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STUDY MATERIAL

Integrated Professional Competence Course





PAPER : 6



AUDITING AND ASSURANCE


VOLUME : II












BOARD OF STUDIES
THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA
The Institute of Chartered Accountants of India

ii
This study material has been prepared by the faculty of the Board of Studies. The
objective of the study material is to provide teaching material to the students to enable
them to obtain knowledge and skills in the subject. Students should also supplement their
study by reference to the recommended text books. In case students need any
clarifications or have any suggestions to make for further improvement of the material
contained herein, they may write to the Director of Studies.
All care has been taken to provide interpretations and discussions in a manner useful for
the students. However, the study material has not been specifically discussed by the
Council of the Institute or any of its Committees and the views expressed herein may not
be taken to necessarily represent the views of the Council or any of its Committees.
Permission of the Institute is essential for reproduction of any portion of this material.

THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA
All rights reserved. No part of this book may be reproduced, stored in retrieval system, or
transmitted, in any form, or by any means, Electronic, Mechanical, photocopying, recording, or
otherwise, without prior permission in writing from the publisher.
Revised Edition : July, 2012

Website : www.icai.org
E-mail : bos@icai.org
Committee / : Board of Studies
Department

ISBN No. : 978-81-8441-137-9

Price : ` 250/-

Published by : The Publication Department on behalf of The Institute of Chartered
Accountants of India, ICAI Bhawan, Post Box No. 7100,
Indraprastha Marg, New Delhi 110 002
Printed by : Sahitya Bhawan Publications, Hospital Road, Agra-282 003
July/ 2012/ 30,000 Copies (Revised)
The Institute of Chartered Accountants of India
iii
A WORD ABOUT STUDY MATERIAL
Auditing is, perhaps, one of the most practical-oriented subjects in the C.A. curriculum. This
paper aims to provide working knowledge of generally accepted auditing procedures and of
techniques and skills needed to apply them in audit engagements. A good knowledge of the
subject would provide a strong foundation to students while pursuing the Chartered
Accountancy course. A good understanding of the theoretical concepts, particularly, in the
context of auditing standards would make practical training an enriching and enjoying
experience. While studying this paper, students are advised to integrate the knowledge
acquired in other subjects, specifically, accounting and corporate laws in a meaningful
manner. Such learning would only help a student to become a better professional. In
nutshell, Auditing and Assurance, is a subject which involves application of theoretical
knowledge of other subjects. The practical aspect of the subject allows the individual students
to exhibit their intelligence and ability upon which the scoring of the marks depends.
The study material has been divided into three parts. Volume I of the study material deals with
the conceptual aspects. Volume II comprises of Standards on Auditing and Guidance Notes.
The Study Material has been designed keeping in mind the needs of home study and distance
learning students. The students are expected to cover the entire syllabus and also do practice
on their own while going through the practice manual.
Volume I of the study material deals with the conceptual theoretical framework in detail. Its
main features are as under:
The entire syllabus has been divided into nine chapters.
In each chapter, learning objectives have been stated. The learning objectives would
enable you to understand the sequence of various aspects dealt within the chapter
before going into the details so that you can assess the direction of your studies.
In each chapter, the topic has been covered in a step by step approach. The text has
been explained, where appropriate, through illustrations and practical problems. You
should go through the chapter carefully ensuring that you understand the topic and then
can tackle the exercises.
A question bank has been included after each chapter in Volume I
Volume II comprises of Standards on Auditing and Guidance Notes.
Volume III of the Study Material comprises the Practice Manual. It aims to provide guidance
as to the manner of writing an answer in the examination. Main features of Volume III are as
under:
The Institute of Chartered Accountants of India

iv
Important Definitions have been given for quick recapitulation. Students are expected to
attempt the questions and then compare it with the actual answers.
Compilation of questions appearing during last twenty examinations.
Exercises have been given at the end of each topic for independent practice.
This study material has been revised in view of revised Standards on Auditing,
Notification/Circulars issued by MCA inclusive of Revised Schedule VI, etc. by Auditing
team of experts under the guidance of Shri. Vijay Kapur, Director of Studies.
Finally, we would welcome suggestions to make this book more helpful and student-
friendly. In case of any doubt, students are welcome to write through e-Sahaayataa,
Grievance Redressal System of the ICAI.




















The Institute of Chartered Accountants of India
v
STUDY TIPS AND EXAMINATION TECHNIQUE
The aim of this section is to provide general guidance as to how to study for your exams. The
guidance given herein is supplementary to the manner of study followed by you and is intended to
improve your existing technique, but aims to give ideas on how to improve your existing study
techniques, as it is essential that you adopt methods and techniques with which you feel
comfortable.
Passing exams is partly a matter of intellectual ability, but however accomplished you are in that
respect you can improve your chances significantly by the use of appropriate study and revision
techniques. In this section we briefly outline some tips for effective study during the earlier stages.
Know your Syllabus
Go through the syllabus carefully.
Volume I has been divided in nine chapters/topics based on syllabus.
Main topics are as under:
Understand the linkages between chapters at macro-level.
Ch. No. Topics
1 Nature of Auditing
2 Basic Concepts in Auditing
3 Preparation for an Audit
4 Internal Control
5 Vouching
6
Verification of Assets and Liabilities
7 The Company Audit - I
8 The Company Audit - II
9 Special Audits
Plan your Study
Make a study plan covering the entire syllabus and then decide how much time you can
allocate to the subject on daily/weekly basis.
The Institute of Chartered Accountants of India

vi
Allocation of time must be done keeping in view your office commitments as well as social
needs and personal hobbies.
Maintain the time balance amongst various subjects such as purely descriptive type and
numerical-based papers. Allocate time in such a manner that your interest is well sustained
and you are able to score well in the final examination as well.
Always assess your preparation periodically, say, on monthly basis. If necessary, revise your
plan and allocate more time for the subject in which you feel deficient.
Preparing Study Strategy
Read, understand and assimilate each chapter.
First of all, have an overview of the chapter to understand the broad contents and sequence of
various sub-topics.
Do the introspection while going through the chapter and ask various questions to yourself.
Read each chapter slowly to ensure that you understand and assimilate the main concept. If
need be, read once again with concentration and then try to attempt exercise at the end of the
chapter or given in the Practice Manual.
Recapitulate the main concept after going through each chapter by way of brief notes.
Prepare notes in the manner you feel comfortable covering all key points.
One may use highlighter/underlining the significant points or writing down in the margin.
The fact that how well you have understood the topic is your ability to attempt the questions
given in the exercises as well as in the practice manual. Make a serious attempt at producing
your own answers but at this stage do not be much concern about attempting the questions in
examination based conditions. In particular, at initial stages, it is more important to understand
and absorb the material thoroughly rather than to observe the time limits that would apply in
the actual examination conditions.
Always try to attempt the past year examination question paper under examination conditions.
Revision of material should never be selective in any case. Because broad coverage of the
syllabus is more important than preparing 2-3 chapters exhaustively.
Read through the text along with notes carefully. Try to remember the definition and important
formulae.
Examination Technique
Reach examination hall well in time.
Plan your time so that equal time is awarded for each mark. Keep sometime for revision as
well.
The Institute of Chartered Accountants of India
vii
Always attempt to do all questions. Remember that six average answers fetch more marks
than five best answers. Therefore, it is important that you must finish each question within
allocated time.
Read the question carefully more than once before starting the answer to understand very
clearly as to what is required by the paper-setter.
Always be concise and write to the point and do not try to fill pages unnecessarily.
In case a question is not clear, you may state your assumptions and then answer the question.
While writing answers in respect of essay-type questions, try to make sub-readings so that it
catches the examiners eye. In case of case-study, be very precise and write your conclusion
in a clear manner.
Reference to standards, guidance notes, section of various legislation, etc be done in a clear-
cut manner.
Revise your answers carefully underline important points before leaving the examination hall.

Happy Reading and Best Wishes!

















The Institute of Chartered Accountants of India

viii
SYLLABUS
PAPER 6 : AUDITING AND ASSURANCE
(One Paper- Three hours -100 Marks)
Level of knowledge: Working Knowledge
Objective:`
To understand objective and concept of auditing and gain working knowledge of generally
accepted auditing procedures and of techniques and skills needed to apply them in audit and
attestation engagements.
Contents:
1. Auditing Concepts Nature and limitations of Auditing, Basic Principles governing an
audit, Ethical principles and concept of Auditors Independence, Relationship of auditing with
other disciplines.
2. Standards on Auditing and Guidance Notes Overview, Standard-setting process,
Role of International Auditing and Assurance Standards Board, Standards on Auditing issued
by the ICAI; Guidance Note(s) on Audit of Fixed Assets, Audit of Inventories, Audit of
Investments, Audit of Debtors, Loans and Advances, Audit of Cash and Bank Balances, Audit
of Miscellaneous Expenditure, Audit of Liabilities, Audit of Revenue, Audit of Expenses and
provision for proposed dividends.
3. Auditing engagement Audit planning, Audit programme, Control of quality of audit
work Delegation and supervision of audit work.
4. Documentation Audit working papers, Audit files: Permanent and current audit files,
Ownership and custody of working papers.
5. Audit evidence Audit procedures for obtaining evidence, Sources of evidence,
Reliability of audit evidence, Methods of obtaining audit evidence Physical verification,
Documentation, Direct confirmation, Re-computation, Analytical review techniques,
Representation by management, Obtaining certificate.
6. Internal Control Elements of internal control, Review and documentation,
Evaluation of internal control system, Internal control questionnaire, Internal control check list,
Tests of control, Application of concept of materiality and audit risk, Concept of internal audit.
7. Internal Control and Computerized Environment, Approaches to Auditing in
Computerised Environment.

The Institute of Chartered Accountants of India
ix
8. Auditing Sampling Types of sampling, Test checking, Techniques of test checks.
9. Analytical review procedures.
10. Audit of payments General considerations, Wages, Capital expenditure, Other
payments and expenses, Petty cash payments, Bank payments, Bank reconciliation.
11. Audit of receipts General considerations, Cash sales, Receipts from debtors, Other
Receipts.
12. Audit of Purchases Vouching cash and credit purchases, Forward purchases,
Purchase returns, Allowance received from suppliers.
13. Audit of Sales Vouching of cash and credit sales, Goods on consignment, Sale on
approval basis, Sale under hire-purchase agreement, Returnable containers, Various types of
allowances given to customers, Sale returns.
14. Audit of suppliers' ledger and the debtors' ledger Self-balancing and the
sectional balancing system, Total or control accounts, Confirmatory statements from credit
customers and suppliers, Provision for bad and doubtful debts, Writing off of bad debts.
15. Audit of impersonal ledger Capital expenditure, deferred revenue expenditure and
revenue expenditure, Outstanding expenses and income, Repairs and renewals, Distinction
between reserves and provisions, Implications of change in the basis of accounting.
16. Audit of assets and liabilities.
17. Company Audit Audit of Shares, Qualifications and Disqualifications of Auditors,
Appointment of auditors, Removal of auditors, Powers and duties of auditors, Branch audit ,
Joint audit , Special audit, Reporting requirements under the Companies Act, 1956.
18. Audit Report Qualifications, Disclaimers, Adverse opinion, Disclosures, Reports and
certificates.
19. Special points in audit of different types of undertakings, i.e., Educational institutions,
Hotels, Clubs, Hospitals, Hire-purchase and leasing companies (excluding banks, electricity
companies, cooperative societies, and insurance companies).
20. Features and basic principles of government audit, Local bodies and not-for-
profit organizations, Comptroller and Auditor General and its constitutional role.
The Institute of Chartered Accountants of India

The Institute of Chartered Accountants of India
CONTENTS

Part I Standards on Auditing (SA)
Announcements of the Council Regarding Status of Various Documents
Issued by the Institute of Chartered Accountants of India...................................................... I.1
Preface to Standards on Quality Control, Auditing, Review, Other
Assurance and Related Services......................................................................................... I.12
SA 200 (Revised) Overall Objectives of the Independent Auditor and the Conduct
of an Audit In Accordance With Standards on Auditing............................................. I.25
SA 210 (Revised) Agreeing the Terms of Audit Engagements............................................. I.53
SA 220 (Revised) Quality Control for an Audit of Financial Statements................................... I.78
SA 230 (Revised) Audit Documentation............................................................................... I.93
SA 240 (Revised) The Auditors Responsibilities Relating to Fraud in an Audit of
Financial Statements.......................................................................................... I.102
SA 250 (Revised) Consideration of Laws and Regulations in an Audit of Financial
Statements......................................................................................................... I.139
SA 260 (Revised) Communication with Those Charged with Governance.......................... I.151
SA 265 Communicating Deficiencies in Internal Control to Those Charged with
Governance and Management............................................................................ I.169
SA 299 Responsibility of Joint Auditors............................................................................. I.189
SA 300 (Revised) Planning an Audit of Financial Statements............................................ I.192
SA 315 Identifying and Assessing the Risk of Material Misstatement through
Understanding the Entity and its Environment .................................................... I.202
SA 320 (Revised) Materiality in Planning and Performing an Audit .................................... I.245
SA 330 The Auditors Responses to Assessed Risks......................................................... I.253
SA 402 (Revised) Audit Considerations Relating to an Entity Using a Service
Organisation....................................................................................................... I.271
SA 450-Evaluation of Misstatements Identified during the Audit ........................................ I.289
SA 500 (Revised) Audit Evidence...................................................................................... I.298
The Institute of Chartered Accountants of India
SA 501 (Revised) Audit Evidence Specific Considerations for Selected Items................ I.313
SA 505 (Revised) External Confirmations.......................................................................... I.321
SA 510 (Revised) Initial Audit EngagementsOpening Balances ..................................... I.333
SA 520 (Revised) Analytical Procedures........................................................................... I.343
SA 530 (Revised) Audit Sampling...................................................................................... I.351
SA 540 (Revised) Auditing Accounting Estimates, Including Fair Value Accounting
Estimates, and Related Disclosures................................................................... I.363
SA 550 (Revised) Related Parties..................................................................................... I.400
SA 560 (Revised)Subsequent Events................................................................................ I.424
SA 570(Revised) Going Concern....................................................................................... I.434
SA 580 (Revised) Written Representations........................................................................ I.448
SA 600 Using the Work of Another Auditor........................................................................ I.460
SA 610 (Revised) Using the Work of Internal Auditors....................................................... I.464
SA 620 (Revised) Using the Work of an Auditors Expert................................................... I.471
SA 700 (Revised) Forming an Opinion and Reporting on Financial statements ................. I.486
SA 705 Modifications to the Opinion in the Independent Auditors Report.......................... I.511
SA 706 Emphasis of Matter Paragraphs and Other Matter Paragraphs in the
Independent Auditors Report ............................................................................. I.534
SA 710 Comparative InformationCorresponding Figures and
Comparative Financial Statements..................................................................... I.543
SA 720 The Auditors Responsibility in Relation to other Information in
Documents Containing Audited Financial Statements......................................... I.557

Part II Guidance Notes

Guidance Note on Audit of Property, Plant and Equipment .................................................. II.1
Guidance Note on Audit of Inventories....... ........................................................................II.14
Guidance Note on Audit of Investments.............................................................................. II.28
Guidance Note on Audit of Debtors, Loans and Advances.................................................. II.41
The Institute of Chartered Accountants of India
Guidance Note on Audit of Cash and Bank Balances......................................................... II.53
Guidance Note on Audit of Miscellaneous Expenditure (Revised)....................................... II.59
Guidance Note on Audit of Liabilities.................................................................................. II.67
Guidance Note on Audit of Revenue.................................................................................. .II.79
Guidance Note on Audit of Expenses................................................................................. II.84
Guidance Note on Provision for Proposed Dividend .......................................................... II.97





















The Institute of Chartered Accountants of India



The Institute of Chartered Accountants of India






PART I
STANDARDS ON AUDITING






The Institute of Chartered Accountants of India


The Institute of Chartered Accountants of India


PART I
STATEMENTS ON STANDARDS AUDITING PRACTICES
Announcements of the Council Regarding Status of Various
Documents Issued by the Institute of Chartered Accountants of India
A. Clarification regarding Authority Attached to Documents Issued by the Institute
1

1. The Institute has, from time to time, issued Guidance Notes and Statements on a
number of matters. With the formation of the Accounting Standards Board and the Auditing
Practices Committee
2
, Accounting Standards and Statements on Standard Auditing
Practices
3
are also being issued.
2. Members have sought guidance regarding the level of authority attached to the various
documents issued by the Institute and the degree of compliance required in respect thereof.
This note is being issued to provide this guidance.
3. The Statements have been issued with a view to securing compliance by members on
matters which, in the opinion of the Council, are critical for the proper discharge of their
functions. Statements therefore are mandatory. Accordingly, while discharging their attest
function, it will be the duty of the members of the Institute:
(a) to examine whether Statements relating to accounting matters are complied with in the
presentation of financial statements covered by their audit. In the event of any deviation
from the Statements, it will be their duty to make adequate disclosures in their
audit reports so that the users of financial statements may be aware of such deviations;
and
(b) to ensure that the Statements relating to auditing matters are followed in the audit of
financial information covered by their audit reports. If, for any reason, a member has not

1
Published in the December, 1985 issue of the The Chartered Accountant.
2
The Auditing Practices Committee of the Institute of Chartered Accountants of India was established in 1982 with, inter
alia, the objectives of preparing the Statements on Standard Auditing Practices (SAPs), Guidance Notes on matters
related to auditing, etc. At its 226th meeting held on July 2, 2002 at New Delhi, the Council of the Institute of Chartered
Accountants of India approved the recommendations of the Auditing Practices Committee to strengthen the role being
played by it in the growth and development of the profession of chartered accountancy in India. The Council also
approved renaming of the Committee as, Auditing and Assurance Standards Board (AASB) with immediate effect to
better reflect the activities being undertaken by the Committee. Apart from changes designed to strengthen the process
for establishing auditing and assurance standards, such a move would bring about greater transparency in the working of
the Auditing Practices Committee now known as the Auditing and Assurance Standards Board (AASB).
The Council also approved the renaming of the Statements on Standard Auditing Practices (SAPs) as, Auditing and
Assurance Standards (AASs).
3
ibid.
The Institute of Chartered Accountants of India
I.2 Auditing and Assurance

been able to perform an audit in accordance with such Statements, his report should
draw attention to the material departures therefrom.
4. A list of Statements issued by the Institute and currently in force is given at the end of
this note.
4

5. Guidance Notes are primarily designed to provide guidance to members on matters
which may arise in the course of their professional work and on which they may desire
assistance in resolving issues which may pose difficulty. Guidance Notes are recommendatory
in nature. A member should ordinarily follow recommendations in a guidance note relating to
an auditing matter except where he is satisfied that in the circumstances of the case, it may
not be necessary to do so. Similarly, while discharging his attest function, a member should
examine whether the recommendations in a guidance note relating to an accounting matter
have been followed or not. If the same have not been followed, the member should consider
whether keeping in view the circumstances of the case, a disclosure in his report is necessary.
6. There are however a few guidance notes in case of which the Council has specifically
stated that they should be considered as mandatory on members while discharging their attest
function. A list of these guidance notes is given below:
(i) Guidance Note on Treatment of Interest on Deferred Payments read along with the
pronouncement of the Council, published in The Chartered Accountant, March 1984.
5

(ii) Provision for Depreciation in respect of Extra or Multiple Shift Allowance, published in
The Chartered Accountant, May 1984.
6

7. The Accounting Standards and Statements on Standard Auditing Practices
7
issued by

4
An updated list of mandatory statements on accounting and auditing is included in the List of Mandatory Statements
and Standards given after this clarification. It may also be noted that besides statements on accounting and auditing, the
Institute has issued statements on other aspects also, namely, Statement on Peer Review and Statement on Continuing
Professional Education.
5
The nomenclature of this document was changed by the Council of the Institute at its 133rd meeting held in April, 1988.
The new nomenclature was Statement on Treatment of Interest on Deferred Payments. In view of para 8 of this
Clarification, with Accounting Standard (AS) 10 on Accounting for Fixed Assets, becoming mandatory (see
Announcement II) in respect of accounts for periods commencing on or after 1.4.1991, the Statement on Treatment of
Interest on Deferred Payments stands automatically withdrawn except in the case of certain specified non-corporate
entities where it stands withdrawn in respect of accounts for periods commencing on or after 1.4.1993 (see
Announcements III, V and VI in this regard). It may be noted that pursuant to the issuance of Accounting Standard (AS)
16 on Borrowing Costs, which came into effect in respect of accounting periods commencing on or after 1-4-2000,
paragraph 9.2 and paragraph 20 (except the first sentence) of AS 10, relating to treatment of finance costs including
interest, stand withdrawn from that date.
6
The nomenclature of this document was changed by the Council of the Institute at its 133rd meeting held in April, 1988.
The new nomenclature was Statement on Provision for Depreciation in respect of Extra or Multiple Shift Allowance. This
statement has been withdrawn in respect of accounting periods commencing on or after 1.4.1989, as per the Guidance
Note on Accounting for Depreciation in Companies, issued in pursuance of amendments in the Companies Act, 1956,
through Companies (Amendment) Act, 1988.
7
Refer footnote 2. Statements on Standard Auditing Practices have been renamed as Auditing and Assurance
Standards.
The Institute of Chartered Accountants of India
Part I : Engagement and Quality Control Standards I.3

the Accounting Standards Board and the Auditing Practices Committee
8
, respectively,
establish standards which have to be complied with to ensure that financial statements are
prepared in accordance with generally accepted accounting standards and that auditors carry
out their audits in accordance with the generally accepted auditing practices. They become
mandatory on the dates specified either in the respective document or by notification issued
by the Council.
9

8. There can be situations in which certain matters are covered both by a Statement and
by an Accounting Standard/Statement on Standard Auditing Practices
10
. In such a situation,
the Statement shall prevail till the time the relevant Accounting Standard/Statement on
Standard Auditing Practices
11
becomes mandatory. It is clarified that once an Accounting
Standard/Statement on Standard Auditing Practices
12
becomes mandatory, the concerned
Statement or the relevant part thereof shall automatically stand withdrawn.
9. List of statements issued by the Institute and which are mandatory in nature.
1. Statement on Companies (Auditors Report) Order, 2003 (Revised 2005)
2. Statement on Reporting under Section 227(1A) of the Companies Act, 1956. List of
Mandatory Statements and Standards
On the basis of the above announcements made by the Council, the Secretariat of the
Auditing and Assurance Standards Board
13
has prepared the following list of statements and
standards which are mandatory as on 01.04.2008 or would become mandatory at specified
date(s) in future.
B. Use of Bold Type Face/ Normal Type Face in Auditing and Assurance Standards
I. As the members are aware, the Institute of Chartered Accountants of India has till date
issued 35 (thirty five) Auditing and Assurance Standards (AASs). It may be reiterated
that all the Standards are mandatory in nature. This means that while carrying out an
attest function, it will be the duty of the members of the Institute to ensure that these
AASs are followed in the audit of financial information covered by their audit reports. If
for any reason a member has not been able to perform an audit in accordance with the
AASs, his report should draw attention to the material departures therefrom.
II. Further, it might have been noted by the members that in case of AAS 1 to AAS 15, the

8
Refer footnote 2. The Auditing Practices Committee has been renamed as Auditing and Assurance Standards Board.
9
Subsequent to the publication of this Clarification, the Council has made various Accounting Standards mandatory. The
Announcements made by the Council in this regard are reproduced hereafter.
10
Refer footnote 2. Statements on Standard Auditing Practices have been renamed as Auditing and Assurance
Standards.
11
ibid.
12
ibid.
13
Refer footnote 2.
The Institute of Chartered Accountants of India
I.4 Auditing and Assurance

entire text of the Standards appears in normal type face, except for the headings and
sub headings therein. On the other hand, in case of AAS 16 to AAS 35, certain text in
the Standards is appearing in bold type face and certain portion of the text appearing
in normal type face. Normally, in these Standards, the bold type face has been
used to used to facilitate distinction between the principles vis-a-vis the application/
procedural aspects, which have been written in normal type face. In any case,
however, the entire text of the Standard is mandatory, irrespective of the fact
whether such distinction is made in the Standard or not.
The New Format (applicable from 1
st
April, 2008)
14[*]

III. Members may also note that recently, the Council of the Institute of Chartered
Accountants of India has approved the Preface to the Standards on Quality
Control, Auditing, Review, Other Assurance and Related Services. The said
Preface introduces a totally new format of writing Standards, in line with that
adopted by the International Auditing and Assurance Standards Board pursuant to
its Clarity Project. According to the new format the Standards on Auditing (SAs)
would now contain two distinct sections, one, the Requirements section and, two,
the Application Guidance section.
IV. The fundamental principles of the Standard are contained in the Requirements
section and represented by use of shall. Hitherto, the word, should was used in
the Standards, for this purpose. Further, this format also does away with the need
to present the principles laid down by the Standard in bold text. The application and
other explanatory material contained in a Standard on Auditing (SA) is an integral
part of the SA as it provides further explanation of, and guidance for carrying out,
the requirements of an SA, along with the background information on the matters
addressed in the SA. It may include examples of procedures, some of which the
auditor may judge to be appropriate in the circumstances. Such guidance is,
however, not intended to impose a requirement. In view of this format of writing, the
standard portion or principles enunciated in a Standard would no longer be
given in bold face.
V. The new presentation format has, however, not as yet being followed in drafting the
Standards on Quality Control and other Standards.
VI. There is no change in the authority attached to the Standards, i.e., they are
mandatory in nature, notwithstanding the new format of writing the Standards.

14[*]
The Preface to Standards on Quality control, auditing, Review, Other Assurance and Related Services and the
document containing the Reclassification and renumbering of the Auditing and Assurance Standards issued by the
Institute have been published in the July 2007 issue of the Journal.
The Institute of Chartered Accountants of India
Part I : Engagement and Quality Control Standards I.5

C. Clarification on the Auditors Rights Where Clients and Other Auditors Seek
Access to their Audit Working Papers
*

I. Auditing and Assurance Standard (AAS) 1
15
, Basic Principles Governing An Audit,
states in para 6, The auditor should respect the confidentiality of information
acquired in the course of his work and should not disclose any such information to a
third party without specific authority or unless there is a legal or professional duty to
disclose. Auditing and Assurance Standard (AAS) 3
16
, Documentation (Paragraph
13), states, Working papers are the property of the auditor. The auditor may, at his
discretion, make portions of or extracts from his working papers available to his
client. AAS 3 further requires (paragraph 14), inter alia, that the auditor should
adopt reasonable procedures for custody and confidentially of his working papers.
II. Part I of the Second Schedule to the Chartered Accountants Act, 1949 provides that
A Chartered Accountant in practice shall be deemed to be guilty of professional
misconduct, if he
Discloses information acquired in the course of his professional engagement to any
person other than his client, without the consent of his client or otherwise than as
required by any law for the time being in force.
III. Requests are sometimes received by the members of the Institute, who have/had
been performing the duties as the auditors of an enterprise, to provide access to
their audit working papers. The requests may be made by the clients or other
auditors of the enterprise or its related enterprise such as a parent enterprise.
IV. It is hereby clarified that except to the extent stated in para 5 below, an auditor is
not required to provide the client or the other auditors of the same enterprise or its
related enterprise such as a parent or a subsidiary, access to his audit working
papers. The main auditors of an enterprise do not have right of access to the audit
working papers of the branch auditors. In the case of a company, the statutory
auditor has to consider the report of the branch auditor and has a right to seek
clarifications and/or to visit the branch if he deems it necessary to do so for the
performance of the duties as auditor. An auditor can rely on the work of another
auditor, without having any right of access to the audit working papers of the other
auditor
17
. For this purpose, the term auditor includes internal auditor.
V. As stated in para 4, the client does not have a right to access the working papers of

*
Published in May, 2000 issue of The Chartered Accountant.
15
Now known as Standard on Auditing (SA) 200.
16
Now known as Standard on Auditing (SA) 230.
17
Reference in this regard may be made to the Standard on Auditing (SA) 600, Using the Work of Another Auditor and
the Standard on Auditing (SA) 610, Relying on the Work of Internal Auditor.
The Institute of Chartered Accountants of India
I.6 Auditing and Assurance

the auditor. However, the auditor may, at his discretion, in cases considered
appropriate by him, make portions of or extracts from his working papers available
to the client.
D. Format of Review Report
**
under Clause 41 of the Listing Agreement
I. As the members are aware, the Institute had in March 2005, issued Auditing and
Assurance Standard (AAS) 33
18
, Engagements to Review Financial Statements,
applicable to all review engagements relating to accounting periods beginning on or
after April 1, 2005. Appendix 3 to the said AAS contains an illustrative format of review
report in respect of balance sheet. The illustrative format given in the AAS is different
from the format of the review report required to be given under clause 41 of the Listing
Agreement in that it is in respect of review of financial results and not a balance sheet.
II. In view of the above, the members are requested to note that in so far as review
carried out in terms of clause 41 of the Listing Agreement is concerned, the members
are expected to submit their review report in accordance with the format prescribed by
the Securities and Exchange Board of India in clause 41 of the Listing Agreement.
E. Audit in Situations of Missing or Incomplete Records
***

I. Members of the Institute while carrying out audit assignments might come across a
situation where the records of the client are incomplete or destroyed (partially or
completely) on account of a natural calamity or otherwise. While guidance on
reporting responsibilities of the members in such cases has been provided to the
members by way of publications such as Auditing and Assurance Standard (AAS)
28
19
, The Auditors Report on Financial Statements, the Statement on
Qualifications in Auditors Report, opinions of the Expert Advisory Committee, and a
publication titled, Study on Audit and Certification in Case of Missing Records,
issued by the Institute, the Council, for the benefit of the members, wishes to
reiterate the guidance in the following paragraphs.
II. The auditor should, first, obtain a representation from the management that the
original accounts are not available for audit. The letter should also include the fact
whether the accounts of the entity have been reconstructed by the management. If
yes, the extent thereof (partial or complete) and the details of the items of financial
statements that have been reconstructed should also be specified in the said letter.
In case the accounts have been reconstructed, the members must consider the

**
Issued in July, 2005.
18
Now known as Standard on Review Engagements (SRE) 2400.
***
Issued in October, 2006.
19
Now known as Standard on Auditing (SA) 700.
The Institute of Chartered Accountants of India
Part I : Engagement and Quality Control Standards I.7

limitation of scope in audit imposed by the circumstances. Limitation on scope of
audit can be of two types, firstly, inability of the management to reconstruct some or
all of the items of the financial statements either for the whole financial year or for a
certain period during the financial year and secondly, lack of corroborative evidence
to support certain or all the entries in the reconstructed accounts. In case of
completely reconstructed accounts, the lack of supporting evidence will pose a
greater risk of limitation on scope, whereas, for partially reconstructed accounts,
both types of limitations, i.e., inability of the management to reconstruct accounts
and lack of supporting evidence, can be material. While auditing the reconstructed
accounts (partial as well as complete), the auditor should analyse the limitation
imposed on application of audit procedures required to be applied in the given
situation and use his professional judgment to determine whether to issue an
unqualified opinion, qualified opinion or disclaimer of opinion. Further, the fact of
scope limitation must clearly be mentioned in the scope paragraph of the audit
report. The AAS 28, The Auditors Report on Financial Statements, in its
paragraphs 43 and 44 reproduced below, provides the guidance for the auditor in
case of a scope limitation:
43. A scope limitation may be imposed by circumstances, for example, when the
timing of the auditor's appointment is such that the auditor is unable to observe
the counting of physical inventories. It may also arise when, in the opinion of
the auditor, the entity's accounting records are inadequate or when the
auditor is unable to carry out an audit procedure believed to be desirable.
In these circumstances, the auditor would attempt to carry out
reasonable alternative procedures to obtain sufficient appropriate audit
evidence to support an unqualified opinion. (emphasis added)
44. When there is a limitation on the scope of the auditor's work that requires
expression of a qualified opinion or a disclaimer of opinion, the auditor's report
should describe the limitation and indicate the possible adjustments to the
financial statements that might have been determined to be necessary had the
limitation not existed.
III. Guidance in respect of the matter discussed in the two paragraphs above has been
explained in paragraph 45 of the AAS 28 by way of illustrative examples of the
scope paragraphs in the audit reports in the cases of qualified opinion and
disclaimer of opinion:
In situations of Qualified Opinion
We have audited ...
The Institute of Chartered Accountants of India
I.8 Auditing and Assurance

Except as discussed in the following paragraph, we conducted our audit in
accordance with .
We did not observe the counting of the physical inventories as at 31st March 2XXX
since that date was prior to the time we were appointed as auditors of
.(Name of the entity). Owing to the nature of the entitys records, we were
unable to satisfy ourselves as to inventory quantities by other audit procedures.
In situations of Disclaimer of Opinion
The paragraph discussing the scope of the audit would either be omitted or
amended according to the circumstances. (emphasis added)
(Add a paragraph discussing the scope limitation as follows:)
We were not able to observe all physical inventories and confirm accounts
receivable due to limitations placed on the scope of our work by the entity.
IV. Paragraph 10 of AAS 13
20
, Audit Materiality, reproduced below, states that the
auditor while auditing the reconstructed accounts must consider the concept of
materiality and the audit risk involved with specific account balances and classes of
transactions:
10. There is an inverse relationship between materiality and the degree of audit
risk, that is, the higher the materiality level, the lower the audit risk and vice
versa. For example, the risk that a particular account balance or class of
transactions could be misstated by an extremely large amount might be very
low, but the risk that it could be misstated by an extremely small amount might
be very high. The auditor takes the inverse relationship between materiality
and audit risk into account when determining the nature, timing and extent of
audit procedures. For example, if, after planning for specific audit procedures,
the auditor determines that the acceptable materiality level is lower, audit risk
is increased. The auditor would compensate for this by either:
(a) reducing the assessed degree of control risk, where this is possible, and
supporting the reduced degree by carrying out extended or additional
tests of control; or
(b) reducing detection risk by modifying the nature, timing and extent of
planned substantive procedures.
V. While auditing the reconstructed accounts, since the auditor would normally find it
difficult to obtain internally generated corroborative evidences supporting the
reconstructed accounts, the auditor should apply alternative audit procedures such

20
Now known as Standard on Auditing (SA) 320.
The Institute of Chartered Accountants of India
Part I : Engagement and Quality Control Standards I.9

as inquiry and external confirmation as outlined in paragraphs 14 and 15 of the AAS
5
21
, Audit Evidence, reproduced below:
Inquiry and Confirmation
14. Inquiry consists of seeking appropriate information from knowledgeable persons
inside or outside the entity. Inquiries may range from formal written inquiries
addressed to third parties to informal oral inquiries addressed to persons inside the
entity. Responses to inquiries may provide the auditor with information which he did
not previously possess or may provide him with corroborative evidence.
15. Confirmation consists of the response to an inquiry to corroborate information
contained in the accounting records. For example, the auditor requests confirmation
of receivables by direct communication with debtors.
For assessing the reliability of the evidence obtained by the auditor from various
sources, the auditor is guided by the principles enunciated in paragraph 7 of AAS 5.
VI. The auditor, if he himself was not the auditor in the immediately preceding financial
year, must apply the principles laid down in AAS 22
22
, Initial Engagements -
Opening Balances while verifying the figures of opening balances.
VII. Paragraph 4 of the AAS 28, The Auditors Report on Financial Statements,
provides that the auditors report should contain a clear written expression of
opinion on the financial statements taken as a whole. An unqualified opinion can be
expressed only if the auditor is able to satisfy himself, by way of application of
sufficient appropriate compliance and substantive procedures, that the financial
statements give a true and fair view. The scope limitation imposed by lack of
supporting evidence implies a particular emphasis on obtaining alternative
corroborative evidence. However, if the auditor concludes that an unqualified
opinion can not be expressed but the limitation on scope is not so material and
pervasive as to require a disclaimer of opinion, a qualified opinion should be
expressed. Further, a disclaimer of opinion should be expressed when the possible
effect of a limitation on scope is so material and pervasive that the auditor has not
been able to obtain sufficient appropriate audit evidence and is, accordingly, unable
to express an opinion on the financial statements. Paragraph 45 of AAS 28
illustrates the principles enunciated here above. Having regard to the above, two
illustrative formats of reporting by the auditor are given in the paragraphs 8 and 10
below for guidance of the members.

21
Now known as Standard on Auditing (SA) 500.
22
Now known as Standard on Auditing (SA) 510.
The Institute of Chartered Accountants of India
I.10 Auditing and Assurance

VIII. Illustrative audit report where the auditor decides to express a qualified opinion
about the true and fair view of the financial statements:
I. (Where accounts have been reconstructed for some or all of the items for the
whole financial year)
We have audited the attached Balance Sheet of . (name of the
client), as at 31st March 2XXX, and also the Profit and Loss Account and the cash
flow statement for the year ended on that date annexed thereto. We have been
informed by the management that because of _____(give reason)__________ the
original accounts are not available for audit and hence these financial statements
have been prepared from the reconstructed accounts prepared by the
management. The accounts as well as the financial statements are the
responsibility of the management. Our responsibility is to express an opinion on
these financial statements based on our audit of the accounts.
We conducted our audit in accordance with the auditing standards generally
accepted in India. Those Standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
We have not been able to obtain corroborative audit evidence supporting following
items of the financial statements while auditing the accounts of the entity:
(State the areas for which the corroborative evidences were not available along
with their quantification, to the extent possible and also their resultant effect on
the financial statements.)
Subject to the above, the financial statements give a true and fair view:
(i) in the case of the balance sheet, of the state of the ___________ (name of
the client) affairs as at the end of its financial year;
(ii) in the case of the profit and loss account, of the profit or loss for its
financial year; and
(iii) In the case of the cash flow statement, of the cash flows for the year ended
on that date.
(iv) (where accounts have been reconstructed only for certain period during the year)
We have audited the attached Balance Sheet of . (name of the
The Institute of Chartered Accountants of India
Part I : Engagement and Quality Control Standards I.11

client), as at 31st March 2XXX, and also the Profit and Loss Account and the
cash flow statement for the year ended on that date annexed thereto. We have
been informed by the management that because of _____(give
reason)__________ the original accounts are not available for audit and hence
these financial statements have been prepared from the reconstructed accounts
prepared by the management for the period from _____ to _____ during the
financial year. The accounts as well as the financial statements are the
responsibility of the management. Our responsibility is to express an opinion on
these financial statements based on our audit of the accounts.
(Other paragraphs shall be same as in the format given in Part I above.)
IX. If the auditor is satisfied after obtaining a representation letter from the
management and considering the results of sufficient appropriate audit procedures
that the reconstruction of the accounts of the entity is not possible, he has no other
option but to issue a disclaimer of opinion. The auditor should issue a report to the
shareholders mentioning therein that it is not possible for him to express any
opinion. The format of audit report to express disclaimer of opinion has been
suggested in the following paragraph for guidance of the members.
X. Illustrative audit report in situations where the reconstruction of the accounts is not
possible:
We were engaged to audit the Balance Sheet of . (name of the
client), as at 31st March 2XXX, and also the Profit and Loss Account and the cash
flow statement for the year ended on that date. The financial statements are the
responsibility of the companys management. The management of ______________
(name of the client) has informed us that owing to ___________ (state the reason
for unavailability of records), the books of account and/ or other related records and
documents of the ____________________ (name of the client) have been
completely destroyed. The management has also informed us that the
reconstruction of the accounts is also not possible.
Since we have not been able to examine the books of account as well as the
financial statements of ___________________(name of the client), we are unable to
form any opinion on the financial statements.
XI. Members attention is also invited to the opinion given by the Expert Advisory
Committee in September 1988 in situation of an audit where the records etc., had
been seized by the income tax authorities and released after four years and records
were reconstructed for the interregnum. The Committee, apart from the opinion on
the type of the opinion to be expressed by the auditor in such cases, has also
opined that the auditor should not normally rely on the managements certificate as
to the opening balances unless the information therein can be corroborated by other
supporting document.
The Institute of Chartered Accountants of India
I.12 Auditing and Assurance

Preface to Standards on Quality Control, Auditing, Review,
Other Assurance and Related Services
23

(Effective from April 1, 2008)
Introduction
1. This Preface to the Standards on Quality Control, Auditing, Review, Other Assurance and
Related Services has been issued to facilitate understanding of the scope and authority of the
pronouncements of the AASB issued under the authority of the Council of the Institute of
Chartered Accountants of India (the ICAI).
2. The ICAI is committed to the goal of enabling the accountancy profession in India to
provide services of high quality in the public interest and which are accepted worldwide. To
further this goal, the ICAI develops and promulgates technical Standards and other
professional literature. The ICAI being one of the founder members of the International
Federation of Accountants (IFAC), the Standards developed and promulgated by the AASB
under the authority of the Council of the ICAI are in conformity with the corresponding
International Standards issued by the International Auditing and Assurance Standards Board
(IAASB), established by the IFAC. The Due Process of the AASB for formulation of
Standards, Statements, Guidance Notes and its other pronouncements is given in the
Appendix to this Preface.
Standards Issued by AASB Under the Authority of the Council of ICAI
3. The following Standards issued by the Auditing and Assurance Standards Board under
the authority of the Council are collectively known as the Engagement Standards:
(a) Standards on Auditing (SAs), to be applied in the audit of historical financial information.
(b) Standards on Review Engagements (SREs), to be applied in the review of historical
financial information.
(c) Standards on Assurance Engagements (SAEs), to be applied in assurance
engagements, dealing with subject matters other than historical financial information.
(d) Standards on Related Services (SRSs), to be applied to engagements involving
application of agreed-upon procedures to information, compilation engagements, and
other related services engagements, as may be specified by the ICAI.
4. Standards on Quality Control (SQCs), issued by the AASB under the authority of the
Council, are to be applied for all services covered by the Engagement Standards as described
in paragraph 3 above.
A diagram containing the structure of the Standards issued by the Auditing and Assurance
Standards Board under the authority of the Council is given as Annexure to this Preface.

23
Issued in July, 2007.
The Institute of Chartered Accountants of India
Part I : Engagement and Quality Control Standards I.13

Standards on Auditing
5. The Standards on Auditing (SAs) referred to in Paragraph 3(a) above are formulated in
the context of an audit of financial statements by an independent auditor. They are to be
adapted as necessary in the circumstances when applied to audits of other historical financial
information.
Standards on Quality Control
6. SQCs are written to apply to firms
24
in respect of all their services falling under the
Engagement Standards issued by the AASB of ICAI. The authority of SQCs is set out in the
introduction to the SQCs.
Other Standards
7. The other Engagement Standards identified in paragraph 3 (b) to (d) as well as
Standards on Quality Control referred to in paragraph 4 contain basic principles and essential
procedures (identified in bold type lettering and by the word should) together with related
guidance in the form of explanatory and other material, including appendices. The basic
principles and essential procedures are to be understood and applied in the context of the
explanatory and other material that provides guidance for their application. It is therefore
necessary to consider the entire text of a Standard to understand and apply the basic
principles and essential procedures. Appendices, which form part of the application material,
are an integral part of a Standard. The purpose and intended use of an appendix are
explained in the body of the related Standard or within the title and introduction of the
appendix itself. An individual Standard should be read in the context of the objective stated in
the Standard as well as this Preface. Any limitation of the applicability of a specific Standard is
made clear in the Standard itself.
Statements on Auditing
8. Statements on Auditing are issued with a view to securing compliance by professional
accountants on matters which, in the opinion of the Council, are critical for the proper
discharge of their functions. Statements are, therefore, mandatory.
General Clarifications
9. General Clarifications are issued by the Board under the authority of the Council of the
Institute with a view to clarify any issues arising from the Standards. General Clarifications
are mandatory in nature.


24
The term firm refers to a sole practitioner/proprietor, partnership, or any such entity of professional accountants, as
may be permitted by law.
The Institute of Chartered Accountants of India
I.14 Auditing and Assurance

Professional Judgment
10. The nature of the Standards/Statements/General Clarifications requires the professional
accountant
25
to exercise professional judgment in applying them.
Authority Attached to Other Standards, Statements on Auditing and General Clarifications
11. It is the duty of the professional accountants to ensure that the Standards/Statements/
General Clarifications are followed in the engagements undertaken by them
26
. The need for
the professional accountants to depart from a relevant requirement is expected to arise only
where the requirement is for a specific procedure to be performed and, in the specific
circumstances of the engagement, that procedure would be ineffective. If because of that
reason, a professional accountant has not been able to perform an engagement procedure in
accordance with any Standard/Statement/General Clarification, he is required to document
how alternative procedures performed achieve the purpose of the procedure, and, unless
otherwise clear, the reasons for the departure. Further, his report should draw attention to
such departures. However, a mere disclosure in his report does not absolve a professional
accountant from complying with the applicable Standards/Statements/General Clarifications
27
.
12. There may be a situation where a matter is covered both by a Standard as also by a
Statement on Auditing. In such a situation, the Statement shall prevail till the time the
Standard becomes mandatory. Once a Standard becomes mandatory, the concerned
Statement or the relevant portion(s) thereof will automatically be withdrawn.
Guidance Notes
13. Guidance Notes are issued to assist professional accountants in implementing the
Engagement Standards and the Standards on Quality Control issued by the AASB under the
authority of the Council. Guidance Notes are also issued to provide guidance on other generic
or industry specific audit issues, not necessarily arising out of a Standard. Professional
accountants should be aware of and consider Guidance Notes applicable to the engagement.
A professional accountant who does not consider and apply the guidance included in a
relevant Guidance Note should be prepared to justify the appropriateness and completeness

25
The term professional accountant refers to a member of the Institute of Chartered Accountants of India.
26
Members attention is invited to Clause 5 of Part I of the Second Schedule to the Chartered Accountants Act, 1949,
according to which a chartered accountant in practice shall be deemed to be guilty of professional misconduct, if he fails
to disclose a material fact known to him which is not disclosed in a financial statement, but disclosure of which is
necessary in making such financial statement where he is concerned with that financial statement in a professional
capacity. Further Clause 7 of Part I of the Second Schedule to the Chartered Accountants Act, 1949 states that a
chartered accountant in practice shall be deemed to be guilty of professional misconduct, if he does not exercise due
diligence, or is grossly negligent in the conduct of his professional duties.
27
Attention of the members is also drawn to Clause 9 of Part I of the Second Schedule to the Chartered Accountants Act,
1949, whereby, a member is deemed to be guilty of professional misconduct if he fails to invite attention to any material
departure from the generally accepted procedures of audit applicable to the circumstances.
The Institute of Chartered Accountants of India
Part I : Engagement and Quality Control Standards I.15

of the alternate procedures adopted by him to deal with the objectives and basic principles set
out in the Guidance Note.
Technical Guides, Practice Manuals, Studies and Other Papers Published by the
Auditing and Assurance Standards Board
14. The Board may also publish Technical Guides, Practice Manuals, Studies and other
papers. Technical Guides are ordinarily aimed at imparting broad knowledge about a particular
aspect or of an industry to the professional accountants. Practice Manuals are aimed at
providing additional guidance to professional accountants in performing audit and other related
assignments. Studies and other papers are aimed at promoting discussion or debate or creating
awareness on issues relating to quality control, auditing, assurance and related service, affecting
the profession. Such publications of the Board do not establish any basic principles or essential
procedures to be followed in audit, review, other assurance or related services engagements,
and accordingly, have no authority of the Council attached to them.
Material Modifications to the Preface to International Standards on Quality Control,
Auditing, Review, Other Assurance and Related Services
Additions
This Preface deals, apart from the Standards, with the Statements on Auditing and the
General Clarifications as the mandatory documents for use by the professional accountants in
performing engagements by them, whereas, the Preface issued by the IAASB does not deal
with such aspects. Further, the nomenclature of International Auditing Practice Statements
(IAPSs) referred in the Preface issued by the IAASB has been changed to Guidance Notes in
this Preface.
Deletion
The Preface issued by the IAASB provides to include, in appropriate cases, additional
considerations specific to public sector entities within the body of the Standard. However,
since the Standards, Statements, General Clarifications and Guidance Notes issued by the
ICAI are equally applicable in case of all engagements, irrespective of the form, nature and
size of the entity, this Preface does not deal separately with the public sector perspective.
The Institute of Chartered Accountants of India
I.16 Auditing and Assurance

Annexure
Structure of Standards issued by the Auditing and Assurance Standards Board under the
Authority of the Council of ICAI















The Chartered Accountants Act, 1949,
Code of Ethics and other relevant
pronouncements of the ICAI
Standards on Quality Control (SQCs)
Framework for Assurance
Engagements
Audits and reviews
of historical
financial
information
Assurance Engagements
other than audits or
reviews of historical
financial information
Standards on
Auditing
(SAs)


100 - 999
Standards on
Review
Engagements
(SREs)

2000 - 2699
Standards on
Assurance
Engagements (SAEs)


3000 - 3699
Standards on
Related Services
(SRSs)


4000 - 4699
Services covered by the pronouncements of the Auditing
and Assurance Standards Board under the authority of the
Council of ICAI
Assurance Services
Related Services
The Institute of Chartered Accountants of India
Part I : Engagement and Quality Control Standards I.17

Appendix
Auditing and Assurance Standards Board and its Due Process
Brief History
1. The Institute of Chartered Accountants of India (ICAI) constituted the Auditing Practices
Committee (APC) on 17
th
September 1982, to review the existing auditing practices in India and to
develop Statements on Standard Auditing Practices so that these may be issued under the authority of
the Council of the Institute. Subsequently, at its 226
th
meeting held in July 2002, the Council of the
Institute approved certain recommendations of the APC to strengthen its role in the growth and
development of the accountancy profession in India. The Council, at the said meeting, also approved
the renaming of the Auditing Practices Committee as the Auditing and Assurance Standards Board
(AASB) as well as renaming of the Statements on Standard Auditing Practices as Auditing and
Assurance Standards (AASs).
2. The ICAI is one of the founder members of the International Federation of Accountants (IFAC). It
is one of the membership obligations of the Institute to actively propagate the pronouncements of the
International Auditing and Assurance Standards Board (IAASB) of the IFAC to contribute towards
global harmonisation and acceptance of the Standards issued by the IAASB. Accordingly, while
formulating Engagement and Quality Control Standards, the AASB takes into consideration the
corresponding Standards, if any, issued by the IAASB. In addition, the AASB also takes into
consideration the applicable laws, customs, usages and business environment prevailing in India within
the parameters of the July 2006 Policy Paper, A Guide for National Standard Setters that Adopt
IAASBs International Standards but Find it Necessary to Make Limited Modifications, issued by the
IAASB.
Objectives and Functions of the Auditing and Assurance Standards Board
3. The following are the objectives and functions of the Auditing and Assurance Standards Board:
(i) To review the existing and emerging auditing practices worldwide and identify areas in which
Standards on Quality Control, Engagement Standards and Statements on Auditing need to be
developed.
(ii) To formulate Engagement Standards, Standards on Quality Control and Statements on Auditing
so that these may be issued under the authority of the Council of the Institute.
(iii) To review the existing Standards and Statements on Auditing to assess their relevance in the
changed conditions and to undertake their revision, if necessary.
(iv) To develop Guidance Notes on issues arising out of any Standard, auditing issues pertaining to
any specific industry or on generic issues, so that those may be issued under the authority of the
Council of the Institute.
(v) To review the existing Guidance Notes to assess their relevance in the changed circumstances
and to undertake their revision, if necessary.
The Institute of Chartered Accountants of India
I.18 Auditing and Assurance

(vi) To formulate General Clarifications, where necessary, on issues arising from Standards.
(vii) To formulate and issue Technical Guides, Practice Manuals, Studies and other papers under
its own authority for guidance of professional accountants in the cases felt appropriate by the
Board.
Composition
4. The composition of the AASB is fairly broad-based and attempts to ensure participation of all
interest groups in the standard-setting process. Apart from amongst the elected members of the
Council of the ICAI the following are also represented on AASB:
(i) Eminent members of the profession, whether in industry or in practice, as co-opted members on
the Board.
(ii) One special invitee from each three regulatory bodies, viz., the Securities and Exchange Board
of India, the Reserve Bank of India and the Insurance Regulatory and Development Authority.
(iii) One special invitee from the Indian Institute(s) of Management, or from any other prominent
academic and/or research organisation, as considered appropriate.
(iv) One special invitee from a prominent Industry association.
(v) One special invitee representing public interest, e.g., not for profit organization, etc.
The special invitees mentioned at (ii) through (v) above are decided in consultation with the President
of the Institute. Further, special invitees do not constitute the members of the Board, as referred to in
this document.
Term of the Members
5. The term of the Chairman of the Board is three years. Where such period of three years exceeds
the term of the Council of ICAI during which the Chairman has been appointed, the term of the
Chairman is restricted to the abovementioned term of the Council. The Council of the ICAI may fill any
vacancy in the Office of the Chairman and the Chairman so appointed holds office for the unexpired
term of the Council. The term of other members of the Board and the special invitees is one year.
However, in case the period of one year exceeds the term of the Council during which the members
have been appointed, the term of the members is restricted to the abovementioned term of the Council.
Attendance at the Meetings
6. Each AASB meeting requires the presence, in person, of at least one third of the members of the
Board. However, the AASB meetings whereat a Standard or Statement, at whatever stage (as
envisaged in the following paragraphs), is proposed to be considered, requires attendance of at least
two thirds of the AASB members, in person or by simultaneous telecommunication link.
7. In case any member of the AASB absents himself from three consecutive meetings of the Board,
the AASB would bring such fact to the attention of the Council.
The Institute of Chartered Accountants of India
Part I : Engagement and Quality Control Standards I.19

AASB Working Procedure
Standards, Statements on Auditing and General Clarifications
Project Identification, Prioritization and Approval
8. Project proposals to develop new, or revise existing Standards, Statements or General
Clarifications are identified based on international and national developments, input from members of
the Council of the ICAI, AASB members, members of other committees of the ICAI and/or
recommendations received from other interested parties, such as regulators or professional
accountants.
9. The AASB determines the priorities of various projects on hand for commencement.
10. In the preparation of Standards, Statements and General Clarifications, AASB is assisted by
Study Groups/Task Forces constituted to consider specific projects. The AASB appoints one of the
professional accountants as a convenor of the Study Group/Task Force. The convenor, in consultation
with the Chairman, AASB, nominates other members of the Study Group/Task Force, ordinarily five to
seven in number. For operating convenience and economy, a study group is usually based in the area
where the convenor is located. In situations considered necessary, the Board may also consider
having an outside expert on such Study Groups/Task Forces and such an expert need not necessarily
be a professional accountant. The Study Group/Task Force is responsible for preparing the basic draft
of the Standard/ Statement/ General Clarification. In addition, a separate group of experts may be
formed to advice the Study Group /Task Force.
11. The AASB may also conduct projects jointly with regulators and/or others. In such cases, the joint
Study Group/Task Force is ordinarily chaired by the convenor appointed with mutual consent.
Consultation and Debate
12. The Study Group/Task Force develops the preliminary draft of the Standard/ Statement/ General
Clarification based on appropriate research and consultation, which may include, depending on the
circumstances, consultation with the other professionals, regulators and other interested parties, as
well as reviewing professional pronouncements issued by IFAC member bodies and other professional
bodies. The draft submitted by the study group, along with issue papers/background papers, is sent to
the Chairman, AASB for approval.
13. The draft Standard/Statement/General clarification, along with other agenda papers, as approved
by the Chairman, is hosted on the website of the AASB at least twenty one days in advance of the
AASB meeting at which such draft Standard/ Statement is planned to be considered. A notification to
that effect is also sent to the AASB members. The printed version of the agenda papers, including
background papers and draft Standard/ Statement/General Clarification prepared by the Study
Group/Task Force for review and debate are made available to the members of and special invitees to
the AASB at the concerned meeting.
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I.20 Auditing and Assurance

14. The AASB considers the preliminary draft of the Standard/ Statement/General Clarification
prepared by the Study Group/Task Force. The AASB may refer the draft to the Study Group/Task
Force to examine the issues arising out of the deliberations of the AASB and accordingly modify the
draft Standard/ Statement/General Clarification.
15. In case the revision to the Standard/ Statement/General Clarification is made by the Study Group/
Task Force in terms of the requirements of paragraph 14 above, the procedure laid down in paragraphs
12 to 14 above is followed for the revised draft of the Standard/ Statement/General Clarification.
16. The draft of the proposed Standard/ Statement/General Clarification, as modified in the light of
the deliberations of the Board and approved by the Chairman, AASB, is circulated to the Council
members of the ICAI for their comments before being issued as an Exposure Draft. Normally, a period
of ten days is given for receiving comments on the Draft Exposure Draft. AASB finalises the Exposure
Draft of the proposed Standard/ Statement on the basis of the comments so received, if any. Ordinarily,
an Exposure Draft of a General Clarification is not issued.
Public Exposure
17. The Exposure Draft of the proposed Standard / Statement is issued, by way of publication in the
monthly Journal of the Institute, for comments by the professional accountants and the public. The
Board, however, may decide not to issue an Exposure Draft of a Statement, in which case, the reasons
for such a decision is recorded in the minutes of the relevant AASB meeting. Each Exposure Draft is,
ordinarily, accompanied by an explanatory memorandum that highlights the objectives and significant
proposals contained in the draft. The explanatory memorandum may also direct the respondents to
those aspects of the Exposure Draft on which specific feedback is sought.
18. The Exposure Draft is sent to the members of the Council of the ICAI, the Institutes past
Presidents, Regional Councils and their branches. Copies of the Exposure Draft are also sent to the
following bodies:
i. The Ministry of Company Affairs, Government of India
ii. The Comptroller and Auditor General of India
iii. The Reserve Bank of India
iv. The Insurance Regulatory and Development Authority
v. The Central Board of Direct Taxes
vi. The Central Board of Excise and Customs
vii. The Securities and Exchange Board of India
viii. The Central Registrar of Co-operative Societies
ix. The Institute of Cost and Works Accountants of India
x. The Institute of Company Secretaries of India
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Part I : Engagement and Quality Control Standards I.21

xi. The Indian Banks Association
xii. Industry organizations such as Federation of Indian Chambers of Commerce and Industry,
Associated Chambers of Commerce, Confederation of Indian Industry
xiii. Indian Institute(s) of Management
xiv. The Telecom Regulatory Authority of India
xv. The Standing Conference on Public Enterprises
xvi. Recognised stock exchanges in India
xvii. Any other body considered relevant by the AASB keeping in view the nature and requirement of
AAS/Statement.
19. Exposure Draft is also hosted on the website of the ICAI as well as the AASB, and is
downloadable free of charge. To allow adequate time for due consideration and comment from all
interested parties, exposure period is ordinarily 60 (sixty) days or such other period, but not less than
60 days in any case, as may be decided by the AASB.
Responses to Exposure Drafts and Consideration of Respondents Comments
20. An acknowledgement is sent to every respondent to an Exposure Draft. Except where the
respondent has specifically indicated otherwise, the respondents comments are considered a matter of
public records. Comments which are received upto ten days prior to the date of the AASB meeting at
which such comments are proposed to be considered, are hosted on the website of the AASB and kept
there till the date of the AASB meeting at which the Exposure Draft and comments thereon are
considered. The members of the AASB as well as the Council of the Institute are notified when the
comments are hosted on the website of the AASB. Copies of the Exposure Draft and comment letters
are also made available to the AASB members at the AASB meeting at which the Exposure Draft is
scheduled for discussion.
21. The comments and suggestions received within the exposure period are read and considered by the
AASB. The AASBs deliberations on the significant issues raised in the comments letters received together
with the AASBs decision thereon are recorded in the minutes of the relevant AASB meeting and also hosted
on the website of the AASB. The AASB may decide to discuss with the respondents their comment letters or
explain to them the reasons for not having accepted their proposals. The nature and outcome of such
discussions are reported and recorded in the minutes of the relevant AASB meeting.
22. Such part of the AASB meetings whereat the Exposure Draft of proposed Standard/ Statement
and the comments thereon are to be discussed is open for public. The members of the public, at their
own expenditure, can attend the said part of the meeting(s) as observers. Such observers, however,
do not have the right to participate in the discussions at the meeting. The notification as to the date of
the said AASB meeting is hosted on the website of the Institute at least 30 days in advance and the
members of the public desirous of attending the said meeting(s) are required to send their request for
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I.22 Auditing and Assurance

the same to the Board at least 15 days prior to the date of the concerned AASB meeting. The seats for
the members of the public at such meetings are limited to such numbers as may be decided by the
AASB and allotted on a first come first serve basis. The AASB may also hold a meeting with the
representatives of the specified bodies, as may be identified by the Board on a case to case basis, to
ascertain their views on the draft of the proposed Standard/ Statement.
23. After taking into consideration the comments received, the draft of the proposed Standard/
Statement is finalized by the AASB and submitted to the Council of the ICAI for its consideration and
approval. The draft of the General Clarification, as finalised by the AASB, is submitted to the Council of
ICAI for its consideration and approval.
24. The Council of the ICAI considers the final draft of the proposed Standard/ Statement/General
Clarification, and if found necessary, modifies the same in consultation with AASB. The concerned
Standard/ Statement/ General Clarification is then issued under the authority of the Council of the ICAI.
Re-exposure
25. The AASB on a direction from the Council of the ICAI or on its own, in cases considered appropriate,
may re-expose a proposed Standard/ Statement. The need for re-exposure may arise on account of factors
such as significant issues coming to the notice of the Board subsequently, including, significant changes in
the laws or regulations having an impact on the requirements of the Standard/ Statement or revision of the
corresponding International Standard by IAASB. In cases where a re-exposure of a Standard or a Statement
is required, the procedures as listed in paragraphs 12 to 24 are followed.
Procedure for Issuing the Guidance Notes
26. The AASB identifies the issues on which Guidance Notes need to be formulated and the priority
in regard to selection thereof.
27. In the preparation of the Guidance Note, the AASB is assisted by Study Groups/Task Forces
constituted to consider specific projects. The AASB appoints one of the professional accountants as a
convenor of the Study Group / Task Force. The Convenor nominates other members of the Study
Group/Task Force and in the formation of Study Groups / Task Forces, provision is made for
participation of a cross-section of members of the ICAI. In situations considered necessary, the Board
may also consider having an outside expert on such Study Groups/Task Forces and such expert need
not necessarily be a professional accountant. The Study Group/Task Force will be responsible for
preparing the basic draft of the Guidance Note.
28. The Study Group/Task Force develops the preliminary draft of the Guidance Note based on
appropriate research and consultation, which may include, depending on the circumstances, consulting
with the other professionals, regulators and other interested parties, as well as reviewing professional
pronouncements issued by IFAC member bodies and other parties and submits the preliminary draft
Guidance Note to the AASB. The draft Guidance Note, along with the background papers, if any, is
sent to the Chairman, AASB for approval.
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Part I : Engagement and Quality Control Standards I.23

29. The AASB considers the preliminary draft prepared by the Study Group/Task Force and may refer
the same to the Study Group/Task Force to examine the issues arising out of the deliberations of the
AASB and accordingly modify the draft Guidance Note. The modified Draft Guidance Note is once
again considered by the Board. The draft Guidance Note as finalised by the Board is submitted for the
consideration of the Council of the ICAI.
30. Unlike Standards/Statements, ordinarily, no proposed Guidance Note is exposed for comments of
the professional accountants and others. However, in situations considered necessary by the Board,
an Exposure Draft of a Guidance Note may well be issued for public comments. In case an Exposure
Draft of a Guidance Note is to be issued, the same procedures as required for an Exposure Draft of the
Standard/ Statement (as mentioned in paragraphs 17 to 22 above) is required to be followed. The
reasons for issuing an Exposure Draft of the Guidance Note are recorded in the minutes of the relevant
AASB meeting. However, the part of the AASB meeting at such Exposure Draft is considered is not
open for public.
31. The Council of the Institute considers the final draft of the proposed Guidance Note and, if
necessary, suggests modifications thereto in consultation with the AASB. The Guidance Note is then
issued under the authority of the Council of the ICAI.
Limited or Substantive Revision to the Standard, Statement or Guidance Note
32. Subsequent to issuance of a Standard, Statement or Guidance Note, the introduction of any new
legal or professional requirement or any other national or international development in the field of
auditing, may require a substantive revision to that Standard, Statement or Guidance Note. In that
case, the Council of the ICAI makes substantive revision to such Standard/ Statement /Guidance Note.
The procedure followed for substantive revision is the same as that followed for formulation of a new
Standard, Statement or the Guidance Note, as the case may be, as detailed above.
33. Similarly, subsequent to issuance of a Standard, Statement or Guidance Note, some aspect(s)
may require revision which are not substantive in nature. For this purpose, the Council of the ICAI may
make limited revision to a Standard/ Statement /Guidance Note. In case of the Standards on Auditing
(SAs), any revision to a Standard is treated as limited only if that revision is restricted to the application
guidance of that Standard. The procedure followed for the limited revision is, in principle, the same as
that followed for formulation of a Standard, Statement or Guidance Note, as the case may be. However,
the AASB may decide to cut short some time limits, e.g. period of public exposure in case of a limited
revision to a Standard/Statement, as detailed above, for the process.
Technical Guides, Practice Manuals, Studies and Other Papers Published by the Auditing and
Assurance Standards Board
34. For issuance of a Technical Guides/Studies, etc., the procedure adopted by the AASB is
ordinarily the same as in case of a Guidance Note except that the draft Technical Guide/ Practice
Manual/ Study is never exposed for public comments nor such part of the AASB meeting at which the
proposed Technical Guide, Practice Manual, etc., is considered, open for public. Also, since the
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I.24 Auditing and Assurance

Technical Guides, Practice Manuals, Studies, etc., do not have any authority attached to them, those
are not required to be placed for consideration and final approval of the Council, rather they are issued
by the AASB under its own authority.
Voting
35. The affirmative votes of at least two thirds of the members of the Board, in person or by
simultaneous telecommunication link, are required to approve the final draft of a Standard or Statement
for submission to the Council.
36. Each member of the AASB has the right to one vote.
The Institute of Chartered Accountants of India