SA 610 (Revised): Using the work of Internal Auditors

(April 01, 2010)

(AAS 7 Relying upon the Work of an Internal Auditor)
 The external auditors responsibilities regarding the work of internal
auditor’s is that the internal audit function is likely to be relevant to the
audit.
 The objectives of external auditor, being to determine whether, and to
what extent, to use specific work is adequate for the purpose of the
audit.
 The external auditor shall evaluate the objectivity of the internal audit
function, the technical competence of the internal auditor, whether the
work of the internal auditor is likely to be carried out with due
professional care and whether there is likely to be effective
communication between the internal auditors and the external
auditor.
 The external auditor shall evaluate and perform audit procedures on
that work to determine its adequacy for the external auditor’s purposes.
 SA 300(Revised): Planning an Audit of financial
Statements (April 01, 2008)
(AAS 8 Audit Planning)
 Planning involves establishing the overall audit strategy so that work
will be performed in an effective manner.
 An Audit Plan can be developed to address various matters ,
considering the need to achieve the audit objectives through efficient
use of auditor’s resources.
 Matters to be considered in developing the overall plan are terms of
engagement; nature and timing of reports; applicable legal or statutory
requirements; accounting policies adopted by the client; identification
of significant audit areas; setting of materiality levels.
SA 620 (Revised):Using the Work of an Auditor’s Expert
(April 01,2010)
(AAS 9 Using the Work of an Expert)

 The Auditors responsibilities regarding the use of an individual or

organization’s work in the field of expertise other than accounting or
auditing, when that work is used to assist the auditor in obtaining
sufficient appropriate audit evidence
 The objectives of an auditor to determine whether to use the work of an
auditor’s expert and to determine whether that work are adequate for the
auditor’s purpose
 The nature, timing and extent of the auditor’s procedures will vary
depending on the circumstances. In determining the nature, timing and
extent of those procedures, the auditor to consider matters like
o the nature of the matter to which that expert’s work relates ,
o the risk of material misstatement ,
o The audit the significance of that expert’s work in the context of the
auditor’s knowledge of and
o Experience with previous work performed by that expert and whether that
expert is subject to the auditor’s firm’s quality control policies and
procedures.
 The auditor shall agree, in writing when appropriate, on the following
matters with the auditor’s expert
 The nature, scope and objectives of that expert’s work ,
 The respective roles and responsibilities of the auditor and that expert,
 The nature, timing and extent of communication between the auditor
and that expert, including the firm of any report to be provided by that
expert, and
 The need for the auditor’s expert to observe confidentiality
requirements
 The auditor shall evaluate the adequacy of the auditor’s expert’s work
for the auditor’s purposes, including:
 The relevance and reasonableness of that expert’s findings or
conclusions, and their consistency with other audit evidence,
 If that expert’s work involves use of significant assumptions and
methods, the relevance and reasonableness of those assumptions and
If that experts work involves the use of source data that is significant to
that expert’s work, that relevance, completeness , and accuracy of that
source data.
 methods in the circumstances , and
 SA 600 : Using the Work of Another Auditor
(AAS 10)
 When the principal auditor uses the work f another auditor, the principal
auditor should determine how the work of other auditor will affect the
audit
 The auditor should consider professional competence of other auditor in
the context of specific assignment if the other auditor is not a Chartered
Accountant. Auditor to inform other auditor of matters such as areas
requiring special consideration, procedures for identifications of inter-
component transactions and significant accounting, auditing and
reporting requirements.
 Auditor should consider significant finding of other auditor. There should
be proper co-ordination and communication between the two auditors
 When the principal auditor concludes that work of other auditor cannot
cannot be used and s/he has not been able to perform sufficient additional
procedures regarding financial information of the component audited by
other auditor, s/he should express a qualified opinion or disclaimer of
opinion
 The principal auditor would not be responsible in respect of the work
entrusted to other auditors
SA 580 (Revised): Written Representation (April 01,2009)
(AAS 11 Representation by Management)
 Written representation are used to corroborate the validity of the
premises, relating to management’s responsibilities, on which an audit
is conducted
 Management has to provide a written representation that it has
fulfilled its responsibility for
o the preparation and presentation of financial statements in accordance
with applicable financial reporting framework;
o Designing, implementing and maintaining of adequate internal
control system; and
o Completeness of information made available to the auditor
 A management representation letter should be signed by members of
management having primary responsibility for the entity and its
financial aspects
SA 320 (Revised): Materiality in Planning and Performing
an Audit (April 01, 2010)
(AAS 13 Audit Materiality)
 The concept of materiality is applied in planning and performing the
audit and in evaluating the effect of identified misstatements,
uncorrected misstatements on the financial statements and in forming
the opinion in the auditors report
 These judgments provide a basis for:
 Determining the nature, timing and extent of risk assessment
procedures;
 Identifying and assessing the risk of material misstatement; and
 Determining the nature, timing and extent of further audit procedure.
 The auditor shall revise materiality for the financial statement as a
whole the materiality level or levels for particular classes of
transactions, account balances or disclosures
 SA 530 (Revised): Audit Sampling (April 01,2009)
(AAS 15)
 The auditor to design and select an audit sample, and evaluate sample
results so as to provide sufficient appropriate audit evidence
 The objective of the auditor is to provide a reasonable basis to draw
conclusions about the population from which the sample is selected
 When designing an audit sample, auditor should consider
o The objective of an audit procedure and characteristic of the
population.
o To assist in efficient and effective design of sample.
o Stratification that may be appropriate. Stratification is the process of
dividing a population into sub-populations.
 When determining sample size, auditor should consider sampling risk,
tolerable error, and expected error.
 SA 570 (Revised): Going Concern (April 01,2009)
(AAS 16)
 Going concern assumption is a fundamental principal in the preparation of
financial statements. Management should assess entity ‘s ability to
continue as a Going Concern even if the applicable financial reporting
framework does not include an explicit requirement.
 Auditor should evaluate appropriateness of management’s use of going
concern assumption in preparation of financial statements and conclude
whether there is a material uncertainty about entity’s ability to continue as
a going concern that need to be disclosed in financial statements.
 While planning and performing audit procedures and in evaluating the
results auditor to perform audit procedures when events or conditions are
identified that cast significant doubt on the entity’s ability to continue as a
going concern.
 These may be financial indicators, operating indicators or other indicators
 Auditors, on the basis of his/her judgment and audit evidence will report,
as deemed appropriate. In case where use of going concern assumption is
appropriate but the material uncertainty exists then
 (i) if adequate disclosure is made in financial statements, auditor
should express and unmodified opinion but include an Emphasis of
Matter paragraph in the auditor’s report.
(ii) if the adequate disclosure is not made in financial statements
,auditor should express a qualified or adverse opinion , as appropriate.
(iii) in case where entity will not be able to continue as going concern,
auditor should express an adverse opinion if financial statements have
been prepared on a going concern basis.
 SA 560(Revised):Subsequent Events (April 01,2009)
(AAS 19)
 Subsequent events are significant events occurring between balance
sheet date and the date of auditor’s report.
 Auditor should consider effect of subsequent events on financial
statements and on auditor’s report .
 Auditor should perform procedures design to obtain sufficient
appropriate audit evidence that all events up to the date of auditor’s
report that may be required adjustment of, or disclosure in financial
statements have been identified.
 Procedure to identify events that may require adjustment of, or
disclosure in financial statements would be perform as practicable to
the date of auditor’s report
 When the management does not account for such event that auditor
believes should be accounted for, auditor should express a qualified
opinion or an adverse opinion, as appropriate.
 SA 299: Responsibility of Joint Auditors
(AAS 12)
 Joint auditor should, by mutual discussion, divide audit work. Division
of work would usually be in terms of audit of identifiable units or
specified areas .
 Certain areas of work, owing to their importance or owing to the nature
of work involved, would often not be divided and would have to be
covered by all joint auditors
 Each joint auditor is responsible only for the work allocated to them
whether or not s/he has prepared a separate report on work performed
by them
S A 520- ANALYTICAL PROCEDURES
Introduction:

 The purpose of this is to establish standards on the

application of analytical procedures during an audit.
 The auditor should apply analytical procedures at the
planning and overall review stages of the audit.
 “Analytical procedures” means the analysis of
significant ratios and trends, including the resulting
investigation of fluctuations and relationships that are
inconsistent with other relevant information or which
deviate from predicted amounts.
Nature and Purpose of Analytical Procedures

 Analytical procedures include the consideration of

comparisons of the entity’s financial information with,
for example:
a) Comparable information for prior periods
b) Anticipated results of the entity budgets or forecasts.
c) Predictive estimates prepared by the auditor, as an
estimation of depreciation.
d) Similar industry information, comparison of the
entity’s ratio of sales to trade debtors with industry
averages.
 Analytical procedures also include consideration of
relationships:
a) Among elements of financial information that would be
expected to conform to a predictable pattern
based on the entity’s experience, such as gross margin
percentages.
b) Between financial information and relevant non-
financial information, such as payroll costs t number of
employees.
 Various methods may be used. These range from simple
comparisons to complex analyses using advanced statistical
techniques.
 Analytical procedures may be applied to consolidated
financial statements, financial statements of components
(such as subsidiaries, divisions or segments) and individual
elements of financial information.
Analytical Procedures in Planning the Audit

 The auditor should apply analytical procedures at the

planning stage to assist in understanding the business
and identifying areas of potential risk.

Analytical Procedures as Substantive Procedures

 It may be efficient to use analytical data prepared by the

entity, provided the auditor is satisfied that such data is
properly prepared.
Analytical Procedures in Overall Review at the End of
the
Audit

 The auditor should apply analytical procedures at or

near the end of the audit when forming an overall
conclusion as to whether the financial statements as a
whole are consistent with the auditor’s knowledge of
the business.
Investigating Unusual Items

 When analytical procedures identify significant

fluctuations or relationships that are inconsistent with
other relevant information or that deviate from
predicted amounts, the auditor should investigate and
obtain adequate explanations and appropriate
corroborative evidence.