Presentation is loading. Please wait.

Presentation is loading. Please wait.

AUDIT CONCLUSIONS AND REPORTING CA. ASEEM TRIVEDI,FCA HIGHBROW MENTOR LEARNING SOLUTIONS PVT. LTD 1 SA 700, SA 705, SA 706 & SA 720.

Similar presentations


Presentation on theme: "AUDIT CONCLUSIONS AND REPORTING CA. ASEEM TRIVEDI,FCA HIGHBROW MENTOR LEARNING SOLUTIONS PVT. LTD 1 SA 700, SA 705, SA 706 & SA 720."— Presentation transcript:

1 AUDIT CONCLUSIONS AND REPORTING CA. ASEEM TRIVEDI,FCA HIGHBROW MENTOR LEARNING SOLUTIONS PVT. LTD 1 SA 700, SA 705, SA 706 & SA 720

2 SA 700, FORMING AN OPINION AND REPORTING ON FINANCIAL STATEMENTS CA. ASEEM TRIVEDI,FCA HIGHBROW MENTOR LEARNING SOLUTIONS PVT. LTD 2

3 FORMING AN OPINION - REQUISITES Conclude on whether sufficient appropriate audit evidence as per SA 330 was obtained Conclude on whether uncorrected misstatements, individually or in aggregate, are material as per SA 450 Evaluate whether FS are prepared, in all material respects, as per applicable financial reporting framework, including its qualitative aspects and freedom from judgment bias Evaluate whether accounting policies are appropriately disclosed, consistently applied and are appropriate CA. ASEEM TRIVEDI,FCA HIGHBROW MENTOR LEARNING SOLUTIONS PVT. LTD 3

4 Evaluate whether estimates are reasonable Evaluate whether information presented is relevant, reliable, comparable and understandable Evaluate whether terminology used is appropriate Evaluate whether disclosures are adequate to enable users to clearly understand material transactions and events If reporting under a fair presentation framework, also evaluate whether FS achieve a fair presentation based on overall presentation, structure and contents; and whether they represent underlying transactions/ events befittingly Forming an opinion - requisites CA. ASEEM TRIVEDI,FCA HIGHBROW MENTOR LEARNING SOLUTIONS PVT. LTD 4

5 Ensure that the financial reporting framework is adequately referred to Based on all above conclusions/ evaluations, auditor finally concludes whether the FS, as a whole, are free from material misstatement due to fraud or error Forming an opinion - requisites CA. ASEEM TRIVEDI,FCA HIGHBROW MENTOR LEARNING SOLUTIONS PVT. LTD 5

6 NEW REPORT - STRUCTURE From start of report to opinion paragraph, the structure is strictly restricted to the audit of the FS as performed under either a fair presentation framework or a compliance framework All other matters that law / regulation requires to be part of auditor’s report are put in a separate section of report below the opinion paragraph CA. ASEEM TRIVEDI,FCA HIGHBROW MENTOR LEARNING SOLUTIONS PVT. LTD 6

7 FORMAT PRESCRIBED BY LAW/ REGULATION SA 700 says that unless auditor’s report contains, at a minimum, the basic elements of an auditor’s report as per the auditing standards, it would cease to be credible, lack consistency and could mislead the user into making inappropriate business decisions – thereby exposing the auditor to significant risk SA 210 mandates that if the auditor does not have the ability to include relevant elements, such as the management’s responsibility paragraph, the auditor’s responsibility paragraph, etc., he may not refer to the audit having been done in accordance with the SAs or auditing standards generally applicable in India CA. ASEEM TRIVEDI,FCA HIGHBROW MENTOR LEARNING SOLUTIONS PVT. LTD 7

8 SA 705, MODIFICATIONS TO THE OPINION IN THE INDEPENDENT AUDITOR’S REPORT CA. ASEEM TRIVEDI,FCA HIGHBROW MENTOR LEARNING SOLUTIONS PVT. LTD 8

9 Sufficient appropriate audit evidence obtained Sufficient appropriate audit evidence not obtained Auditor concludes that FS as a whole are not free from material misstatement Auditor is unable to conclude whether FS as a whole are free from material misstatement Qualified opinion Adverse opinion Disclaimer of opinion Depends on auditor’s judgement of Whether FS are materially misstated In absence of evidence whether FS may be materially misstated Whether misstatement is or is likely to be pervasive CA. ASEEM TRIVEDI,FCA HIGHBROW MENTOR LEARNING SOLUTIONS PVT. LTD 9

10 What is PERVASIVE? What is PERVASIVE? MisstatementsPossible misstatements That are not confined to specific components accounts or items If so confined, represent a substantial portion Where pertaining to disclosures, are fundamental to users’ understanding of FS CA. ASEEM TRIVEDI,FCA HIGHBROW MENTOR LEARNING SOLUTIONS PVT. LTD 10

11 After obtaining sufficient appropriate audit evidence Auditor concludes that Individual misstatements Aggregate of misstatements Are MATERIAL but not PERVASIVE OR Auditor cannot obtain sufficient appropriate audit evidence Auditor concludes that Possible effects of undetected misstatements Are MATERIAL but not PERVASIVE QUALIFIED OPINION CA. ASEEM TRIVEDI,FCA HIGHBROW MENTOR LEARNING SOLUTIONS PVT. LTD 11

12 After obtaining sufficient appropriate audit evidence Auditor concludes that Individual misstatements OR Aggregate of misstatements Are MATERIAL AND PERVASIVE ADVERSE OPINION CA. ASEEM TRIVEDI,FCA HIGHBROW MENTOR LEARNING SOLUTIONS PVT. LTD 12

13 Auditor cannot obtain sufficient appropriate audit evidence Auditor concludes that Possible effects of undetected misstatements Are MATERIAL AND PERVASIVE DISCLAIMER OF OPINION Multiple Uncertainties Auditor concludes that Even after auditor has obtained audit evidence He cannot form an opinion on FS due to potential interaction of the uncertainties and their possible cumulative effect CA. ASEEM TRIVEDI,FCA HIGHBROW MENTOR LEARNING SOLUTIONS PVT. LTD 13

14 After accepting engagement, management imposes a scope limitation Auditor assesses that this may result in a qualified opinion or disclaimer Auditor requests management to remove the scope limitation Management does not remove it Auditor communicates this to Those charged with governance (TCWG) Considers alternative procedures If he cannot obtain sufficient appropriate audit evidence, and concludes that effect of undetected misstatements is Material but not pervasive Material and pervasive QUALIFY RESIGN, if allowed to GIVE DISCLAIMER CA. ASEEM TRIVEDI,FCA HIGHBROW MENTOR LEARNING SOLUTIONS PVT. LTD 14

15 SUMMARY OF MODIFICATION OF OPINION Nature of matter giving rise to the modification Auditor’s judgment about the pervasiveness of the effects or possible effects on FS Material but not pervasive Material and pervasive Financial statements are materially misstated Qualified opinionAdverse opinion Inability to obtain sufficient appropriate audit evidence Qualified opinionDisclaimer of opinion CA. ASEEM TRIVEDI,FCA HIGHBROW MENTOR LEARNING SOLUTIONS PVT. LTD 15

16 CAN AUDITOR GIVE UNMODIFIED OPINION ON A COMPONENT WHILE GIVING ADVERSE/ DISCLAIMER OF OPINION ON THE FS? When expressing adverse opinion or disclaiming an opinion on the FS as a whole the auditor cannot also express an unmodified opinion on one or more specific elements, accounts or items in the FS with respect to the same financial reporting framework CA. ASEEM TRIVEDI,FCA HIGHBROW MENTOR LEARNING SOLUTIONS PVT. LTD 16

17 Report to contain all elements per SA Basis for modification paragraph Just above the Opinion paragraph Just above the Opinion paragraph Describing matter of modification Describing matter of modification Basis for Qualified Opinion Basis for Adverse Opinion Basis for Disclaimer of Opinion Heading to be CA. ASEEM TRIVEDI,FCA HIGHBROW MENTOR LEARNING SOLUTIONS PVT. LTD 17

18 Describe and quantify effect of misstatement Say so if quantification is impracticable Explain how disclosures are misstated Explain reason why sufficient appropriate audit evidence was unavailable Non-disclosure Discuss with TCWG Describe omitted information If permitted provide the non-disclosed information, if practical and if sufficient appropriate audit evidence is obtained Adverse or disclaimer of opinion expressed But there are other matters that would have required modification Reasons and effects of such other matters to be given in Basis of Modification paragraph BASIS OF MODIFICATION PARAGRAPH CA. ASEEM TRIVEDI,FCA HIGHBROW MENTOR LEARNING SOLUTIONS PVT. LTD 18

19 OPINION PARAGRAPH Heading ◦ “Qualified Opinion”, “Adverse Opinion” or “Disclaimer of Opinion” Qualified opinion due to material misstatement ◦ In our opinion, except for the effects of matters described in the Basis for Qualified Opinion paragraph  The FS give true and fair view in accordance…  The FS have been prepared, in all material respects, in accordance with… If qualified for inability to obtain sufficient appropriate audit evidence ◦ ….except for the possible effects of the matters… CA. ASEEM TRIVEDI,FCA HIGHBROW MENTOR LEARNING SOLUTIONS PVT. LTD 19

20 Requirements when the auditor expresses a Qualified Opinion o the auditor should state in the opinion paragraph that, in the auditor’s opinion, except for the effects of the matter(s) described in the Basis for Qualified Opinion paragraph, the financial statements give a true and fair view (or “present fairly, in all material respects”) in accordance with the applicable financial reporting framework o When the modification arises from an inability to obtain sufficient appropriate audit evidence, the auditor should use the corresponding phrase “except for the possible effects of the matter(s)...” for the modified opinion CA. ASEEM TRIVEDI,FCA HIGHBROW MENTOR LEARNING SOLUTIONS PVT. LTD 20

21 Requirements when the auditor expresses an Adverse Opinion o the auditor should state in the opinion paragraph that, in the auditor’s opinion, because of the significance of the matter(s) described in the Basis for Adverse Opinion paragraph, the financial statements do not give a true and fair view (or “do not present fairly”) in accordance with the applicable financial reporting framework CA. ASEEM TRIVEDI,FCA HIGHBROW MENTOR LEARNING SOLUTIONS PVT. LTD 21

22 Requirements when the auditor disclaims an opinion o When the auditor disclaims an opinion due to an inability to obtain sufficient appropriate audit evidence, the auditor should state in the opinion paragraph that, because of the significance of the matter(s) described in the Basis for Disclaimer of Opinion paragraph, the auditor has not been able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion and, accordingly, the auditor does not express an opinion on the financial statements CA. ASEEM TRIVEDI,FCA HIGHBROW MENTOR LEARNING SOLUTIONS PVT. LTD 22

23 AUDITOR’S RESPONSIBILITY  When the auditor expresses a qualified or adverse opinion o Requires to state that the audit evidence obtained is sufficient and appropriate to provide a basis for the auditor’s modified audit opinion  When the auditor disclaims an opinion o Need to state that they were unable to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion CA. ASEEM TRIVEDI,FCA HIGHBROW MENTOR LEARNING SOLUTIONS PVT. LTD 23

24 COMMUNICATION WITH THOSE CHARGED WITH GOVERNANCE The auditors need to communicate to those charged with governance, the reasons and circumstances that led to the expected modifications as well as the proposed wording of the modification CA. ASEEM TRIVEDI,FCA HIGHBROW MENTOR LEARNING SOLUTIONS PVT. LTD 24

25 SA 706, EMPHASIS OF MATTER PARAGRAPHS AND OTHER MATTER(S) PARAGRAPHS IN THE INDEPENDENT AUDITOR’S REPORT CA. ASEEM TRIVEDI,FCA HIGHBROW MENTOR LEARNING SOLUTIONS PVT. LTD 25

26 Draw users’ attention to matters presented/ disclosed in FS that are fundamental to users’ understanding of FS Draw users’ attention to matters not presented/ disclosed in FS that are relevant to users’ understanding of the audit, auditor’s responsibilities or auditor’s report Emphasis of Matter paragraph (EMP) Other Matter Paragraph (OMP) EMPOMP Matters presented/ disclosed in FS Matters NOT presented/ disclosed in FS Fundamental to users’ understanding Relevant to users’ understanding Understanding of FSUnderstanding of the audit, auditor’s responsibilities or auditor’s report CA. ASEEM TRIVEDI,FCA HIGHBROW MENTOR LEARNING SOLUTIONS PVT. LTD 26

27 Has to be fundamental to users’ understanding Auditor has obtained sufficient appropriate audit evidence that matter is not materially misstated in the FS Matter referred to must be presented/ disclosed in FS EMP: REQUIREMENTS CA. ASEEM TRIVEDI,FCA HIGHBROW MENTOR LEARNING SOLUTIONS PVT. LTD 27

28 EMP: REQUIREMENTS EMP is included immediately AFTER opinion paragraph Heading “Emphasis of Matter” is given Reference to where matter emphasised can be found in FS is given Indicate that auditor’s opinion is NOT MODIFIED in respect of matter emphasised CA. ASEEM TRIVEDI,FCA HIGHBROW MENTOR LEARNING SOLUTIONS PVT. LTD 28

29 Uncertainty relating to future outcome of exceptional litigation or regulatory action Early adoption and application of an accounting standard that has pervasive effect on the FS Major catastrophe that has/ had/ continues to have significant effect on the FS EMP: examples CA. ASEEM TRIVEDI,FCA HIGHBROW MENTOR LEARNING SOLUTIONS PVT. LTD 29

30 ◦ Use of EMP should not be widespread and should not include more information than what is presented/ disclosed elsewhere in FS ◦ EMP is not a substitute for  A modified opinion (qualified/ adverse/ disclaimer)  Disclosures that management should make EMP: other considerations CA. ASEEM TRIVEDI,FCA HIGHBROW MENTOR LEARNING SOLUTIONS PVT. LTD 30

31 OMP: REQUIREMENTS Matter has to be relevant to users’ understanding Heading “Other Matter(s)” is given Such reporting is not prohibited by law or regulation Is placed after opinion para and any EMP in report on FS, but may be placed in Other Reporting Responsibilities section if its contents relate to such responsibilities Given only for users’ understanding of matters related to the audit, auditor’s responsibilities and auditor’s report CA. ASEEM TRIVEDI,FCA HIGHBROW MENTOR LEARNING SOLUTIONS PVT. LTD 31

32 EXAMPLES OF CIRCUMSTANCES NECESSITATING OMP Users' understanding of audit Auditor appointed by law is unable to resign when management imposes a pervasive scope limitation Users' understanding of auditor's responsibility or auditor's report Law requires auditor to elaborate on matters that provide further explanation of his responsibilities in the audit or the auditor's report CA. ASEEM TRIVEDI,FCA HIGHBROW MENTOR LEARNING SOLUTIONS PVT. LTD 32

33 Reporting on > 1 set of FS If auditor is engaged to issue a report under Indian GAAP as well as under IFRS, he may use OMP in each report to inform users that he has also reported under another framework Restriction on distribution or use of report If special purpose FS are prepared in accordance with a general purpose framework because such a framework meets users' needs, auditor may use OMP to say that his report is intended solely for the intended users and should not be distributed/ used by others Examples of circumstances necessitating OMP CA. ASEEM TRIVEDI,FCA HIGHBROW MENTOR LEARNING SOLUTIONS PVT. LTD 33

34 CASE STUDIES What is the type of opinion in the following cases? Case - 1  Inventories are misstated. Say it is 15 % of the profits for the year. The misstatement is deemed to be material but not pervasive to the financial statements. Case – 2  The auditor was unable to obtain sufficient appropriate audit evidence about multiple elements of the financial statements. That is, say, the auditor was unable to obtain audit evidence about the entity’s inventories and accounts receivable. The possible effects of this inability to obtain sufficient appropriate audit evidence are deemed to be both material and pervasive to the financial statements. CA. ASEEM TRIVEDI,FCA HIGHBROW MENTOR LEARNING SOLUTIONS PVT. LTD 34

35 SOLUTION1 CA. ASEEM TRIVEDI,FCA HIGHBROW MENTOR LEARNING SOLUTIONS PVT. LTD 35 ◦ Qualified The Company’s inventories are carried in the Balance Sheet at Rs. XXX. Management has not stated the inventories at the lower of cost and net realisable value but has stated them solely at cost, which constitutes a departure from the Accounting Standards referred to in sub-section (3C) of section 211 of the Act. The Company’s records indicate that had management stated the inventories at the lower of cost and net realisable value, an amount of Rs. XXX would have been required to write the inventories down to their net realisable value. Accordingly, cost of sales would have been increased by Rs. XXX, and income tax, net profit and shareholders’ funds would have been reduced by Rs. XXX, Rs. XXX and Rs. XXX, respectively. Qualified Opinion In our opinion and to the best of our information and according to the explanations given to us, except for the effects of the matter described in the Basis for Qualified Opinion paragraph, the financial statements give the information required by the Act in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India:

36 SOLUTION 2 CA. ASEEM TRIVEDI,FCA HIGHBROW MENTOR LEARNING SOLUTIONS PVT. LTD 36  Disclaimer of opinion We were appointed as auditors of the Company after March 31, 20XX and thus could not observe the counting of physical inventories at the beginning and end of the year. Accordingly, we were unable to satisfy ourselves by alternative means concerning the inventory quantities held at December 31, 20X0 and March 31, 20X1 which are stated in the Balance Sheet at Rs. XXX and Rs. XXX, respectively. In addition, the introduction of a new computerized accounts receivable system in September 20X1 resulted in numerous errors in accounts receivable. As of the date of our audit report, management was still in the process of rectifying the system deficiencies and correcting the errors. We were unable to confirm or verify by alternative means accounts receivable included in the Balance Sheet at a total amount of Rs. XXX as at March 31, 20X1. As a result of these matters, we were unable to determine whether any adjustments might have been found necessary in respect of recorded or unrecorded inventories and accounts receivable, and the elements making up the Statement of Profit and Loss and Cash Flow Statement. Disclaimer of Opinion Because of the significance of the matters described in the Basis for Disclaimer of Opinion paragraph, we have not been able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion. Accordingly, we do not express an opinion on the financial statements.

37 CASE STUDIES  Case 3  The auditor of ABC Ltd. was unable to obtain sufficient appropriate audit evidence regarding existence of investments in XYZ Ltd in a foreign branch. The possible effects of the inability to obtain sufficient appropriate audit evidence are deemed to be material but not pervasive to the financial statement.  Case 4  You are the auditor of XYZ Ltd. There is uncertainty relating to a pending exceptional litigation Matter – say there is a law suit filed against the company for tax or some other matter. You cannot conclude that it should be provided for. CA. ASEEM TRIVEDI,FCA HIGHBROW MENTOR LEARNING SOLUTIONS PVT. LTD 37

38 SOLUTION 3 CA. ASEEM TRIVEDI,FCA HIGHBROW MENTOR LEARNING SOLUTIONS PVT. LTD 38 ◦ Qualified ABC Company Limited’s investment in XYZ Company, a foreign company acquired during the year and accounted as Held to maturity investment in Balance sheet of ABC company’ Ltd. We were unable to obtain sufficient appropriate audit evidence about the existence of ABC Company Limited’s investment in XYZ Company as at March 31, 20XX because we were denied access to the financial information relating to the same, management, Consequently, we were unable to determine whether any adjustments to these amounts were necessary. Qualified Opinion In our opinion and to the best of our information and according to the explanations given to us, except for the possible effects of the matter described in the Basis for Qualified Opinion paragraph, the financial statements give the information required by the Act in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India:

39 SOLUTION 4 CA. ASEEM TRIVEDI,FCA HIGHBROW MENTOR LEARNING SOLUTIONS PVT. LTD 39 Emphasis of Matter paragraph after opinion paragraph following shall be added: “We draw attention to Note X to the financial statements which describes the uncertainty related to the outcome of the lawsuit filed against the Company by XYZ Company. Our opinion is not qualified in respect of this matter

40 CASE STUDIES Case 5 In case of auditor of Consolidated Financial Statement, there are certain subsidiaries which were not audited by him but which form part of the consolidated financial statements under report. Also the amounts involved are not insignificant. CA. ASEEM TRIVEDI,FCA HIGHBROW MENTOR LEARNING SOLUTIONS PVT. LTD 40

41 SOLUTION 5 CA. ASEEM TRIVEDI,FCA HIGHBROW MENTOR LEARNING SOLUTIONS PVT. LTD 41 Other Matter paragraph Other Matter “We did not audit the financial statements of certain subsidiaries, whose financial statements reflect total assets (net) of Rs. XXXX as at March 31, 20XX, total revenues of Rs. XXXX and net cash outflows amounting to Rs. XXXX for the year then ended. These financial statements have been audited by other auditors whose reports have been furnished to us by the Management, and our opinion is based solely on the reports of the other auditors. Our opinion is not qualified in respect of this matter.”

42 SA – 720 THE AUDITOR’S RESPONSIBILITY IN RELATION TO OTHER INFORMATION IN DOCUMENTS CONTAINING AUDITED FINANCIAL STATEMENTS CA. ASEEM TRIVEDI,FCA HIGHBROW MENTOR LEARNING SOLUTIONS PVT. LTD 42

43 This SA deals with Auditor’s responsibility in relation to Other Information* presented in documents (annual reports or similar document) containing audited Financial Statements and the auditor’s report thereon. *Other information may comprise for example:  A report by Management or those charged with governance on operations.  Financial Summaries or highlights.  Planned Capital expenditures.  Financial ratios. The objective of the auditor is to respond appropriately when documents containing audited financial statements and the auditor’s report thereon include other information that could undermine the credibility of those financial statements and the auditor’s report. SA SCOPE & OBJECTIVE CA. ASEEM TRIVEDI,FCA HIGHBROW MENTOR LEARNING SOLUTIONS PVT. LTD 43

44 REQUIREMENTS OF SA 720 Reading Other Information The Auditor shall make an appropriate arrangements with Management or Those Charged with Governance, to provide such other information, prior to the date of auditor’s report to the auditor. Read such other information to identify Material Inconsistencies or Material Misstatement of facts, if any with audited financial statements. CA. ASEEM TRIVEDI,FCA HIGHBROW MENTOR LEARNING SOLUTIONS PVT. LTD 44

45 MI observed in Other Information Prior to Auditor’s Report Date MI observed in Other Information Subsequent to Auditor’s Report Date - When revision of audited Financial Statements is necessary & management refuses, modify opinion in accordance with SA When revision of such Other Information is necessary and management refuses, communicate to TCWG and: a) Include such matter in Emphasis of Matter Para as per SA-706; OR b) If possible, withdraw from engagement. - When revision of audited Financial Statements is necessary, follow requirements of SA-560 Subsequent Events. -When revision of such Other Information is necessary and management makes such changes, ensure steps taken by the management. -When management refuses to make changes to other information, notify to TCWG & seek legal opinion. MATERIAL INCONSISTENCIES (MI) CA. ASEEM TRIVEDI,FCA HIGHBROW MENTOR LEARNING SOLUTIONS PVT. LTD 45

46 On observing the Material Misstatement, following actions can be taken by an auditor: a)Discuss the matter with management to evaluate the validity of the management’s disclosures and after discussion with management, auditor may conclude that valid differences of judgment or opinion exists; b)Request Management to consult qualified third party, such as legal entity’s counsel and auditor shall consider such advice received; c)If auditor feels that such misstatement needs correction and management refuses for the same then auditor shall notify such facts to TCWG and seek legal opinion from his own legal counsel. Effective Date: This standard is effective from 1 st April 2010 MATERIAL MISSTATEMENTS OF FACTS CA. ASEEM TRIVEDI,FCA HIGHBROW MENTOR LEARNING SOLUTIONS PVT. LTD 46

47 THANK YOU CA. ASEEM TRIVEDI,FCA HIGHBROW MENTOR LEARNING SOLUTIONS PVT. LTD 47


Download ppt "AUDIT CONCLUSIONS AND REPORTING CA. ASEEM TRIVEDI,FCA HIGHBROW MENTOR LEARNING SOLUTIONS PVT. LTD 1 SA 700, SA 705, SA 706 & SA 720."

Similar presentations


Ads by Google