Session II – Compliance with Technical Standards VADODARA19.12.2014 CA Niranjan Joshi Peer Review...

Session II – Compliance with Technical Standards

Session II – Compliance with Technical Standards

VADODARA 19.12.2014

CA Niranjan Joshi

Peer Review Board of ICAI

Hosted by Baroda Branch of WIRC of ICAI

One Day Training Programme for Peer

Reviewers

2 19.12.2014CA Niranjan Joshi

Disclaimer

These are my personal views and can not be construed to be the views of the ICAI or my firm.

No representations or warranties are made by the PRB with regard to this presentation.

These views do not and shall not be considered as a professional advice.

This presentation should not be reproduced in part or in whole, in any manner or form, without my written permission.


Agenda

Objective

Peer Review Objective

Technical Standards

Compliance with Technical Standards


Objective

Review of the work done by a professional, by another member of the same profession with similar standing

It is examination and review of systems and procedures to determine whether the same have been put in place by Practice Unit for ensuring the quality of assurance services as envisaged by the Technical, Professional and Ethical Standards and whether the same were consistently applied in the period under review.


Scope

Peer Review process shall apply to all the assurance services provided by Practice Unit

Reviewer shall cover- Compliance with Technical, Professional and

Ethical Standards.


Compliance with Technical Standards means

- Accounting Standards issued by ICAI/Central Government

- Standards issued by ICAI including:- Engagement Standards - Statements - Guidance Notes - Standards on Internal Audit- Statements on Quality Control- Notifications/Directions/Announcements/

Guidelines / Pronouncements / Professional Standards issued by Council of ICAI or any of its committees.


Compliance with Technical Standards means

- Framework for preparation and presentation of FS- Standard on Auditing, Standard on Assurance

Engagements, Standards on Quality Control, Guidance Notes on related services

- Provision of relevant statutes / regulations as applicable

Reviewer shall focus on compliance by PU with all the Technical, Professional and Ethical Standards requirements in respect of services rendered while performing a particular assurance assignment.

Peer Review seeks to ensure that these standards are implemented both in letter and spirit. Objective is to improve the quality of services rendered.


Auditing Standards

Nature of Service

Level of Assurance

Report Provided

No Assurance

CompilationAudit ReviewAgreed upon

procedure

High but not

absolute

Moderate Assurance

No Assurance

Factual findings

negative assurance

on assersions

positive assurance

on assersions

Identification of info

compiled


Applicable Standards on Auditing

Standard Number

Quality Control for Firms that Perform Audits and Reviews of Historical Financial Information, and Other Assurance and Related Services Engagements

SQC 1

General Principles and Responsibilities 200 – 299

Risk Assessment and Response to Assessed Risks 300 – 499

Audit Evidence 500 – 599

Using work of Others 600 – 699

Audit Conclusions and Reporting 700 – 799

Specialised Areas 800 – 899

Standard on Review Engagements (SRE’s) 2000 – 2999

Standards on Assurance Engagements (SAE’s) 3000 – 3600

Standards on Related Services (SRS’s) 4000 – 4600


SA 200- Basic Principles Governing an Audit

Integrity, Objectivity and Independence Confidentiality Skills and Competence Work Performed by Others Documentation Planning Audit Evidence Accounting System and Internal Control Audit Conclusions and Reporting


SA 230- Documentation

The form and content of - Plan, Audit Procedures, Audit Evidence and

Conclusions Permanent vs Current file

Ownership-Property of Auditor Custody and Confidentiality


SA240 -The Auditor’s Responsibility To Consider Fraud and Error

Identify whether the fraud is management fraud or employee fraud

Provide reasonable assurance that Financial Statements are free from material misstatements.

Inquiries of management Documentation Management Representation Communications

- To Management- To Regulators and Enforcement authorities- To Incoming Auditor

Auditor unable to complete the engagement


SA 220- Quality Control for Audit Work

Quality Control Policies- Audit Firm’s Level Professional Requirements Skills and Competence Assignment Delegation Consultation Acceptance and Retention of client Monitoring

Quality control policies –Individual Audit Level Direction Supervision Review


SA 250- Consideration of Laws and Regulation in an Audit of Financial Statements

Auditor to recognise non-compliance may materially affect Financial Statements

At planning: understand entity’s legal/regulatory framework and compliance.

Perform procedure to identify non-compliance – inquiry document exam

Auditor to have sufficient understanding of relevant Laws and Regulation to consider their applicability, impact and disclosure

Communication/Reporting of Non-compliance


SA-210 Terms of Audit Engagement

To agree on the terms of the engagement and changes, if any-Auditor and the client

Auditor to sent an engagement letter before the commencement of engagement Avoid any misunderstanding between the client

and the auditor Provide written confirmation of:-

Acceptance of appointment / Scope /NatureManagement’s Responsibility / Unrestricted access to record and information

Reference to Management representation Any restriction on auditor’s liability no need for sending the letter every year/ Review.


SA 400- Risk Assessment & Internal Control

Obtain understanding of accounting and internal control systems to assess risk and plan and develop an effective audit approach

Design of audit procedures should ensure mitigation of risk – use professional judgement

Inherent risk to be assessed at FS level, relate assessment material account balances, classes of transactions

If inherent risk is judges to be not high, reasons for that assessment to be documented


SA 400- Risk Assessment & Internal Control continued…

Understanding the control environment: Business cycle controls and computer

controls installed sufficient to develop audit plan

Management’s attitude, awareness and action

Evidence to be obtained and documented to support conclusion that risk is low.

Regardless of inherent/ control assurance, some substantive work must be done

Higher internal/ control risk, more audit evidence to be obtained


SA 300- Audit Planning

Based on the knowlegde of the client, audit plan should be made

Audit plan should be made before conduct of audit and revised through progress of audit

Audit plan should be descriptive specifying audit program ,area-wise audit objectives


SA320- Audit Materiality

Materiality should be considered for determining nature, timing and extent of audit procedure and evaluating the effect of misstatements

Auditor should evaluate whether effect of aggregate uncorrected misstatements on FS is material

The uncorrected misstatement should be brought to the notice of the management and if management refuses to adjust the financials, then qualified and adverse opinion is required


SA310 – Knowledge of the Business

Auditor to obtain sufficient knowledge to understand event, practices and transactions impacting Financial Statements, examination of audit report

Preliminary knowledge should be obtained prior to engagement acceptance

Subsequent to acceptance more detailed information to be obtained

For continuing engagement, update and re-evaluate Knowledge should be passed on to audit team

knowledge gained should be in synchronisation with assertion in the Financial statements and the Financial statement as a whole


SA 402- Audit Considerations relating to Entities Using Service Organisations

If reliance on work done by a service organization is significant, obtain sufficient information to evaluate its impact on accounting/ control systems.

Assess control risk as high unless tests of controls allow for a lower risk

In using report of service organisation auditor, evaluate his competence if he is not a CA

Assess scope of work done by service organisation auditor and nature and content of his report to decide on its usefulness

Evaluate whether nature, timing and extent of tests performed by service organisation auditor provide adequate evidence to support (client auditor’s) assessed level of control risk

No reference to be made of service organisation auditor’s report in (client auditor’s) audit report


SA500 – Audit Evidence

To evaluate whether auditor has obtained sufficient appropriate audit evidence (SAAE) before drawing conclusion

Audit evidence forms the base for an auditor. To form an opinion so he should be thorough in his effort to obtain evidence

In case an auditor is unable to obtain sufficient appropriate evidence, auditor should not express an unquilified opinion


SA580 – Representation BY Management

Management acknowledges its responsibility for the preparation and presentation of financial statements

Exercise professional judgement on matters on which to obtain MRs- when sufficient appropriate evidence cannot reasonably be expected to exist

Where MR conflicts with other audit evidence, increase professional skepticism

MRs should be documented among the WPs Case of ‘scope limitation’ where management

refuses to provide MR that the auditor considers necessary


SA 520- Analytical Procedures

Application At planning stage to understand business and

identify potential risks Near end of audit to conclude whether FSs

correspond to knowledge of business Includes comparison of financial information &

comparison of relationships At planning stage use financial/ non- financial

information Methods used- simple comparisons/ complex

analysis using statistical techniques When analytical procedures identify significant

variances or inconsistent relationships further investigation/ explanations/ corroborative evidence needed.


SA 530- Audit Sampling

Design and select a representative sample, perform audit procedures thereon, evaluate sample results to provide audit evidence

Design- consider specific audit objective, population, sample size

Sample size- consider: sampling risk, tolerable error, expected error

The auditor should: Analyse errors found in sample Project detected errors into population to

estimate likely specific audit objective Reassess the sampling risk, based on aggregate

of detected and likely errors.


SA 540- Auditing of Accounting Estimates

Examine evidence that estimate is reasonable in the circumstances and is appropriately disclosed

To audit an estimate Review and test process used by client in making

estimate: and/or Use an independent estimate to compare with

recorded estimate: and/or Review subsequent events that confirm validity of

recorded estimate Estimate should be consistent with knowledge of

business and audit evidence obtained


SA 560- Subsequent Events

Consider effect of subsequent events on FSs & audit report

Plan and perform procedures to ensure that all subsequent events that might require adjustments/ disclosures are identified

If management does not adjust FSs for effect of such events, express qualified/ adverse opinion.


SA510-Initial Engagement Opening Balances

For new engagements auditor to ensure: Correct b/f of prior period closing balances Opening balances b/f are free of misstatements Appropriate accounting policies are consistently

applied If sufficient appropriate evidence is not obtained for

integrity of opening balances or if effect of any material misstatements therein is not duly accounted/disclosed , express qualified or adverse opinion or disclaimer as considered appropriate


SA550 - Related Parties

Perform the following audit procedure on related parties and transactions disclosed by management:Review :-PY working papers / client’s procedure for identifying RP/Inquire about affiliation of directors/key management personnel with other entities / shareholders records for names of principles shareholders / memorandum , articles, minutes, statutory records / PY audit reports / client’s tax returns/ information given to other regulators/ JV and other key agreements

Disclosure - adequate in terms of requirements of AS-18 Adequacy of controls in relation to RP transactions MR - completeness of RP information / disclosure in FS


SA505 – External Confirmation

Determine whether external confirmation is necessary to obtain sufficient and appropriate audit evidence to support certain FSs assertions

Consult management for employing external confirmation procedure, obtain an understanding of client’s transactions/third party arrangements and also consider information from earlier year audit

Design confirmation requests to the specific audit objective and assess whether external confirmations reduces audit risks to an acceptably low level

Consider the causes and frequency of exceptions reported. In case of no response to positive external confirmation requests, perform alternative procedures


SA501 - Audit Evidence Additional Consideration for Specific Items

Attendance at physical inventory counting Segment Information Appropriate disclosure of segment information

as per the financial reporting framework Inquiry regarding litigation of claims Valuation and Disclosure of Long- Term

Investment


SA610 – Relying Upon the Work of an Internal Auditor

External auditor to evaluate adequacy of internal audit and document his conclusions

General Evaluations- Organizational Status/Scope/ Technical Competence/ Due Professional care

Also relevant from viewpoint of planning, nature, timing and extent of his own testing and, if appropriate, reducing extensiveness thereof by relying on internal audit

Review/test the internal auditor’s work on which he relies, and document his conclusions thereon.


SA 620 – Using the Work of an Export

Work done by other auditors/ experts (other than accounting and auditing) should be adequate

To decide whether to use the work of expert, to consider

To get satisfaction about expert’s skill Source data appropriateness: If it is concluded that work of expert is inconsistent

with FSs, or is not sufficient appropriate audit evidence, express qualified/ adverse opinion or disclaimer, as appropriate

If unqualified opinion, no mention to expert’s work in audit report

To ensure that the expert’s work constitutes appropriate audit evidence consider


SA 600- Using the Work of Another Auditor

Principal auditor to decide how work of another auditor will affect audit

If the other auditor is not a CA, principal auditor to examine his professional competence

Principal auditor to perform procedures to ensure that the work of another auditor is adequate for his purposes

Significant findings of other auditor to be considered by principal auditor

There should be sufficient liaison/ coordination between principal and other auditor

If principal auditor concludes that he cannot use the work of another auditor and is unable to audit that component, he expresses a qualified opinion/ disclaimer, as appropriate- due to scope limitation

If principal auditor relies on work of other auditor’s, his report should clearly mention division of responsibility and its extent.


SA299- Responsibility of Joint Auditors

JA to mutually divide areas of work or do it jointly & this is to be documented & communicated to client

Finding by one affecting work of others or likely to require discussion/disclosure to be communicated to them in writing before finalisation

Joint Auditors responsible only for work allotted to them except for work not divided/ procedures decided by all/ matters brought to his notice/ compliance checking of FS and audit report

If disagreement on report, each should express his own opinion


SA570 - Going Concern

Recognise the risk that Going concern assumption may no longer be appropriate

Such indications may be Financial, operating or otherwise

When a question arises about the appropriateness of going concern, gather sufficient appropriate evidence for the entity’s ability to continue in operations for the foreseeable future

If GC assumption is appropriate due to mitigating factors eg management future plans, consider whether such factors need to be disclosed, if not, consider giving qualified/ adverse opinion

Appropriate audit opinion to be expressed


SA 710- Comparatives

Comparative figures to comply with financial reporting framework

Report not to specifically identify comparatives opinion on the current period as a whole

If a matter that caused prior period report to be qualified/ adverse or disclaimer, is unresolved and results in modification of current period report, current period report should also be modified regarding corresponding figures

Examine that: Appropriate disclosure are made, If not, issue modified report on current period financials modified with respect to corresponding figures included therein

If prior period FSs are not audited, incoming auditor should state in his report that corresponding figures are unaudited


SA 260- Communications of Matters with Those Charged with Governance

To communicate audit matters of governance interest arising out of audit of FSs to those relevant persons who are TCWG

Determination of TCWG by the auditor TCWG responsible for supervision, control &

direction To explain in audit engagement letter General approach and overall scope of the audit

including limitation


Questions???


CA Niranjan Joshi, B.Com., FCA, DISA (ICAI)Email: [email protected]

Cell: 9819078061

Session II – Compliance with Technical Standards VADODARA19.12.2014 CA Niranjan Joshi Peer Review...

Documents

Transcript of Session II – Compliance with Technical Standards VADODARA19.12.2014 CA Niranjan Joshi Peer Review...