error is the maximum error in
population that the auditor would be willing to accept and still conclude that
the result from sample has achieved audit objective
 If Auditor expects error to be present in the population, a larger sample needs
to be examined to conclude that actual error in the population is not greater
than planned tolerable error. Auditor should select sample items in such a way
that the sample can be expected to be representative of the population
SA 530: Audit Sampling
 This requires that all items in the population have an opportunity of being
selected. After having carried out those audit procedures on each sample item
that are appropriate to particular audit objective, auditor should analyse any
errors detected in the sample, project the errors found in the sample to the
population and reassess sampling risk
 Auditor should investigate the nature and cause of any deviations or
misstatements identified, and their possible effect on the objective of the
particular audit procedure or other areas of audit. In order to conclude that a
misstatement or deviation is an anomaly, the auditor is required to obtain a
high degree of certainty that the misstatement or deviation is not
representative of the population
SA 540: Auditing Accounting Estimates, Including Fair Value Accounting
Estimates, and Related Disclosures
 Auditor should obtain sufficient appropriate audit evidence regarding
reasonableness of accounting estimates including fair value accounting
estimate and related disclosure in financial statements are adequate
 Accounting estimate means an approximation of a monetary amount in
absence of a precise means of measurement. Determination of an accounting
estimate may be simple or complex, depending upon the nature of item.
Auditor should adopt one or a combination of following approaches in the
audit of an accounting estimate:
a) review and test process used by management to develop the estimate;
b) use an independent estimate for comparison with that prepared by
management; or
c) review subsequent events which confirm the estimate made
 Auditor should make a final assessment of reasonableness of estimate based
on auditor’s knowledge of the business and whether the estimate is consistent
with other audit evidence obtained during audit. When there is a difference
between auditor’s estimate of the amount best supported by available audit
evidence and the estimated amount included in financial statements, auditor
should consider whether the amount requires adjustment and report
accordingly
SA 540: Auditing Accounting Estimates, Including Fair Value Accounting
Estimates, and Related Disclosures

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

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

 Auditor should review the outcome of accounting estimates included in prior

period financial statements. Auditor should obtain written representations
from management whether management believes significant assumptions used
by it in making accounting estimates are reasonable

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

 Auditor should form an opinion on the financial statements based on an evaluation

of the conclusions drawn from the audit evidence obtained; and express clearly that
opinion through a written report that also describes the basis for the opinion

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

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

 Auditor’s report includes basic elements such as Title, Addressee, Opening or

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

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