Revised Reporting Standards – SA 700, SA 705 and SA 706 Presented by: Vikas Khurana Confidential and Privileged
STANDARDS ON AUDITING Standards on Auditing Standard on Quality Control (which apply to audits of historical financial Information) (which apply to quality control at the firm level) a) General Principle and Responsibilities (200- SQC 1 - Quality Control for series) Firms that Perform Audit and b) Risk Assessment and responses to assessed Reviews of Historical risk (300 and 400 – series) Financial Information, and c) Audit evidence (500-series) d) Using the work of others (600- series) other Assurance and Related e) Audit conclusions and reporting ( 700 series) Services Engagements f) Specialized areas (800- series) 2
List of Standards on Auditing on Reporting: SA 700-799 - Audit Conclusions and Reporting 700 Forming an Opinion and Reporting on Financial Statements 701 Communicating Ket Audit Matters in the Independent Auditors Report. 705 Modifications to the Opinion in the Independent Auditor’s Report 706 Emphasis of Matter Paragraphs and Other Matter Paragraphs in the Independent Auditor’s Report 710 Comparative Information—Corresponding Figures and Comparative Financial Statements 720 The Auditor’s Responsibility in Relation to Other Information in Documents Containing Audited Financial Statements 3
Agenda STANDARD ON AUDITING (SA) SCOPE SA 700 Forming an Opinion and Deals with the auditor’s responsibility to Reporting on Financial form an opinion on the financial statements. Statements SA 705 Modifications to the Opinion Deals with how the form and content of the in the Independent Auditor’s auditor’s report are affected when the auditor Report expresses a modified opinion in the auditor’s report. SA 706 Emphasis of Matter Deals with how the form and content of the Paragraphs and Other auditor’s report are affected when the auditor Matter Paragraphs in the includes an Emphasis of Matter paragraph in Independent Auditor’s the auditor’s report. Report 4
Standard on Auditing (SA) 700 (Revised) Forming an Opinion and Reporting on Financial Statements Effective for audits of financial statements for periods beginning on or after April 1, 2018 5
Scope of SA - Deals with the auditor’s responsibility to form an opinion on the financial statements and with the form and content of the auditor’s report. - This SA is written in context of a complete set of general purpose financial statements. Objective of the Auditors are - Form an opinion on the financial statements based on an evaluation of the conclusions drawn from the audit evidence obtained ; and - Express clearly the opinion through a written report; 6
Requirements of Forming an Opinion on the Financial Statements (i) Applicable financial reporting framework The Auditor shall - Form an opinion on whether the financial statements are prepared , in all material respects , in accordance with the applicable financial reporting framework. Conclude whether he has obtained reasonable assurance about whether the financial statements are free from material misstatement, whether due to fraud or error. (ii) Conclusion shall take into account: - SA 300: sufficient appropriate audit evidence, and; - SA 450: uncorrected misstatements are material, individually or in aggregate. 7
Requirements of Forming an Opinion on the Financial Statements (contd.) (iii) A uditor shall evaluate the following requirements: - Financial statements are prepared, in all material respects, in accordance with the requirements of the applicable financial reporting framework. This shall include, inter-alia, consideration of the qualitative aspects of the entity’s accounting practices, including indicators of possible bias in management’s judgments. The Auditor shall conclude - Adequacy of disclosure of significant accounting policies selected and applied - Accounting policies selected and applied are consistent with applicable Financial Reporting Frame work and are appropriate - Reasonability of accounting estimates made by the management - The information presented in the financial statements is relevant, reliable, comparable, and understandable; - Adequate disclosure to enable the users to understand the effect of material transactions - Terminology used in financial statement is appropriate. 8
Form an Opinion Type of Opinion Condition (i) An unmodified opinion Concludes that the financial statements are prepared, in all material respects , in accordance the applicable financial reporting framework. (i) An modified opinion (in If the auditor concludes: accordance with SA 705 (Revised) (a) that based on audit evidence obtain , the financial statements are not free of material misstatements; (b) that he is unable to obtain sufficient appropriate audit evidence to conclude that the financial statements are free of material misstatements. 9
Key Amendments: Auditor’s Report Format: SA 700 (Revised) SA 700 (Old) (w.e.f. 1-4-2018) (a) Title - “Independent Auditors’ Report” (a) Title - “Independent Auditors’ Report” (b) Addressee – “Shall be addressed as (b) Addressee – “Shall be addressed as required by the circumstances of the required by the circumstances of the engagement.” engagement.” (c) Auditor’s Opinion (c) Introductory Paragraph (d) Basis for Opinion (d) Management’s Responsibility (e) Going Concern - Where applicable, (e) Auditor’s Responsibility the auditor shall report in accordance (f) Auditor’s Opinion- with SA 570 (g) Other Reporting Responsibilities (f) Key Audit Matters (h) Date, Place of Signature (g) Management’s Responsibility (h) Auditor’s Responsibility (i) Other Reporting Responsibilities (j) Date, Place of Signature 10
Auditor’s Report A) Title : Should have a clear title – “Independent Auditors’ Report” B) Addressee : Shall be addressed as required by the circumstances of the engagement. C) Auditors’ Opinion – (heading “Opinion.”) shall: Identify the entity whose financial statements have been audited; o State that the financial statements have been audited; o Identify the title of each statement comprising the financial statements; o Refer to the notes, including the summary of significant accounting o policies; and Specify the date of, or period covered by, each financial statement o comprising the financial statements. The introduction paragraph, as prescribed in the old SA 700, is not required to be presented separately now. This has been included in the Auditors’ opinion paragraph. 11
Auditor’s Report (contd.) Auditors’ Opinion : C) - An unmodified opinion on financial statements prepared in accordance with fair presentation framework shall include (a) The financial statements present fairly, in all material respects, in accordance with the applicable financial reporting framework; or (b) The financial statements give a true and fair view of in accordance with the applicable financial reporting framework. - An unmodified opinion on financial statements prepared in accordance with compliance framework shall include (a) The financial statements are prepared, in all material respects, in accordance with the applicable financial reporting framework 12
Auditor’s Report (contd.) - If the applicable financial reporting framework is not the accounting standards issued by the Institute of Chartered Accountants of India (ICAI) or Accounting Standards, notified by the Central Government by publishing the same as the Companies (Accounting Standards) Rules, 2006, or; the Accounting Standards for Local Bodies issued by the Institute of Chartered Accountants of India, then the auditor shall identify the jurisdiction of origin of the framework. D) Basis for Opinion - The Auditor’s report shall include a section, directly following the opinion section, with the heading “Basis for opinion”, that: (a) states the audit was conducted in accordance with the SAs. (b) refers to the section of the auditor’s report that describes the auditor’s responsibilities under the SAs (c) includes a statement that auditor is independent of entity and has fulfilled the auditor’s other ethical responsibilities in accordance with code of ethics issued by ICAI. (d) states whether the auditor believes that the audit evidence obtained is sufficient and appropriate to provide a basis for the auditor’s opinion. 13
Auditor’s Report (contd.) E) Going Concern: Where applicable, the auditor shall report in accordance with SA 570. F) Key Audit Matters: - Auditor shall communicate key audit matters in the auditor's report of general purpose financial statements of listed entities in accordance with SA 701. - Auditor shall communicate key audit matters in the auditor's report accordance with SA 701 when the auditor is otherwise required by law or regulation or decides to communicate key audit matters. 14
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