Ernakulam Branch of SICASA of ICAI | Eranakulam Branch of SIRC of ICAI

STANDARDS ON AUDITING (Reporting Aspects)

Audit report plays an instrumental role in the compliance aspects under a recommendatory application of SAs. Investor has held their sweated earnings in the companies and they want to make an informed decisions for future actions, and on the other side management/TCWG also want the opinion on Financial Statements having opinion of True and Fair View by the Auditor so these two sides of business environment requires proper reporting after having all compliance under Standards on Auditing. So let’s read on to know more……….

SA-700: •Forming an Opinion & Reporting on Financial Statement (on or after 1st April, 2017)

SA-701 - •Communicating Key Audit Matters in the Independent Auditor's Report (on or after 1st April, 2017)

SA-705 - •Modification to the Opinion in the Independent Auditor's Report (on or after 1st April, 2017)

SA-706 - •Emphasis of Matter Paragraph and Ohter Matter Paragrphs in the Independent Auditor's Report (on or after 1st April, 2017)

Differe ntial Basis

SA-700

SA-701

SA-705

SA-706

Objective

To form an opinion on Fin. St. based on an

evaluation

of the conclusions drawn from the audit evidence obtained.

To express clearly that opinion through a ritten report

To determine key audit matters

and having

informed an opinion on the financial statement s, communic ate those matters by describing them in the

auditor’s report.

To express clearly an appropriately modified opinion on the financial

statements that is

necessary when:

(a)The auditor concludes, based on the audit evidence obtained that the Fin. St. as a whole are free from Mat.

Misst or

(b)The auditor is unable to obtain SAAE to conclude that the Fin. St. as a whole are free from Mat. Misst.

To draw user’s 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)A matter, although appropriately presented or disclosed in the Fin. St., that is of such importance that it is fundamental to users’ understanding of the Fin. St., or

(b)As appropriate, any other matter that is

relevant to user’s

understanding of the audit , the auditor’s

responsibilities or

the auditor’s report

MEANING OF GENERAL PURPOSE FRAMEWORK

Designed to meet common Fin. Info. Needs of users

Fair Presentation Framework
Compliance

FORMING AN OPINION ON THE FINANCIAL STATEMENT

SA-700 requires that auditor shall form an opinion on whether the financial statements are prepared in all material respects in accordance with the applicable FRF.

To form this opinion, auditor needs to conclude as to whether he has obtained REASONABLE ASSURANCE that the financial statements as a whole are free from material misstatements whether due to fraud or error. The conclusion shall take into account following:

(a) Auditor’s conclusion

In accordance with SA-330, whether SAAE obtained.

(b) Auditor’s conclusion

In accordance with SA-450, whether uncorrected misstatements are material, individually or in aggregate.

1.First, preparation of financial statement in all material respects Second, consideration of qualitative aspects of the entity’s accounting practices including Indicators of possible bias in management’s judgements.

2.Whether the requirements of the applicable FRF have been fulfilled such as disclosure of accounting policies, selection & application of accounting policies consistently, accounting estimate by management (reasonable), info presented in financial statement (relevant, reliable, comparable & understandable) and terminology used in Fin. St. .

3.When the financial statements are prepared in accordance with a fair presentation framework, auditor is required to evaluate whether the financial statement achieve fair presentation by considering the following-

Overall presentation, structure and content of the financial statement and
Whether the financial statement including related

notes represent the underlying transactions and events in a manner that achieves fair presentation.

4.Whether financial statement adequately refer to or describes the applicable FRF.

FORM OF OPINION

The auditor shall express an UNMODIED OPINION when the auditor concludes that the financial statements are prepared in all material respects in accordance with applicable FRF.

The auditor shall modify the opinion in the auditor’s report in accordance with SA-705, 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 SAAE to conclude that the financial statements as a whole are free from material misstatement.

Nature of matter Giving Rise to the Modification	Auditor’s judgement about the pervasiveness of the effects or possible effects on the Fin. St.
Nature of matter Giving Rise to the Modification	Material but not pervasive	Material & Pervasive
Financial Statements materially misstated	QUALIFIED OPINION	ADVERSE OPINION
Inability to obtain SAAE	QUALIFIED OPINION	DISCLAMER OF OPINION

AUDITOR’S REPORT

“it shall be in writing in hard copy using electronic medium”

Audit Report by Auditor-Types

Audit conducted in accordance with SAs
Prescribed by Law/Regulation
Audits conducted as per SAs & ISAs

AUDITOR’S REPORT FOR AUDIT CONDUCTED IN ACCORDANCE WITH STANDARDS ON AUDITING

1	Title: “Independent Auditor’s report”
2	Addressee: “to the shareholder of the company”
3	Auditor’s Opinion: “opinion”
4	Basis for Opinion Heading: “Basis for Opinion”
5	Going Concern
6	Key Audit Matters
7	Management Responsibility for the Financial Statements Heading: “Responsibilities of Management for Financial Statement”

8	Auditor Responsibility Para Heading: “Auditor’s Responsibility”
9	Other Reporting Responsibilities Sub-Heading: “Report on Other Legal & Regulatory Requirements”
10	Signature of the auditor
11	Place of signature
12	Date of Auditor’s Report

REPORTING OF KEY AUDIT MATTERS UNDER SA-701

Communicating matters to TCWG
Determine Key Audit Matters out of such communicated to TCWG
Communicate/report Key Audit Matters in Auditor's report

Matters: Those matters that in the auditor’s professional judgement were of most significance in the audit of the financial statements of the current period. Key audit matters are selected from the matters already communicated with TCWG.”

SA-701 applies to audits of complete sets of General Purpose Financial Statements of LISTED ENTITIES and circumstances when the auditor otherwise decides to communicate Key Audit Matters in the auditor’s report.
This also applies when the auditor is required by law or regulation to communicate key audit matters in the auditor’s report.
However, SA-705(R) prohibits the auditor from communicating key audit matters

when the auditor disclaims an opinion on the financial statements unless such reporting is required by law or regulation.

EMPHASIS OF MATTER PARAGRAPH & OTHER MATTER PARAGRAPH

Emphasis of Matter Paragraphs and other matter parafgraphs are originated from SA-706 which deals with ADDITIONAL COMMUNICATION in the auditor’s report to-

1.EMPHASIS OF MATTER PARAGRAPH - Draw user’s attention to a matter or matters presented or disclosed in the financial statements that are of such importance that they are fundamental to users’ understanding of the financial statements; or

2.OTHER MATTER PARAGRAPH - Draw user’s attention to a matter or matters presented or disclosed in the financial statements that are relevant to users’ understanding of the audit, auditor’s responsibilities or the auditor’s report.

CONCLUDING THOUGHTS

Being as a CA student, I can conclude the topic in following points-

Now the statutes provisions are very stringent about audit reporting under which regulators have monitoring role to get those implemented under Standards on Auditing which are followed by External Auditor of the entity.
Fraud Reporting, IFC Audit reporting, CARO are also part of audit report.
Communicating key audit matter is a latest significant improvement in reporting the significant matter which have made applicable w.e.f. 1st April, 2017.
Last but not the least, ICAI plays a pivotal role in application and formulation of Standards on Auditing at grass-root level.