P7 Audit and Assurance Summary

Ethical and Professional Issues:

Ethical Issues
-

( I of C ) Integrity of Client (Restricting Us, Hiding from Us, Breaking

Law)
( C of I ) Conflict of Interest (Two Competitor clients on Board, Software
Recommendations)
Confidentiality (Broke law report to Authority? ML? )
(Risk to Auditors Independence) SSAFIM

Self-interest (Gifts, Financial Interest, Business opportunity?)

Self-review (Provision of non-audit services to audit client)

Advocacy (negotiation on behalf of client, guaranteeing for

client)

Familiarity (Long service , relationship with client)

Intimidation (Fee pressure , Intimidation to sue)

Management Pressure

Professional Issues
o ISA 250A (ML) Money Laundering (Excessive Cash, Magic Cash?
Cash Based Business)

Money Laundering Steps :

1.Placement,2.Integration,3.Layering

Ant-Money Laundering: MLRO. Firm Wide controls, training and

KYC

Liability : Tipping off Client or Failure to Report |Concealing the

Crime|
o Liability Of Our Firm (In case Something gone wrong Firm be Liable)

Wrong Opinion?

Inappropriate advice?

Disclaimer?

(PM) Practice Management

ISQC 1 & ISA 220: (QC) Quality Management (Lack of

oversight? Lack of Structure)

Oversight Structure (Directed, Supervised &

Reviewed)

Skills Experience of team & Training

Correct allocation of resources

Cold Reviews and Hot reviews

Planned and Documented

Fees

Low balling <Allowed But Quality shouldnt suffer>

Contingent Fees <Not allowed due to Self-interest and
Intimidation>
Practical Commercial Issue (Resources? Commercially
viable?)
Tendering (Portray your)

Introduction to the firm:

o Qualifications, Specialist Skills, Experience
o Countries / Locations Presence

Explain Audit Approach and how it suits the client

Requirement of client

Adherence to Code of Ethics

Deadlines and timings

Fee matters and Key Staf

Any non-audit services we can offer

Advertising (Dont Use)

No Unsubstantiated Claims

Criticism on other accountants work or make their

work dubious

Unethical/Illegal selling verses Get What you expect

Clarity and No Use of unprofessional language

Misuse ACCA name unless <50 % or more ACCA then

place after the name Chartered Certified
Accountants
Impact on Audit Work (Extend Audit Procedures due to Lack of
controls, or More Stress on going concern work? Need an Expert?)

Safeguards:

Separate Audit
Teams?

Resign? From the

audit work

Inform the Client?

Hot
Reviews?
Decline?
The audit
work
Legal
Opinion?

Expert Review?

Resign and Sign

business deal?

Cold Reviews and

Training

Engagement Appointment Considerations:

Enough Resources? And Staff?
Audit Risk? Too risky? Liabilities? Reputational risks?
Is Fee ethical and practical? More than 15%? Client Able to Pay?
Experience and Qualifications for the industry and Client?
Time and Deadlines? Pressures? Intimidations?

P7 Audit and Assurance Summary

-

Conflicts of Interest with potential client

Professional clearance? Last Auditors gone why? Any f/s dispute?
#Integrity
Preconditions for audit in place
o Client using correct accounting framework as per law
o Documented control process over f/s
o Access to all relevant information required for the audit
Any ethical and Professional issues.

Risk:
Business Risk: Operational Risk, Financial Risk, Compliance
Risk
-

Damage to Companys ability to achieve goals

Reputation, Costs, Cash flow Problems etc.

o Lack of control effectiveness or monitoring

DR: Detection Risk |Auditors Lack of Experience? Short Samples? Lack of
Expert?)

What is the Risk of Material Misstatement to consider?

- What is the issue: What item in f/s might be potentially wrong?
- Why is that issue: Risk of Over/Under stated (Link to Scenario)
- In case of Audit Risk (Include Detection risk as well)
Audit work in progress: Audit Matters to consider
-

What Accounting rules Apply? What IAS Says

What Client did right or wrong? Breach of IAS
What does it over/understates
Materiality IF
Audit Report Consequence IF

Audit Procedures When Audit Testing / Audit Evidence When Reviewing

TEST THE FACTS Events Amounts
TEST THE A/C RULES
VERB

AEIOU

Analyze
<Comparative and Trend Analysis>

Enquiry
<Written Representation, Board
Minutes>

IR: Inherent Risk

o Nature of business: Cash Based , Listed | IAS 33 and IFRS 8 disclosure
risk
o Integrity of Management: Management Override of controls or
Deliberate Policies
o Pressures on Management : Directors paid Bonus on Profit, Earning
Management Risk
o Management Experience and Knowledge | Diversification into new
sector
o Complex Accounts and Estimates | Financial instruments and
derivatives
o Unusual transactions | wire transfer to foreign institution | Foreign
Exchange
CR: Control Risk
o Changes in operating environment.
o New Personnel
o Revamping of information Systems

Inspection
<Inspection of Assets and Control
Processes>

Observation
<Observation of Books and
Procedures>

Recalculation
<Recasting, Reworking the
assignment>
Audit of Groups (Special considerations):
-

DADA3

Assets
<Physical, Intangibles>

Directors Enquiry
<W.R, Board Minutes>

Accounting books
<Cashbooks, Asset
Register, Banks
statements>

3rd Party confirmations

Existing Subsidiaries:
o Different Year Ends (Consolidation errors)
o Different Accounting Policies and laws & regulations

Foreign
Subsidiary

Audit Risk: IR x CR x DR | ROMM (Risk of Material Misstatement): IR x CR |

THINGS -

Document
<Agreements, Deeds
,Valuation >

P7 Audit and Assurance Summary

o Different Currencies ( FOREX risk)

o Different Auditors (Component Auditor)
o Intragroup Trading (Not Cancelled on Consolidation)
o Related Party Transactions (Undisclosed RPT)
o Goodwill impairment test of existing subsidiaries
Acquisitions:
o Classification (Level of Control: Joint Venture, Associate, Subsidiary)
o Date of Control (Risk in Pre-Post Acquisition Profit and their Impacts)
o Goodwill Calculation (Risk in Assessment of Goodwill, FV of N.A
o If Before Y/E Impairment Review
o Consolidation Schedule

o
-

Quality Control

Agree Their Plan

Review their work

More Audit Work | <Group Materiality, Review conditions for Audit ,

Fee>
Disposals:
o Classification (Disposal, Level of Control)
o Date of disposal (Stopped being consolidated S->I )
o Disposal Proceeds (Gains/(loss) on disposal)
o Discontinued Operation and HFS? <IFRS 5>
o Disposal resulting to Associate or Investment
o

Different Auditors (Component Auditor)

P7 Audit and Assurance Summary

Audit Report:

P7 Audit and Assurance Summary

Structure of an Audit Report:

TAOBMEKOORAD

Matters in an Audit Report (Criticism):

Availability, Relevance, Comparability,
Under stability
-

Title/Headings
Structure
<Correct place of Audit Report
components>
Opinion correctness
Basis Paragraph
Lack of Explanation of
whats IFRS breached
Lack of Amounts
Lack of Impact
Analysis
Why is materiality
mention?
Material uncertainty going concern?
(IF ANY)
EOM: correctly used? (IF ANY)
Key Audit Matters:
Does it explain why
the matter is
significant?
Reference to related
disclosure included?
Is how the matter
addressed in the audit
explained?
Any conclusions drawn
by auditor missing?
OM: correctly used? (IF ANY)
Other Info: Explained Other Info
responsibility for auditor?
Engagement Partner name
disclosed?
Clarity/Use of Professional Words

Audit Report Outcomes:

ISA
560

Mater
ial
Yes

Pervasi
ve
No

700

No

No

NEW
701
Liste
d
Clien
ts

Yes

Significa
nt
Matter

705

Yes

706

Other

Outcom
e

When there is
material
uncertainty over
the entitys
going concern

Material
uncertaint
y
regarding
going
concern

No

Something or
Nothing
Significant
Matters to the
Audit and
Auditors
response to
those Matters
and Therefore
conclusions.
Lack of Evidence

Yes

Yes

Lack of Evidence

Yes

No

Yes

Yes

Yes

No

Yes

No

Material
Misstatement
Material
Misstatement
Refer to ISA details
below
Correctly disclosed
but is Fundamental
to users
understanding F/S

Standard
Report
To be
presente
d in all
cases
except
for
disclaime
r
Except
For
Disclaim
er of
Opinion
Except
For
Adverse
Other
Matter
Emphasi
s of
Matter

P7 Audit and Assurance Summary

720

Yes

No

Significant
Matter
Mistake in other
information in F/S

Other
Informatio
n

P7 Audit and Assurance Summary

Standar
d Name

Key Points

ISA 200

Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance with ISAs
Stay Ethical: Auditor shall look independent in mind and in appearance as well.
Maintain professional skepticism throughout the audit.
An attitude that includes a questioning mind, being alert to conditions which may indicate possible misstatement due to error or fraud, and a
critical assessment of audit evidence
Exercise Professional Judgement in planning and performing the audit
Obtain Sufficient Appropriate Audit Evidence.
Agreeing the Terms of Audit Engagements
Auditor shall accept audit engagement in light of:
1 Competency, Ethical requirements, Integrity of Client, Project Management Issues
Know your client procedures to understand business model and funds for Money Laundering
Pre Engagement conditions:
1 Proper removal of predecessor auditors and keen reason behind it
2 Management Accepts responsibility to prepare F/S
3 Use of proper financial reporting framework under statutory and regulatory laws
4 Documented and implemented internal controls ensuring f/s are free from MM
5 Provide all information access to auditor which management knows and auditor inquires or request to inquire from other 3 rd Party.
Quality Control for an Audit of Financial Statements
Audit Firm is required to maintain Professional competency, Attitude and Oversight of its employees to maintain quality of audit services
delivered and avoid negligence claims
Engagement Partner should be Authoritative, Independent, and Competent and Experienced enough together with sufficient time to
discharge duties of a quality audit and own it.
1 Assignment of Audit Team and Delegation of task
2 Direction , Supervision and Review of Audit
3 Consultation and Quality control reviewer appointment
Quality control procedures must be <CARE> : - Complied, - Adequate, - Relevant,- Efective
Engagement review be done by independent authoritative experienced and qualified generally partner level person to ensure review is done
to quality standards.

Post Audit Quality Control Measure : Engagement quality controller will concern the following

Discuss Audit work, significant judgements and derived opinion

Discuss possible qualification of Opinion

Matters to be dicussed with management

Audit Documentation should be complete
Audit Documentation
Auditor shall document in such a way that an experience auditor can understand and review the audit work
1 Nature, timing and extent of audit procedures
2 Significant matters and Judgements made
3 Results of procedures
4 Hot &Cold reviews or Engagement Quality Control
Reviews
The Auditors Responsibilities Relating to Fraud in an Audit of Financial Statements
To identify and assess the risks of material misstatement of the financial statements due to fraud;
Why Frauds are
detected:
To obtain sufficient appropriate audit evidence regarding the assessed risks of material misstatement
duenot
to fraud,
through designing and implementing appropriate responses
- Generally concealed, To respond appropriately to fraud or suspected fraud identified during the audit
Management is involved
1 Presumption that Revenue contains fraud
Professional Skepticism required in Accounting estimates, Going Concern matters, Related Party relationships and Transactions, Laws and

ISA 210

ISA
220/ISQC
1

ISA 230

ISA 240

P7 Audit and Assurance Summary

ISA 250

ISA 260

ISA 265

ISA 300

regulations
Consideration of Laws and Regulations in an Audit of Financial Statements
To perform specified audit procedures to help identify instances of non-compliance with other laws and regulations that may have a
material efect on the financial statements;
To obtain sufficient appropriate audit evidence regarding compliance with the provisions of those laws and regulations generally
recognized to have a direct efect on the determination of material amounts and disclosures in the financial statements;
To respond appropriately to non-compliance or suspected non-compliance with laws and regulations identified during the audit.
ISA 260 Communication with those charged with governance
- To communicate clearly with those charged with governance the responsibilities of the auditor in relation to the financial statement
audit, and planned scope and timing of the audit;
- To obtain from those charged with governance information relevant to the audit;
- To provide those charged with governance with timely observations arising from the audit that are significant and relevant to their
responsibility to oversee the financial reporting process;
- To promote efective two-way communication between the auditor and those charged with governance to communicate matters of
Auditors independence or Difficulties faced by Auditor
Communicating Deficiency in internal controls
An internal control of significant importance is weak
A description of deficiency in internal control and its possible implications
Some suggestive measures to make control efficient
Planning an Audit of Financial Statements
Audit Strategy
Characteristics of
engagement
-

ISA 315

Reporting objectives , timing of

communications

Significant factors identified to audit

engagement

Nature timing and extent of

resources

Audit plan: Continuous effort to implement the audit strategy via course of activities. An audit plan is not rigid, it is effected by the dynamic
circumstances identified during the course
Planning initial Audit engagements:
o Consult predecessor auditor for any info about engagement and management itself : Review working papers
o Discuss major Financial Standards applicable to Entity with Management
o Audit Procedures in relation to ISA 510 Initial Audit engagements for opening balances
o Review of the audit strategy by another senior partner within the firm
o High Fee and increased materiality screening and big samples more audit work
High professional skepticism as the risk will be high on detection of MM
Identifying and Assessing the Risks of Material Misstatement through Understanding the Entity and Its Environment
Auditor is required to devise and audit plan and strategy in such a way that all material misstatements in F/S and risk are
identified and responded in an effective manner.
Auditor should gain understanding of :
SIGNIFICANT RISKS
1 Industry and Environment
2 Regulatory and Industry Laws
Risk of fraud
3 Financial Performance and Entitys Business Model
Degree of subjectivity
4 Internal controls and Managements attitudes
Unusual
transactions
Auditor shall inquire from management , Analyze regulations affecting f/s, and use prior audit knowledge
and experience
(M.L)
Auditor shall assess identified risks and there effects at F/S level, assertion level and basis for other audit
procedures
Related Party
Auditor shall respond efectively by detailed procedures, audit work and use of experts.

P7 Audit and Assurance Summary

ISA 320

ISA 330

Materiality in Planning and Performing an Audit

Profit
before Tax: 5%, Total Assets: 1-2%, Profit after Tax: 5-10%,
Planning Materiality & Performance Materiality
concept
Material by Amount, Nature, Impact
Revenue: 0.5-1%
Materiality in Planning and Performing an Audit requires that materiality should be revised if necessary as the audit progresses and
circumstances develop
The Auditors Responses to Assessed Risks
Overall responses include emphasising to the audit team the need for professional scepticism, assigning additional/alternative staf to the
audit, using experts, providing more supervision on the audit and incorporating more unpredictability into the audit.
Testof Controls? , - Substantive Procedures? , - Combined?
Consider whether external confirmation procedures are to be performed as substantiveaudit procedures.
Document Risk assesments and responses via audit procedures and eveidences sought against them

P7 Audit and Assurance Summary

ISA 402

ISA 450

ISA 500

Audit Considerations Relating to an Entity Using a Service Organization

- Auditor is required to obtain an understanding of nature of service provided and outsourced function evaluating its impact on controls
and obtain SAAE for the outsourced function effecting F/S.
- Auditor is required to obtain SAAE regarding controls and procedures at service organization sufficient to derive risks of material
misstatements
- Auditor is required to obtain : A type 1 report focuses on the description and design of controls, whereas a type 2 report also covers the
operating efectiveness of the controls

Do procedures and analytical at Service organization (Client Permission Required)

Use another auditor to perform procedures at service organization

Evaluation of misstatements identified during the audit
Communicate the misstatements in individual or in aggregate
The impact of misstatements on auditors opinion if they remain incorrect
Document all the evaluation and obtain managements representation regarding immateriality of the misstatements
Audit Evidence
Frame work to perform audit procedures to obtain Audit Evidence:
Audit Procedures ( A E I O U ):
Transactions (ACCA CO)
Account Balances (RECV)

Analytical and Analyse

2 Enquiry and Explainations
3 Inspection and Investigation
4 Observation
5 Recalculation and Reperformance

1 Authorization all transactions were properly authorized

on (D A D A 3)

Directors
- Assets
- Documents
- Accounting Books
- 3rd Party
-

1 Rights and Obligations the entity holds or controls

2 Cutof the transactions have been recorded in the correct

rights to its assets and owes obligations to its liabilities

accounting period

2 Existence assets, liabilities and equity balances ex

3 Classification the transactions have been recorded in the
proper accounts

3 Completeness all assets, liabilities and equity bala

that should have been recorded have been recorded.

4 Accuracy the transactions were recorded at the

appropriate amounts

4 Valuation and Allocation assets, liabilities and equ

balances are included in the financial statements at appr

5 Completeness all transactions that should have been

amounts and any resulting valuation or allocation adjustm

recorded have been recorded

are appropriately recorded.

6 Occurrence the transactions actually took place

Presentation and disclosure: (CAR CO)
If:

Classification and Understandability financial statements are appropriately presented and described, and information in disclosure is clearly expressed.
Accuracy and Valuation financial and other information is disclosed fairly and at appropriate amounts.
Rights and Obligations the transactions pertained to the entity
Completeness and Occurrence all disclosures that should have been included in the financial statement

(a) Audit evidence obtained from one source is inconsistent with that obtained from another; or
(b) The auditor has doubts over the reliability of information to be used as audit evidence, the auditor shall determine what modifications or
additions to audit procedures are necessary to resolve the matter, and shall consider the effect, if any, on other aspects of the audit.

P7 Audit and Assurance Summary

The auditor shall determine what modifications or additions to audit procedures are necessary to resolve the matter, and shall consider the effect, if
any, on other aspects of the audit.
ISA 505
External Confirmations
External confirmation shall be used as SAAE where required
Keep control over the process to ensure reliability and realness
If management refuse and no other way to obtain SAAE then auditor can discuss TCWG for implication over audit report and managements
integrity
Conditions when External confirmations can be taken:
ISA 330 identifies the following situations where external confirmations are appropriate.
Bank balances and other information from bankers
Accounts receivable balances
Inventories held by third parties
Property deeds held by lawyers
Investments held for safekeeping by third parties
Accounts payable balances
ISA
Initial Audit Engagements Opening Balances
510
Auditor shall obtain SAAE over opening balances of balance sheet accounts
Auditors shall check that balances are transferred correctly and any restatement is reasoned (i.e. in accordance with Financial reporting framework)
and disclosed
Auditor shall determine that accounting policies and judgements are consistent with current year F/S
If previously audited then auditor shall review working papers of predecessor auditor and look for any material matters and concern.
Auditor shall obtain SAAE by extending procedures over opening balances and checking with alternative analytical and calculative (work back)
methods.
If prior period F/S are unaudited the auditor shall extend more audit procedures and also mention in Other Matter paragraph but this does not mitigate
auditors liability and responsibility
If prior period F/S are audited the auditor shall in Other Matter paragraph about audited prior financials by other auditor but this does not mitigate
auditors liability and responsibility
If the misstatement is found in prior financial statement and management auditor must as TCWG to adjust the F/S as required by relevant IFRS or IAS. In
case management refuses to re-state opening and comparative balances then the auditor reserves right to qualify report as per pervasiveness if the prior
misstatement affect current year financial statements.
ISA
Analytical Procedures
Why Perform Analytical Procedures
520
Auditors should not rely on analytical procedures alone in respect of material balances but should
Helps to identify risk of material
combine them with tests of detail.
misstatement
Design and perform analytical procedures near the end of the audit that assist the auditor when
Helps to develop business
forming an overall conclusion as to whether the financial statements are consistent with the auditor's
understanding
understanding of the entity.
Helps in developing the audit strategy
YoY comparison, - Comparison with Auditors Estimates, - Relating financial and non-financial info, - Variance
and audit plan
Calculations
ISA
Audit Sampling
530
Sampling Risks, - Non Sampling Risks, - Statistical Sampling vs Guess Sampling
ISA
Auditing Accounting Estimates, Including Fair Value Accounting Estimates, and Related Disclosures
540
Review the outcome of accounting estimates included in the prior period financial statements and their subsequent re- estimation for the purpose of the current period
Obtain understanding of underlying financial reporting framework and its requirement about estimations and judgements
Identify means by which management identify transactions that require estimations
How management assess estimates and degree of judgement required in the process
Obtain written representation from management about validity of estimates
Extend audit procedures verifying market reports valuation letters and past estimation criteria to verify managements way (also utilized auditors experience)
Obtain SAAE that estimation methods are in line with Financial reporting framework and necessary discloses are made as per Standard
Document all its finding and uncertainties and estimated deviations

P7 Audit and Assurance Summary

ISA
550

IAPN 1000:
Why is audit of financial instruments challenging?
Financial reporting requirements complex
Transactions themselves difficult to understand
Lack of evidence and need to rely on management judgement
Auditor may need to rely on expert
May be hard to maintain attitude of skepticism
Internal controls may be deficient in this area
Related Party Transactions
Auditor is not expected to find all related party transactions but is required to obtain SAAE over RPTs afecting Financial statements and those
need to be reported under IAS-24 Related Party transactions
Auditor may face risk that RPTs are unknown to auditor when management conceals or related party is itself not evident to auditor
Auditor shall Inquire that all RPTs have been disclosed and also perform procedures such as checking cross company ownerships and shareholding
of directors in other companies
Transactions with directors are Related Party transactions and are always MATERIAL by nature.
A written representation from management stating that management has disclosed to the auditor the identity of the entitys related parties and
all the related party relationships and transactions of which they are aware, that management has appropriately accounted for and disclosed such
relationships and transactions in accordance with the requirements of IAS 24.
Problems in identifying related parties and transactions:
(i)
Complex/subjective definition of related party (some of the definitions in IAS 24 Related Party)
(ii)
Reluctance of management to disclose and Hard to identify from accounting system
(iii)
Deliberate concealment for fraud/window dressing and Materiality relatively complex to apply

P7 Audit and Assurance Summary

ISA
560

Subsequent Events
Events between reporting date till Auditors Report
The auditor shall perform audit procedures designed to obtain sufficient appropriate audit evidence that all events occurring between the date of the financial statements
and the date of the auditor's report that require adjustment of, or disclosure in, the financial statements have been identified. The following are the procedures:
Inquire Management
New Commitments
Developments and Retirements
Review Board Minutes
Review Interim records
Consider management procedures for identifying subsequent events
Written representations will be sought that all events occurring subsequent to the date of the financial statements which require adjustment or disclosure have been
adjusted or disclosed.

EARP adjusted or disclosed properly: No modification Highlight in EOM if material and pervasive

EARP adjusted or disclosed improperly : Ask management to amend for correction or consider implications on Audit Report

ISA
570

Events between Auditors report and publish of F/S or Events after publish of F/S
No obligation to perform any audit procedures regarding the financial statements after the date of the auditor's report. However if auditor discovers EARP and if had
been discovered at date of auditors report and would have caused amendment to report then:

Auditor shall discuss with management and if required then suggest to amend F/S

Management does amend: Amend F/S and review and extend audit procedures and issue a new auditors report and OM should be included.

Management does not amend : Ask management to stop issue to 3rd parties or if issued then take legal advice to prevent reliance on F/S
Going Concern
An entity is said to be going concern when its able to continue normal course of business in force-able future (Force-able future is 12 months from reporting date)
Auditor is required to asses managements going concern assumption and obtain SAAE about it

See if management has done any preliminary assessment of going concern and if not ask to conduct one Indicators:
- Adverse Financial ratios

Evaluate evidences and assumptions and material uncertainties

- Net Liabilities or Negative cash flows

Inquire management about plans to mitigate risks over going concern

- Substantial operating losses
- Loss of key management without

Cash flow analysis for in the context of going concern

replacement

Obtain managements written representation regarding the correctness of their assumptions

- Uninsured or underinsured
Conclude based on Audit evidence obtained for any material uncertainty exists that challenges going concern.
catastrophes when they occur
- Indications of withdrawal of financial

Audit Opinion:
1 Material uncertainty Exist and Properly disclosed : Section headed 'Material Uncertainty Related to Going Concern' and unqualified Opinion
2 Material uncertainty Exist and not disclosed : Qualify or adverse based on pervasiveness
3 Inappropriate assumptions used : Qualify or adverse based on pervasiveness
4 Multiple Material Uncertainties exist : Auditor Unable to Provide Opinion on truth and fairness of F/S (DISCLAIMER OF OPINION is advised)
What Should be Written in 'Material Uncertainty Related to Going Concern:

The paragraph should highlight that a material uncertainty exists, and should describe the uncertainty, including any
relevant financial information, such as the amount of net liabilities at the year end. The paragraph should clearly
state the existence of a material uncertainty that may cast significant doubt over the companys ability to continue
as a going concern. The paragraph should also state that the audit opinion is not qualified in this respect, and
refer to the note to the financial statements where the material uncertainty is discussed.
ISA
580

Written Representations
Auditor is allowed to obtain written representations for Management responsibilities and to support other evidence
In case of managements refuse the auditor shall consider managements integrity and ability to obtain SAAE
Auditor shall check reliance on representation in light with audit evidence obtained and managements integrity and auditors knowledge
Required for

P7 Audit and Assurance Summary

ISA 240

ISA
250

ISA
450

ISA
501

ISA
540

ISA
550

ISA
560

ISA
570

ISA
710

P7 Audit and Assurance Summary

ISA
600

Special Considerations - Audits of Group Financial Statements (Including the Work of Component Auditors)
Group Audit partner is responsible for the audit of the group
Group auditor is required to react as auditor of group and also coordinate with component auditor and corroborate findings and assessments.
1 Responsible for assessing the competency, objectivity level of the component auditor and the extent to which reliance can be placed over their work.
2 Group auditor is solely responsible for the group audit and shall not place reference over component auditor, however while referencing incase group auditor
has to mention then also state that it wont give up group auditors liability
3 Component Report shall be modified at component level while impact shall only be made when its over the group materiality
4 In order to obtain SAAE the group auditor needs to look at Group level , - Component level
Group Audit Acceptance:
The Auditor is not expected to engage unless its is rest assure to obtain SAAE
must obtain an understanding of the group before acceptance

Group info, Component info, Predecessor auditor info

Group structure and business activities of major components

Group wide controls and consolidation processes

And general audit acceptance considerations

Difficulties in Transnational
Audit:

Regulation and oversight of

auditors differs from country to
country
Differences in auditing standards

Planning and Risk Assessment:

A component will be significant if its

asset/liabilities or Profit/Losses exceed 15% of the total groups corresponding figures or Significant by nature

If a component is financially significant to the group financial statements then the group engagement team or a component auditor will perform a full audit based on the
component materiality level. Where the component is significant, the group auditor must be involved in the component auditor work

Meeting with the component management or the component auditors to obtain an understanding of the component and its environment.
Reviewing the component auditor's overall audit strategy and audit plan.
Performing risk assessment procedures to identify and assess risks of material misstatement at the component level. These may be
performed with the component auditor or by the group auditor.
Components that are not 'significant components' will be subject to analytical procedures at a group level a full audit is not required.

Other Aspects:
2 Coterminous year end : there should be no more difference than 3 month between parent and subsidiary reporting end date else two separate F/S would be
required to be prepared
3 Changes in Group Structure: Auditor will need to take account for the group structure on consolidation process
4 Support letter: Sometime a subsidiary may look going concern by unable to pay parent debt in that case letter of comfort .An assessment of parents financial
ability to support subsidiary shall be made
5 In case of subsidiary in developing country: subsidiary will be required to restate F/S to IFRS: IFRS 1 First time adoption of IFRS MORE AUDIT WORK!!

Consolidation Problems:
IFRS 8: Operating Segment Identification , IAS 24: Related Party Disclosures IFRS3 : Intra group trading/ Un-realized Profits IAS 1: Presentation and Disclosure
Work of Component Auditor:
Reliance on component auditor shall be placed by judging
1 Ethical (adherence of IESBA code of ethics and Objective)
2 Competent (Skill base, Resources)
3 Regulated (Oversight and Access to relevant trainings and governance)
Involvement of Group auditor in components work

Review work and overall audit strategy with component auditor and Audit methodology of component auditor

Check list for methodology of work of component auditor and review the documentation

P7 Audit and Assurance Summary

ISA
610

ISA
620

ISA
701
NEW
SEP
2016

Using the Work of Internal Auditor

What to check in internal Auditor before placing reliance on their work
Competent
Proper Processes
Independent
- Organizational status
- Documented Controls and Procedures
- Objective
- Training
- Established policies and SOPs
- Employment decisions
- Proper Staffed
- Proper setup such as Audit Committee
- Constraints
- Financial Reporting Knowledge
- Oversight by the board
- Members of Pro. Bodies
Degree of uncertainty involved in their work (i.e. judgements and assumptions) involved
Do not place reliance on work which have been carried by internal audit dept. itself or significant judgment involved
- ISA 610 envisages three ways of using the work of internal auditors:
(1) To obtain information to be used when assessing the risk of material misstatement
(2) To use internal auditors' work instead of performing procedures
(3) To use internal auditors themselves to perform audit procedures (direct assistance) |only when external auditor properly reviews and oversees
the work of Internal Auditor|
Using the Work of an Auditors Expert
Auditor shall make use of Auditors Experts work provided Auditor is assured that SAAE has been obtained from experts work
Auditor shall Review before choosing Expert
1 Qualification
2 Experience
3 Independence
Auditors shall provide all the necessary guidance
1 Purpose, intended use and context of experts work
2 assumptions and methods intended
Auditor shall seek review of experts work and confirm that expert has followed discussed guidelines and has devoted sufficient time and effort. This
will enable auditor to place reliance over experts work. Checking Auditors Work:
1 The source data used
2 The assumptions and methods used
3 When the expert carried out the work
4 The reasons for any changes in assumptions and methods
5 The results of the expert's work in the light of the auditors' overall knowledge of the business and the results of other audit procedures
Auditor shall not include reference to experts work and wherever necessary include it with statement that the reference doesnt disclaim auditors liability
over the opinion formed
DEFINITION KAM:
Those matters that, in the auditors professional judgment, were of most significance in the audit of the financial statements of the current period. Key
audit matters are selected from matters communicated with those charged with governance. KAMs must always relate to matters already included
within the financial statements.
- Improves the quality of information given to stakeholders by highlighting the difficulties encountered by the auditor
- Provides an insight on how the audit is performed and what goes through the mind of the auditor, whereas up to now it only focused on the users of the
Report
DETERMINATION OF KAM
Areas of higher risks of material misstatement or which were deemed to be significant risks in accordance with ISA 315
Significant auditor judgments in relation to areas of the financial statements that involved significant management judgment.
The effect on the audit of significant events or transactions that have taken place during the period.
REPORTING KAM
Contents:
1 These are the 'matters of most significance'

P7 Audit and Assurance Summary

ISA
706

ISA
710

ISA
720

2 No separate opinion is provided on them because they are covered by the audit opinion
3 Why the matter was determined to be one of most significance and therefore a key audit matter, and
4 How the matter was addressed in the audit
A description of the auditors approach, a brief overview of procedures performed with an indication of their outcome and any other Key observations.
Exception : Law or regulation precludes public disclosure about the matter such as Mentioning money laundering may tipoff
In case of conflict with matters to be discussed in Basis for opinion para or Material uncertainty relating to going concern the former paragraph will
be given preference and KAM will refer
Emphasis of Matter paragraphs and Other Matter paragraphs in the independent auditor's report
EOM: When a matter of Fundamental Understanding
1 When a financial reporting framework prescribed by law or regulation would be unacceptable but for the fact that it is prescribed by law or
regulation
2 To alert users that the financial statements are prepared in accordance with a special purpose framework
3 When facts become known to the auditor after the date of the auditor's report and the auditor provides a new or amended auditor's report (i.e.
subsequent events)
OM: When matter is instructed to be highlighted In auditors report other than those paragraphs
1 Where prior period financial statements were audited by a predecessor auditor (ISA 710)
2 Where prior period financial statements were not audited (ISA 710)
3 When reporting on prior period financial statements in connection with the current period's audit, if the auditor's opinion on such prior period
financial statements differs from the opinion the auditor previously expressed (ISA 710)
Comparative Information Corresponding Figures and Comparative Financial Statements
Auditor shall obtain SAAE that accounting policies used for the comparatives are consistent with those applied in prior period and any changes
is reasoned and disclosed properly.
Auditor shall see that comparative amounts match with current period and are free from material misstatements in context of current year
F/S
ISA 710 requires that the auditor obtains written representations for all periods referred to in the audit opinion.
Reporting: Prior year Unaudited or audited by another auditor:

Incase audited by other auditor in past : also mention the - Type of report and if modified therefore reasons, - date of that report

State prior F/S were unaudited or audited by other auditor

State Auditor is not relived of requirement to carry out procedures to obtain SAAE over opening balances (ISA 510)

If auditor finds a misstatement then ask management to revise else modify appropriately.
Case: If there was a matter in Past :

Prior matter Resolved as of now and modified before: No modification. IF Material to current period then EOM

Prior matter Unresolved as of now and was Modified before: Modify for current as well as for corresponding figures

Prior matter Unresolved as of now and Unmodified before: Modify due to misstatement in current figures and identify that
previous one was unmodified incorrectly
The Auditors Responsibilities Relating to Other Information
Auditor is not responsible for other information disclosed in Financial report or incase Auditor might be required to audit other information under local
statutory laws.
Auditor is required to read out other information in F/S i.e. Chairmans note and see if it doesnt clash with knowledge present in Audited F/S.
Incase other information is materially diferent, then the auditor shall seek :
1 Rework specific accounts
2 Ask management to prove their other information
If there is a rework and misstatement is found auditor shall ask management to correct misstatement in the F/S considering management
integrity as well.
If management refuses above then modify as per ISA 705
If there is a restatement required in other info then auditor shall ask management to revise other info
In case management refuses auditor shall disclose inconsistency in other matter paragraph of its auditors report and also consider management

P7 Audit and Assurance Summary

integrity.
Advantage and Disadvantage of Audit as
opposed to limited assurance review
Audit vs Limited Assurance Reviews:
(Voluntary)
Regulatory requirements (Mandatory by law vs Voluntary)
- Accountability to external shareholder
Determination of scope (Scope as per ISA, Scope as per ISRE)
Renegotiation of loan facility
Nature of procedures (AEIOU vs AE)
Reliability of information for internal
Reasonable vs moderate levels of assurance (Positive wording vs Negative
decisions wording)
Opinion vs Conclusion
Potential mandatory audit if company grows
- Auditor vs Practitioner
Overseas trading relationships
Review of internal controls
Disadvantages:
Risk
misstatement
due to changes in
Non Audit Assignments: (NEGATIVE ASSURANCE) > Based on our XYZ, nothing
hasof
come
to our attention...
accounting staff
ISAE 3400
ISAE 3402
ISAE 2410 & 2400
ISRS 4400
Cost of
audit
Audit of Prospective Financial Information
Due Diligence
Review
offull
Historical
and Interim
Agreed Upon Procedures
Matters be consider for PFI terms of engagement:
<MUPARFD>
The auditor and the client should agree on the
terms of the engagement.
Management Competence & Responsibilities for
preparing PFI
Use Intended: Is it to be disclosed to 3rd parties?
Disclaimer?
Period of Forecast
Assumptions Nature
Report To whom, Form & Contents
Fees
Deadlines
The auditor should not accept, or should
withdraw from, an engagement when the
assumptions are clearly unrealistic or when
the auditor believes that the prospective
financial information will be inappropriate
for its intended use.
Reporting: <TIPNAC>
- Title/Addressee

Benefits: <IVRECNA>
Identification of assets and
liabilities
Valuation of assets and
liabilities
Review of operational and
synergy issues
Examination of financial
position and performance
Added credibility and
expertise
Added value for negotiation
of purchase price
Other advice can be given,
e.g. on obtaining finance
Consider:
Post acquisition benefits and
synergies
Any Assets of 3rd party
currently used by target.
Any liabilities
Valuation of assets especially
intangibles

F/S
Consistent accounting policies
Consider work of internal audit
Inquiries from management about
significant change in business risks
Obtain written representations
form management regarding
preparation of interim f/s
Look for compliance of IAS 34.
The Code:
- The practitioner performs primarily
inquiry and analytical procedures
to obtain sufficient appropriate
evidence
- The practitioner shall comply with
relevant ethical requirements,
including those pertaining to
independence.
- The practitioner shall plan and
perform the engagement with
professional skepticism recognizing
that circumstances may exist that
causes the financial statements to be

<UPRCM>
User Intended
Procedures Intended
Rationale behind
procedures
Conditions of
Engagement are clear
Management
responsibility for
procedures.
Reporting: <IERPFO>
1. Identification of Info on
which specific procedures are
applied
2. Statement that procedures
performed was in line with
recipients expectation.
3. Identification of Rationale
4. Listing of Procedures
5. Auditors Factual Findings
6. Statement that Auditor
doesnt express any opinion
over it.

P7 Audit and Assurance Summary

- Identification of PFI information to be reported
on
- Reference to the purpose
Report:
Negative assurance over assumption
opinion that PFI is based on assumptions
Appropriate Caveats of Assumption
When the auditor believes that the
presentation and disclosure of the
prospective financial information is
not adequate, the auditor should
express a qualified or adverse opinion in
the report on the prospective financial
information, or withdraw from the
engagement as appropriate.
- Date/Address/Sign/
General Procedures:
Re-perform calculations
consistency of the accounting policies
accuracy of forecasts prepared in prior by comparison
with actual
Perform analytical procedures
Test the facts & assumptions
Verify Opening Cash Positions
Look for missing impacts such as Finance costs and
Taxation
Competency of the person who prepared forecast

Key Personnel and

management
Reputational Risks
Terms of engagement:
<ODDTMF>
Nature of the opinion
deadline of the review
Liability disclaimer
Terms of reference
Managements
responsibility of
decision making and
ownership
Fee
Due diligence vs Historical
F/S Audit
<SAPFC>

materially misstated.
- The practitioner shall exercise
professional judgment in
conducting a review engagement
- Perform procedures necessary to
validate the true and fair
presentation of interim financial
statements in accordance with IAS 34.
- Perform analytical procedures and
enquiries regarding changes in entity
positions such as significant
transactions, agreements or loan
covenants signed that affect the
matter.
- Practitioner must ensure
consistency of accounting policies
and any deviations are reasonable to
auditors understanding
- Practitioner should inquire whether
management has identified all
events up to the date of the
review report that may require
adjustment to or disclosure in the
interim financial information

Forensic Auditing
For investigating financial
frauds and cases of disputes
Expert witness
Duty of due care
Matters:
<CRE&P>
Context of investigation
Report will be consumed by
whom
Evidences and procedures
just like audit.
Social/Environmental Audit
Difficulty in measurement
<DQSC>
Difficult to define
Difficult to quantify
Systems not set up to
capture data
Hard to make comparisons

P7 Audit and Assurance Summary

Accounting Standard
Accounting

Audit
IFRS -13 FAIR VALUE MEASUREMENT
Input 1 : Quoted prices for identical assets in an Active market
Correct measurement criteria used?
Input 2 : Quoted prices for identical assets in an Inactive market or
Did management follow the Input level requirement?
Valuation expert involved? Did Auditor assess the adequacy of expert?
Similar assets
Valuation reports? Assumptions involved are they reasonable?
Input 3 : Unobservable valuation methods:
Management Written representations on correctness of FV amounts
1 Income based > PV of all future benefits
Level of judgement involved and deviation from expected in actual results
2 Cost based > Replacement cost
3 Market approach > Market valuation by expert
IAS -2 INVENTORY
Inventory should be valued at lower of cost or NRV
Is inventory value at lower of cost or NRV
Difference should be charged to PnL
Did auditor check inventory valuation by attending stock count and
Slow moving stock need to be tested for NRV
reconciling stock from F/S to actual stock taking figures and stock value
Cost Measurement Techniques: FIFO and W.AV method
Fair valuation of inventory and standard costing of inventory checked?
1 Standard Cost (DM,DL,DOH)
Have all calculations been re-casted?
2 Retail method ( Sale value less gross margin)
Is the method of costing inventory still gives reliable measure of cost
amount?
IAS 16 NON CURRENT ASSETS
Dismantling Cost: Capitalized in the cost of the asset at present value
Check that costs to bring the asset into usable condition are capitalized
discounted at risk adjusted weighted average WACC and depreciated with
and expenses are charged to income statement.
Did auditor verify documents and invoices to verify consideration of asset
assets useful life and un-winded each year end
Environmental Cost: Expensed out each year in the consumption
and expenses incurred other than that.
Did auditor inspected asset and verified that it does not subject to
pattern of the asset.
Asset Held at Cost: Depreciate the asset over the useful economic life.
impairment
Asset Held at Revaluation: Revaluation at the end of each year for all
Depreciation of asset? Charged to PnL?
Revaluation: FV measurement checked?
assets in a similar class and depreciate the asset over the useful economic
Have deferred tax and excess depreciation aroused addressed?
life and any gain or loss of revaluation is taken through equity and excess
Verification of useful life by document and board notes
depreciation is adjusted in equity. Deferred Tax implication
Recasting of all calculations of depreciation
Disclosures are a significant requirement in revaluation for assumptions
and methods used.
Complex Asset concept, Overhauling concept, DE-recognition of
asset.
IAS 36 IMPAIRMENT
Internal and External Indications of impairment
Did auditor look for impairment indications?
Assets to review without indication : Goodwill, Intangible Assets with
Have management conducted impairment review?
Did Auditor verify CA from asset register?
indefinite life and intangible asset under development
Did Auditor verify RA which is higher of FV-CTS & Value in use?
Impairment when CA > RA = RA is the higher of
Is Value in use exclusive of financing and taxation activity?
1 Value in Use: Present value of all future benefits from continuing
Is FV according to IFRS-13?
use based on current form excluding financing and taxation
Did auditor recast the impairment amount?
adjustments. Discount rate should be used is Pre-tax Risk adj.
Did auditor review all the disclosures required by IAS 36
WACC
Have the reversal of Impairment been checked for adherence to IAS-36
2 FV CTS : FV can be binding sale agreement or an active market
guidelines
quote, CTS is attributable to disposal
Impairment Reversal: Reverse to the extent recognizes in PnL or OCI
then charge excess to other account i.e. PnL or OCI.

P7 Audit and Assurance Summary

IFRS -5 ASSET HELD FOR SALE and DISCONTINUED OPERATIONS
ASSET HELD FOR SALE:
ASSET HELD FOR SALE:
Asset held for sale 6 Criteria :
Did auditor check the asset held for sale is according to
1 Asset is immediately available for sale in present condition
criteria of IFRS 5
2 An active program to locate a buyer exists
Did auditor test the criteria?
3 Asset is quoted at a reasonable price
Has the asset been updated with prior IFRS/IAS and
4 It is probable that the asset will be sold at the year end
impairment tested before classifying into IFRS 5?
5 Management is committed to a plan to sale the asset & doesn't intend to revoke its
Test NRV and CV correctly transferred?
selling plan
Any further marks of devaluation of asset AND test that
Asset is open to sale is an indication of impairment and should be tested with it
no further depreciation is charged in lieu of this asset?
Asset then shall be reclassified from NCA to CA as AHFS : valued at lower of cost or NRV
Have all necessary disclosures been made?
Depreciation for the asset held for sale must be stopped.
Correct Classification done?

DISCONTINUED OPERATIONS:
1

Disposal of identifiable line of business, Subsidiary bought for re-sale , Single plan to
dispose operation in specific geography
2 Income from Discontinued Operations as single line in SOCI and re-state
comparative F/S for SOCI and also state net cash flow from discontinued
operations on cash flow statement.
3 Classify Assets as AHFS and liabilities as LHFS separately in SOFP.
Disclosures required:
1 Description of the nature of assets (or disposal group) held for sale and facts and
circumstances surrounding the sale
2 If applicable, the Reportable segment (IFRS 8) in which the non-current asset or
disposable group is presented.

DISCONTINUED OPERATIONS:
-

Has the company disposed significant line or segment

of business?
Have they disclosed single line income from
discontinued operations
Have they restated comparative financial information
as per ISA 710
Have they classified asset as held for sale and
liabilities as held for sale separately?
Have relevant disclosures regarding the nature of
assets and reasons disclosed in notes to F/S.
Is it a reportable segment disposed? Have they
considered IFRS 8
Is it a sale and lease back arrangement in the future?

IAS -38 INTANGIBLE ASSETS

Purchased Asset: Cost can be measured reliably + Probable flow of economic
Has auditor checked the purchase documents for cost of the asset
Has life of the asset determined? If not then why?
benefits associated with the asset.
Has auditor verified the commercial viability, technical feasibility and
Intangible Asset under Development : - Commercially viable, - Technically
intention and ability of management to complete the development?
feasible and Intention and Ability to complete the asset + Cost can be measured
Has auditor looked for the breakup of intangible asset costs and
reliably + Probable flow of economic benefits
research costs are expensed out rather than being capitalized?
Research, Prototyping , Optimal method Search : Expense out
Has auditor re-casted and verified amortization of intangible asset?
Held at cost model or IF market exist then revaluation model can also be
Has intangible asset been subject to review?
adopted
Have revaluation been verified? FVs?
In case of revaluation model asset need to revalued at the year end
Has intangible asset with indefinite useful life reviewed for
Amortize the intangible asset having a finite useful life over the pattern in
impairment at year end in accordance with IAS 36?
which future economic benefits are expected to be consumed
Have assets with indefinite useful life review for useful life
Test intangible asset with no finite life or can be renewed unlimitedly for
determination?
impairment at each year end
Have asset that have been marked with useful life now are being
1 Review annually if events and circumstances still support indefinite
amortized?
useful life
2

If no longer indefinite change to finite useful life and start amortization.

P7 Audit and Assurance Summary

IFRS -9 Financial Instruments

Financial Asset classification:
Fair Value
1 FVTPNL (Short Term trade) : Gain and losses in FV to PnL
FV measurements tested?
2 FVTOCI (To Collect Contractual cash flows) Gain and losses in FV to OCI
3 Amortized Cost <Premium Spread over lease term, Interest Accrued, Effective
Amortized Cost
interest method>
Amortization Premium cost spread?
Financial Liability classification : Finance cost charged?
1 FVTPNL | only if the liability is taken to buy an asset that will be valued at FV or held
Has the method used is effective interest rate method
for trading

Gain or loss resulting from credit risk to OCI and Other Gain or Loss to PnL
Derivatives:
2 Amortized Cost <Premium Spread over lease term, Interest Accrued, Effective
Is it Speculation or hedge? Speculation is dealt as Financial
interest method>
A/L
Compound Financial instrument : PV of liability and Residual as equity
Hedge:
Hedging derivatives: Criteria to be classified as hedge else Speculation:
1 Cash flow hedge: gain or loss recognized in PnL?

At the inception formal documentation and risk assessment is done

2 Fair Value hedge: Gain or loss recognized to OCI?

Hedge is expected to be highly effective (80%-125%) throughout the period

expected to hedge
Presentation and Disclosure:

Effectiveness of hedge can be measured reliably

Relevant disclosures made regarding risk in financial

Cash flow hedge : highly probable for the forecast transaction to occur
instrument contract disclosed in the notes to financial
2 Cash flow hedge : gain or loss of re-measure in OCI
3 Fair value hedge : gain or loss of re-measure in PnL
statements for IFRS 7
Disclosure requirements for risk exposure including quantitative and qualitative
explanations for instruments
IAS -40 INVESTMENT PROPERTY
Excess properties or rented out (not for use, inventory sale or asset
Confirm property meets investment property criteria?
Verify rental properties with rental agreements?
sale)
Check accounting policies and measurements such as cost model be
Cost model : depreciate over remaining life
FV Model : FV changes through P/L
deprecated and FV model be tested for change at the Y/E?
1 Every year fair valuation of investment property
Proper disclosures made with sufficient disclosures?
Disclosures: Properties held at investment and reason
IFRS -15 REVENUE FROM CONTRACTS
Recognition Steps
Does the contract exist? Check documents and agreements?
1 The Contract
Check documents for performance obligation and breakups of deliverables

legal agreement
Check for sale price and payment terms
Managements break up of sale price over performance obligation allocation

Payment terms
Check delivery of performance obligation and no managerial influence exist

Rights/Obligations identified
over it
2 Performance
Check under/over statement of revenue and receivables or cash

obligation Objectives

Deliverables

Time period
3 Transaction price (Price net of all costs)
4 Transaction price to each performance obligation

Criteria for allocation

Allocation of price
5 Revenue recognition when each performance obligation is
satisfied

Control transferred either over the period or after specific

performance

P7 Audit and Assurance Summary

No Further managerial involvement

IAS -24 RELATED PARTY TRANSACTIONS

requires the following to be disclosed when related party transaction exists.
Check all related party transactions are disclosed
Inquire about directors and relative holdings in other companies
Names of the transacting related parties
Check for the adequacy and sufficiency of disclosure in accordance
A description of the relationship
A description of the transaction and the amounts included
with IAS 24
The amounts due to or from the related party at the end of the year
Has the transaction been accounted in F/S
Any other element of the transaction necessary for an understanding of
the related party.
IAS -12 INCOME TAX
Which Rate of Tax should be used:
Enquire and find tax laws for tax rates applicable
Check arithmetical accuracy of calculations
IAS 12 requires that deferred tax is calculated at a rate of tax that is
Consider assumption and accounting policies are consistent
'substantively enacted' and expected to apply to the period when the
Look for Opening and Closing balances of Deferred tax liability and assets
deferred tax is to be settled. Substantively enacted generally means that it
Obtain a copy of deferred tax workings
has been made into law, not merely suggested or announced.
Verify that all assets and liabilities subject which have caused taxable
Deferred Liability
temporary difference have been included
IAS 12 Income Taxes requires deferred tax to be recognized in respect of
If deferred tax asset.
taxable temporary differences which arise between the carrying amount and
1 Obtain future forecast to justify future taxable profits
2 Verify reasonableness of assumptions and forecast.
tax base of assets and liabilities
3 Check for adequacy of disclosure

IAS 16 : Revaluation, Depreciation and Dismantling Cost

IFRS 9 : FVTPNL, FVTOCI, Amortized Cost and CFI

IAS 17 : Tax authorities always consider as Operating lease

Deferred tax asset
an unused tax loss carry-forward or unused tax credit exist
Should only be recognized when there are sufficient taxable profits.
Disclosure required
IAS -20 GOVERNMENT GRANTS
Recognition:
Check Grant document and grant type
Check for grant conditions and terms that must be complied with
Entity will comply with any conditions attached
Check for grant revoke clauses and reimbursement clauses to determine
Entity will actually receive the grant
need for any provision in case of non-compliance
Capital Grants:
Verify bank statements for receipt of grant
1 Netting of method: Net-off against the Cost of the asset
Inspect asset purchased and basis of its accounting method
2 Deferred Income method: Defer and release over the pattern of
Look for condition of grant and its compliance and managements intention,
benefits received.
record and capability to fulfill it.
Revenue Grants:
Provisions for non-compliance incase
3 Netting Of method: reduce the expense
Look for accounting for grants:
4 Other Income method: record as other income
1 Capital grants should be recorded as deferred income and released
In case of Conditional grant if entity cannot satisfy conditions then it
to F/S over the pattern of consumption of economic benefit
shall not record the grant and if condition is long-term then book a
2 Revenue grant should be recorded as net of expense or other income
provision incase terms contain to reimburse the amount to government.
Adequate disclosures have been provided
Disclosures:
Accounting policy adopted
Nature and extent of government grants recognized
Unfulfilled conditions and other contingencies
IAS -23 BORROWING COSTS
Recognition:
Verify costs by bank statements and bank agreements
IAS 24

P7 Audit and Assurance Summary

-

Qualifying asset: An asset that necessarily takes a substantial period of time to get ready for
its intended use or sale.
Interest Cost is to be capitalized into asset for constructing asset by loan only from the
start of the asset construction to extent where asset comes into usable condition. (any
expected stoppage to the construction will stop capitalization
Later asset needs to be depreciated

Obtain asset construction schedule to verify

construction stages and term
Check for capitalization should be directly attributable
to asset
Re-calculate interest costs
Verify asset is depreciated after coming into usable
condition
IAS -33 Earnings Per Share [For listed companies only]
Basic EPS : Net Profit/loss attributable to share holder directly/Weighted Average no. of ordinary shares
Has the entity calculate correct EPS & DEPS?
Has the entity disclosed EPS & DEPS in notes to F/S?
Diluted EPS : Diluted earnings / Diluted weighted average number of shares
Has restated EPS & DEPS for comparatives in notes to
Presentation and disclosure:
F/S?
Disclose in notes to annual financial statements not on face of statement of comprehensive
Has the entity Disclosed EPS and DEPS for
Income
discontinued operations?
Discontinued operation: Under IFRS 5 (see below), then it must disclose the basic and diluted EPS for
Necessary disclosures in Notes to F/S made?
the discontinued operation.

P7 Audit and Assurance Summary

IAS -17 LEASES
Operating lease
Obtain copy of lease agreement and inspect for conditions of
Recognition: R/R lessor or other than finance lease.
lease to identify lease type.
Accounting: Rentals recorded on straight line basis over the lease term charged to
In case of finance lease verify that risk and rewards are
PnL
belonging to lessee
1 Responsibility of repair and maintenance?
Finance lease
2 Transfer of legal title at end of term?
Recognition:
3 Present value of minimum lease payments nearly

PV of Minimum lease payment covers significant assets CV amount

assets cost?
(>75%)
4 Lease term nearly assets useful life?

Lease benefits to lessee

5 Bargain purchase options exist?

Lease term covers substantial part of assets useful life

Verify accounting for operating lease that is rental expense

Bargain Purchase option

are charged to the PnL over straight line basis

Asset maintained by the lessee

Verify accounting for Finance lease that asset is recognized
Accounting: Recognize Asset and Finance cost in combination with Current and nonand finance lease obligation is introduced with current and
current Finance lease obligation and bank payment. Finance cost needs to be accrued
non-current lease portions
1 Depreciate the asset at lower of assets useful life or lease term
Look for the finance cost accruals
2 IAS 17 guides that only the buildings element of the lease can be capitalized, as
Review that asset is depreciated over the lower of lease term
a land lease is always an operating lease.
or assets useful life
Sale and Finance lease back:
Verify lease payments through bank statements
1 Asset will be re-recognized at FV of lease amount and any gain or loss will be
In case of sale and finance lease back identify the transaction
deferred and realized over the lease term while finance lease will be initiated.
and nature of lease and gain is deferred with recognition of
Finance cost to be accrued at the end just like finance lease.
FLO and finance cost
Sale and Operating lease back:
In case of sale and operating lease back identify the
Gain is immediately recorded to PnL
transaction and nature of lease and gain is immediately
Disclosures: Finance leases
recorded to PnL
1 Net carrying amount at year end for each class of asset
Review disclosure notes to verify appropriate disclosures are
2 Reconciliation between total of minimum lease payments at year-end and their
made for finance and operating leases as per IAS 17
present value
3 Total of minimum lease payments at year end and their present value (< 1 year,
1-5 years, > 5 years)
Disclosures: Operating leases
1 Total of future minimum lease payments under non-cancellable operating leases
(< 1 year, 1-5 years, > 5 years)
IAS 37 PROVISIONS AND CONTINGENT LIABILITIES
Liability < Present legal or constructive obligation + as a result of past event + Amount is Certain +
Obtain details of provisions and contingent
Outflow is Certain>
liabilities disclosed or recorded
Events after reporting date will be considered
Provision <Present legal or constructive obligation + as a result of past event + Amount Can be estimated
Determine for each liability/provision
reliably + Outflow Probable>
1 Present Obligation (Constructive/legal)
Reimbursements from third parties for some or all expenditure required to settle a provision are
2 Past Event
recognized only when it is virtually certain that the reimbursement will be received. The
3 Outflow is (Certain/Probable/Possible)
reimbursement is treated as a separate asset, which cannot exceed the amount of the provision.
Check correspondence with solicitor
Provisions are reviewed at each reporting date and adjusted to reflect the current best estimate
Look for nature of business and any missed
If it is no longer probable that an outflow of economic benefits will be required to settle the
provisions? Auditors point estimate of provision
obligation, the provision is released
Contingent Asset probable to be received?
Contingent Liability <amount cannot be estimated reliably or either Outflow Possible> <Disclosed in the
Onerous contract booked at lower of penalty for
notes to F/S>
lapse or lease continuation?

P7 Audit and Assurance Summary

Contingent Asset <Insurance recovery or claim over supplier> <only when probable to be received>
Has restructuring provision recorded after the
<Disclosed in the notes to F/S>
formal plan has been devised and publically
Onerous Contracts (Loss making contracts)
announcement to effected parties.
Consider whether disclosures of provisions

Lease termination : LOWER OFF (Cost of completion OR Penalty for Lapse)

contingent liabilities and contingent assets are
Restructuring : Employee redundancy cost provision
correct and sufficient

Detailed formal Plan: Location, employees involved etc.

Publically announced before the year end

2 Relocating and retraining cost should be expensed out
RELEVANT DISCLOSURE ARE MADE
IAS 19 EMPLOYEE BENEFITS
Short term benefits
Check scheme assets
1 Leave entitlement
Check scheme liabilities
2 Short term Bonus
Check reasonableness of actuarial assumptions
Long term benefits
Check for accounting of asset liabilities and resulting P/L
1 Defined benefit plan
1 Termination record date should be lower of :
2 Defined contribution plan

Actual termination
Termination Payments

IAS 37 restructuring date

1 Termination record date should be lower of :
Look for necessary disclosures

Actual termination

IAS 37 restructuring date

Disclosure is required of a description of the plan and the amount
recognized as a expense in the period.
IFRS -2 SHARE BASED PAYMENTS
Equity Settled: Non-Employee
Obtain grant document and inspect its conditions and type of

Initial recognition: FV of equity instrument at grant date over the

grant
Identify the transaction type
vesting period.
1 Equity settled cash settled or cash alternative

Subsequent measurement: No Re-measure

2 Look for accounting is in accordance with IFRS 2
Cash settled:

Initial recognition: Measure at fair value of liability at grant date

Subsequent Measurement: Re-measure at reporting date changes to

Share based payments:
PnL
Check estimation dates
Cash Alternative (Option):
In case of non-market condition Obtain year end expectation of

Residual will be derived from fair value of CFI granted less FV of

employee retention %
In case of market condition Obtain expectation of employee
liability

Initial recognition: Fair value of liability at grant date residual being

retention % at grant date of employee
Inspect fair valuation of shares:
the equity.
1 Assumptions and models used

Subsequent measurement : Re-measure liability at Y/E and changes

2 Expert report and expert competency and objectivity
to PnL
Obtain written representation regarding reasonableness of
Share based payment Employee
assumptions and fair valuation used.
Grant type: Unconditional Expense immediately into PnL
1 Conditional

Non Vesting Expense immediately into PnL

Vesting :

Non Market Expectation at Year End date (proportionate

record)

Market Expectation at Grant date (proportionate record)

P7 Audit and Assurance Summary

-

Measurement method: No. of Shares x No. of Employees x Expectation % of

employees in scheme expected to be retained until year end x FV of Share x Vesting
Period/Total Period.
IAS -21 EFFECTS OF CHANGE IN FOREIGN EXCHANGE
Single company:
Check that foreign currency transactions are recorded at the historical
Initial Measurement : at Spot rate/Historical rate
rate on initial recognition (and in the statement of profit or loss)
Subsequent Measurement :
Check that monetary items included in the statement of financial position
1 Monetary Asset/Liability <A/P, A/R> : Retranslate at the Y/E rate
at the yearend are translated at the closing rate of exchange
<Gain loss PnL>
Check that non-monetary items are translated at the historical rate of
2 Non-Monetary <Inventory, Machinery>: No Retranslation <Gain
exchange
loss to PnL>
Consolidation done with translation?
Correct translation according to head of account (B/S account or I/S
Group:
account)
Retranslate B/S items at closing rate
All retranslation gain/loss credited/charged to OCI?
Retranslate I/S items at Average rate
Have all necessary disclosures made?
All retranslation gain and losses from retranslation will be taken to equity.
Disclosures

P7 Audit and Assurance Summary

IFRS -3 BUSINESS COMBINATIONS
Subsidiary: Over which entity exercises significant control
Is it a subsidiary, associate or investment?
Goodwill correctly measured?
Significant Control definition Ownership of more than 50% voting rights or
1 FV of N/A Correctly determined? check Due diligence

power to add/remove directors or rights to variable returns from its

practitioner work
involvement
2 Consideration is correctly accounted? Agree to sale

ability to use its power over the investee to affect the amount of the
agreement
investor's returns

Contingent or deferred consideration shall be

Goodwill: Initial Recognition |CONSIDERATION + FV OF NCI AT ACQ. FV OF N/A at ACQ |
recorded at PV
FV of N/A Valuation of Net Assets generally due diligence derived

Contingent consideration if not going fulfil then

CONSIDERATION Cash, Share Exchange, Loan Notes , Deferred (PV),
not consider
Contingent(PV)(Conditional)

PV based provision are to be un-winded at year

FV OF NCI If NCI exist (No. of shares of NCI x FV of shares at the transaction date)
end
Subsequent measurement: Impairment Testing at year End
NCI exist? Correct accounting taken in Goodwill and SOCI & SOFP
NCI: B/S : FV OF NCI + SHARE OF NCI in Post-Acquisition Reserve of subsidiary
Subsequent Impairment testing for Goodwill at Y/E held?
I/S Profit and Other comprehensive income attributable to NCI
Correctly Consolidated?
Consolidation:
1 B/S consolidation? Goodwill, NCI, Retained Earnings?
Eliminate Intra Group Trading and Unrealized Profits.
<Time Apportioned?>
1 B/S completely consolidated with Goodwill and NCI on face (if exist) (Time
2 I/S consolidation? <Time Apportioned? , Acquisition %
Apportion)
Apportioned>
2 I/S consolidate over acquisition % and Profit/OCI to NCI is shown on face
Disclosures area provided and are sufficient
of PnL/OCI income.
IAS -28 INVESTMENT IN ASSOCIATE & JOINT VENTURES
Associate/Joint Venture: an entity over which parent exercises significant
Does organization exert significant influence?
Is it an Associate? Or a Joint Venture?
influence
Correct equity method of accounting used?
Which means : Ownership of more than 20% shares and less than 50% or

Initially recorded at cost and subsequently measured at fair

Representation on the board of directors (or

value?
equivalent) of the investee
Presentation and disclosures are correct?

Participation in the policy making process

B/S presentation

Material transactions between investor and investee

I/S presentation <Time Apportioned? , Acquisition %

Interchange of management personnel

Apportioned>

Provision of essential technical information

Disclosures for IFRS 12 completed?
Measurement: Equity Method
Initial recognition: recorded at cost
Subsequently measurement: at fair value with any gain or loss going
through PnL.
Presentation and Disclosure:
B/S: Investment in Associate (Fair value of associate at Y/E)
I/S: Share of Profit in Associate (Profit by Associate x Acquisition % x Time
Apportioned)
IFRS 12 Disclosure of Interests in Other Entities
IFRS -1 First time Adoption of IFRSs
Select IFRS accounting policies using either: IFRSs that are currently effective; or one or more IFRSs that are not yet effective, if those new IFRS permit early adoption.
Recognize/De-recognize assets and liabilities where necessary so as to comply with IFRSs
Reclassify items recognized under previous accounting framework as one type of asset, liability or component of equity, but are a different type of asset, liability
or component of equity under IFRS
Re-measure all assets and liabilities recognized under IFRSs.

P7 Audit and Assurance Summary

IFRS -7 Financial Instruments: Disclosures
SIGNIFICANCE OF FINANCIAL INSTRUMENTS IN TERMS OF THE FINANCIAL POSITION AND PERFORMANCE (The
accounting and presentation in F/S)
NATURE AND EXTENT OF RISKS ARISING FROM FINANCIAL INSTRUMENTS AND HOW THE RISKS ARE MANAGED (The
disclosure notes)
Qualitative risks
Quantitative Liquidity
Credit
Market
risks
Risks
Risks
Risk

Check that disclosures for financial

instruments are in accordance with
IFRS 7
1 Quantitative risk disclosed
2 Qualitative risk disclosed

P7 Audit and Assurance Summary

IFRS -8 Operating Segments
Operating Segment definition: All conditions must satisfy
That engages in business activities from which it may earn revenues and incur expenses
Whose operating results are regularly reviewed by the entitys chief operating decision maker (CODM) to make decisions
about resources to be allocated to the segment and assess its performance
For which discrete financial information is available.
Reportable Operating Segments: Any one condition satisfies then
Has revenue including internal and external sales more than 10% of combined sales of segments
Has assets including internal and external sales more than 10% of combined assets of segments
Has P&L including internal and external sales more than 10% of combined PnL of segments
When Operating Segmental information can be combined: Segments are similar in each of the following respects:
The nature of the products and services or the nature of the production processes or the customer base for their products
and services or the nature of the regulatory environment or the distribution process of their products or provide their
services

Check for methods

used by
management in
determining
operating segment
information
Check that all
reportable
segments that
qualify the criteria
are disclosed and
reported in
accordance with
IFRS 8
If segments are
combined make
sure that the
combination
criteria is met

IAS -1 Presentation of Financial Statements

Overall considerations
Look for the Presentation of F/S is fair
1 Fair Presentation and Compliance with IFRS and Going
Accrual basis of accounting is followed?
Entity is a going concern? If not then alternative basis breakup values f/s provided?
Concern and
Offsetting is not done and every component required to disclose separately is disclosed
2 Accrual basis of accounting and Presentation
separately?
Consistency and
Have comparative F/S been provided?
3 Materiality and aggregation and Offsetting is not
Have all the required F/S created i.e. SOCI SOFP SOCF SOCIE NOTES TO F/S
allowed and
4 Comparative Financial Information Provided
Financial Statements Creation: SOCI SOFP SOCF SOCIE
NOTES TO F/S
IAS -32 Financial Instruments: Presentation
Classification of Instruments:
Have the instrument correctly classified?
Financial Asset : Cash or Contractual right to receive cash
1 Is the financial asset recognized
Financial Liability : Contractual obligation to pay cash
qualifies the criteria of IAS 32
Compound Financial Instrument : Hybrid instrument having both equity and liability component
2 Is the financial liability recognized
Treasury Shares : Issued and on buy back no gain or loss is recognize all proceeds to equity
qualifies the criteria of IAS 32
Derivative: A financial instrument or other contract with all three of the following characteristics.
3 Is the compound financial
1 Its value changes in response to the change in a specified interest rate, financial instrument price,
instrument recognized qualifies
commodity price, foreign exchange rate, index of prices or rates, credit rating, or other variable
the criteria of IAS 32
(sometimes called the 'underlying asset').
2 It requires no initial net investment or an initial net investment that is smaller than would be required
Have treasury shares correctly
for other types of contracts that would be expected to have a similar response to changes in market
accounted?
factors.
3 It is settled at a future date.
Have the derivative recognized to criteria
Ofsetting:
-

P7 Audit and Assurance Summary

1.
2.

Legal enforceable right

Same timing

of IAS 32?
-

Offsetting has been done when legal

enforceable right existed? And timing of
settlement was same?

IFRS -10 Consolidated Financial Statements

Consolidation procedures:
Combine assets, liabilities, income, expenses, cash flows of the parent and subsidiary
Eliminate parents investment in each subsidiary with its portion of the subsidiarys equity
Fully eliminate intra group transactions and balances.
Parent and subsidiaries must have uniform accounting policies and reporting dates. If not, alignment adjustments must be
quantified and posted to ensure consistency.
Reporting dates cannot vary by more than 3 months.
Consolidation of an investee begins from the date the investor obtains control of the investee and ceases when the investor
loses control of the investee

Have the consolidation

done in accordance with
IFRS 3 and IFRS 10
Have the intra company
balances been fully
cancelled
Have all related party
disclosures given
Are the accounting policies
and Y/E of parents and
subsidiary same