Super Summary
This is a summary of “AUDITING AND ASSURANCE STANDARDS” especially for the C.A. Final Auditing paper.
Mostly students ignore this important portion while preparing for the examination.
While, some of the students who prepare this portion initially, are unable to revise it just before the examination due to it’s volume correlating it with the time constraint.
This is just an attempt to reduce the volume to enable quick revision during those crucial hours.
However, these can be customized according to the personal choice, as this summary is not a substitute to the detailed content provided by ICAI
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AUDITING AND ASSURANCE STANDARDS
AAS-1
Basic Principles Governing An Audit
(DISCOPAIR)
Integrity, Objectivity & Independence
Confidentiality
Must not disclose any information Except any Legal or Professional duty
Skills & Competence
acquire skills etc. through constant touch with developments
Documentation
matters providing evidence should be carefully documented
Planning
Keep in mind factors like Audit Programme, availability of audit staff, time etc.
Work Performed By Others
MAY RELY, provided due care and skills are exercised
Audit Evidence
Tests to obtain assurance of Tests to obtain evidence as to
proper Internal Controls Completeness, Accuracy & Validity
of data produced by EDP system (C A V)
Accounting System and Internal Control
MANAGEMENT is RESPONSIBLE
Audit Conclusions & Reporting
a) Compliance of relevant regulations, legal requirements, accounting policies
b) Disclosure of material Matters
Very Imp: Form and Content of the Audit Report should be as per
LAW/REGULATION / AGREEMENT.
AAS-2
Objective and Scope of The Audit of Financial Statements
1) Objective
To express an Opinion
2) Responsibility of Financial Statements (F/S)
Audit of F/S, does not relieve the Management of it’s responsibility for maintaining proper records.
Duty of the Management to devise A/c Policies, Internal Control measures.
3) Scope
As per the terms of Engagement / Relevant Law / Pronouncements of ICAI etc.
However, in no case the scope of the audit can override any statutory provision.
4) Organizing an Audit
5) Inherent Limitations of Audit
Extend the audit procedures, if any indication of fraud / error, which is likely to result misstatement. If any constraints, give Qualified / Disclaimer of opinion.
AAS-3
Documentation
Form and Content
Preparation of Working Papers
Should be proper and as per the catering needs.
In Case of Recurring Audits: Prepare Permanent and Current Working Papers.
Ownership & Custody of Working Papers
Property of the auditor, so keep in safe custody & maintain confidentiality.
MAY make available relevant extracts to the client on demand.
(as decided in case of “Chantery Martin & Co. Vs. Martin”)
AAS-4
The Auditor’s Responsibility to Consider Fraud & Error In An Audit of Financial Statements
1) Fraud
Intentional misrepresentation : Fraud, Collusion, Willful misstatement,
Supression of Facts, Contravention of Provisions etc. (i.e. FCWSP)
2) Error
Unintentional Mistake
3) Responsibility of Detection of Fraud / Error
Lies with MANAGEMENT
Inherent Limitations of Audit
Audit Risk (As per AAS-6)
Procedures when circumstances indicate a possible misstatement
Consider it’s impact in relation to other aspects of audit,
Otherwise, disclose the matter in audit report if material enough.
Management Representation (As per AAS-11)
Communication
To the Appropriate Management Authority / Level
Auditor Unable to complete an Engagement
As per this AAS: WITHDRAW & disclose such facts to the Incoming auditor
AAS-5
Audit Evidence
Sufficient Appropriate Audit Evidence
Obtaining Audit Evidence
a) Compliance Procedures
b) Substantive Procedures
Reliability of the Audit Evidence
Consistency of the Audit Evidence
Methods of Collection of Audit Evidence (I O I C A)
a) Inspection
b) Observation
c) Inquiry and Confirmation
d) Computation
e) Analytical Review – Study of significant Ratios & Trends & Investigations
AAS – 6
Risk Assessment and Internal Controls
1) Aim
In order to acquaint for a better audit plan Accounting System (A/C/S) and Internal Control System (I/C/S)
A/C/S I/C/S
à Transactions details – nature, type etc. à conduct business properly
à A/c Records, supporting documents à Adherence to Mgt. Policies
à A/c & financial reporting process à Safeguarding of assets
à Timely detection of Fraud & Error etc.
where,
I/C/S =
2) Audit Risks
It is the risk that the auditor may give an inappropriate opinion when the F/S are
misstated. Its components are Inherent Risks, Control Risks, and Detection Risks
A) Inherent Risk
It is the susceptibility of the account balance or class of transaction to a material misstatement either individually or when aggregated with misstatements of other balances or classes, assuming there were no internal controls
Inherent Limitations In Internal Controls
v Management’s concern about the operating system
v Transactions of the unusual nature may be misused by most controls
v Collusion (FCWSP etc.)
v Abuse of control by the person who himself is responsible for it’s exercise
v Manipulations by the management
B) Control Risks
It is the risk that a misstatements could occur in an account balance or classes of transaction and that could be material, either individually or when aggregated with other misstatements, will not be prevented or detected and corrected on a timely basis by the accounting and internal controls.
C) Detection Risk
It is the risk that the auditor’s substantive procedures will not detect a misstatement that exists in an account balance or a class of transactions that could be material, either individually or when aggregated with misstatements in other balances or classes
S.No. Relationship between Type of Relationship
a) Inherent & Control Risk DIRECT (Generally)
b) Detection Risk &
Combined level of
Inherent & Control Risk INVERSE
3) Other Items
a) Internal controls in a small business
It may not be practicable due the less involvement of the number of people.
But when according to the auditor, when effective supervision is lacking, perform rely on the substantive procedures
b)Communication of the weakness in internal control
Any material weakness in the internal control noticed by the auditor during the course of his evaluation or the audit procedures it should be timely communicated in writing to the proper level of management
However, such communication should make it clear that the audit examination has not been designed to determine the adequacy of internal controls
AAS-7
Relying Upon The Work of An Internal Auditor
Though the work of an Internal Auditor can be useful to the Statutory Auditor:-
The Statutory Auditor alone will be responsible for his report and in no way will reduce his responsibility.
The Statutory Auditor’s conclusions as to the review of the specific work should be properly documented, after undertaking the Test Checking the work of Internal Auditor.
The nature, timing and extent of his tests will depend on the evaluation of the Internal Audit function, which is affected by Organisational Status, Scope of Coverage, Technical Competence, and Due Professional Care
AAS-8
Audit Planning
1) Introduction
In case of Recurring Audits
2) Factors to be considered
Complexity of audit, Business Environment, Previous experience, Knowledge of
client’s business.
3) Knowledge of Client’s Business (Sources of knowledge as per AAS – 20)
4) Development of Overall Plan
5) Developing Audit Programme
AAS-9
Using The Work Of An Expert
An Expert is a person who possesses special skill, knowledge and experience in a particular field, other than accounting and auditing
1) Determining the need to use the work of an expert
Materiality or Complexity of an item.
2) Skills of an expert
required professional qualification
3) Objectivity of an expert
Honesty of an expert
4) Evaluation of work of an expert
In case of any inconsistency / conflicting or unrealistic assumptions:-
try to resolve by discussions with the client and that expert, or
apply additional procedures, or
engage other expert
5) Reference to Expert in an Audit Report
In case of Qualified Opinion, the work of that expert may be referred to / described
AAS-10
Using The Work Of Another Auditor
1) Introduction
Where Applicable:- Where the F/S of a component of a business are material as a
whole eg. Branch, Sales Depots etc.
How Applicable :- The audit report should expressly state the fact of the use of such
work after exercising adequate care and diligence.
2) Acceptance as a Principal Auditor
Check whether own participation is sufficient to be able to act as a principal auditor
3) Principal Auditor’s Procedures
areas requiring special consideration and timetable for the completion of the audit
significant accounting, auditing and reporting requirements
consider the significant findings of the other auditor
If necessary, then perform supplementary tests
In case of foreign branch, the principal auditor should consider the qualification,
experience and expertise of the foreign branch auditor
4) Documentation
5) Coordination between the auditors
6) Consideration of Report of Other Auditor
The principal auditor should consider the qualification of the branch auditor’s report
in relation to the F/S of the entity as a whole.
7) Division of Responsibility
The principal auditor’s report should :-
clearly express the division of responsibility
extent of use of the of the work of branch auditor’s work in the F/S of the entity
as a whole
AAS-11
Management Representation
1) Acknowledgement of the management of it’s responsibility for the Financial
Information
2) Representations by management as Audit Evidence
a) obtain supportive evidences from sources whether within or outside the entity
b) evaluate representations by management in comparison with other evidences
c) consider the authority of the person issuing such representation
3) Contradictory view with the management
In such cases the auditor should himself prepare the letter and forward it to the
management to acknowledge the same.
Upon it’s refusal the auditor should RECONSIDER the earlier representation
Mention the facts in the audit report
AAS-12
Joint Auditors
1) Introduction
COLLECTIVE RESPONSIBILITY
2) Division of Work
a) On the basis of geographical locations, functional areas & activities etc.
b) It should be adequately documented & communicated to the entity
3) Coordination among the Joint Auditors
4) Relationship among the Joint Auditors
Each joint auditor is SOLELY RESPONSIBLE for the work allotted to him
except, in the following cases where they are Jointly & Severally responsible :-
a) Compliance and Disclosure requirements as per Statute
b) undivided work
c) collective decisions on any task
5) Reliance upon work performed by other Joint Auditors
One Joint Auditor can rely upon the work of the other Joint Auditor
No further Checking / Test Checking is required to be done
6) Reporting Responsibilities
Any Disagreement Each One Express own opinion
Joint Auditor thru a separate report
Imp. Note: A Joint Auditor is Not Bound by the views of MAJORITY of OTHER
AUDITORS.
AAS-13
Audit Materiality
1) Meaning
Any F/S is said to be material if it influences the mind of the reader of those F/S.
2) Concept
a) items individually immaterial may become collectively material
b) materiality may be Qualitative or Quantitative
c) this concepts not judged by one point but it is a result of interacting forces
3) Relationship between Materiality and Audit Risk
INVERSE Relationship
4) Materiality and Audit Risk in evaluating Audit Evidence
After commencement of audit, the materiality level may change due to
a) change in circumstances
b) Audit progress
c) when actual results of operations are different from desired results
If the aggregate of the uncorrected misstatements is material he may consider it’s
Impact in the F/S either himself or thru management,
otherwise, furnish a qualified / adverse opinion
AAS – 14
Analytical Procedures
1) Introduction
The term refers to the analysis of significant ratios & trends including the resulting
investigation of fluctuations and relationships that are inconsistent with other relevant
Information or which deviates from the predicted results.
2) Nature & Purpose
It includes both “Inter-Firm” and “Intra-Firm” comparisons for the purpose of :-
a) Comparable information of prior periods
b) Predictive estimates prepared by the auditor
c) Similar industry information
3) Stages of Application of Analytical Review Procedures
STAGE – I : Planning The Audit:-
à Assists in understanding the business
à Identifies the areas of potential risk
STAGE – II : Useful As Substantive Procedures :-
Factors that need to be considered while applying as substantive procedures are
à Nature & Complexity of business
à Reliability & Relevance of the information available
à Sources from which information is available
STAGE – III : Overall Review at the end of Audit
à The conclusion drawn at the end is intended to support the evidences found in
course of audit of the F/S
à Based on above conclusions it depends whether additional procedures are to be
applied or not
4) Extent of Reliance On Analytical Procedures
It depends on factors like:-
a) Materiality of the items involved
b) Additional / Collateral audit procedures directed for the same objectives
c) Accuracy with which the expected results can be predicted
AAS – 15
Audit Sampling
1) Meaning of Some Terms for this AAS
a) Audit Sampling :-
Audit procedures carried out on less than 100 % of the items within an account balance or a class of transactions amount to audit sampling. In view of increasing complexities and number of transactions, the auditor may not be able to examine 100 % of the information fully. Hence, he has to use this technique.
b) Population :-
The auditor should determine that the population from which the sample is drawn is appropriate for that specific audit objective
c) Stratification :-
It means the sub classification of population, each of which have similar characteristics
d) Sampling Units :-
The individual items constituting the population are called sampling units. The auditor selects these units after considering materiality levels, homogeneity of the units and audit objective
e) Sample Size :-
In order to decide sample size, the auditor should consider the overall population, sampling risk, the tolerable and the expected error.
2)
a) Sampling Risk
Sampling Risk arises from the possibility that the auditor’s conclusion based on a sample may be different from the conclusion that would have been reached if the entire population were subjected to the audit procedure.
Sample size is affected by the amount of risk the auditor is willing to accept and has an INVERSE relationship between them
b) Tolerable Error
The maximum errors the auditor can bear and able to frame an opinion. Tolerance level helps in determining the sample size
c) Expected Error
If the auditor expects the presence of error in the sample then he should consider a large sample and vice – versa.
3) Methods Commonly Used For Sample Selection
a) Random Sampling – each item has an equal chance of being selected
b) Systematic Sampling – definite interval is maintained between two samples
c) Haphazard Sampling – an alternative to the random sampling provided the auditor
attempts to draw a representative sample from the entire
Population with no intention to either includes or exclude
Specific units
4) Evaluation of the Sample Results
a) Analysis of error in sample : Determine its cause and overall impact
b) Projection of Errors
c) Reassessing the Sampling Risk
AAS –16
Going Concern
1) Meaning
An entity is said to be a going concern if it is likely to continue in existence for a foreseeable future time, generally extending beyond a period of one year.
2) Negative Indicators of Going Concern
A) Financial Indicators
Negative Working Capital or Negative Net Worth, Excessive reliance on the short term borrowings to finance long term assets, Adverse key financial ratios, Substantial operating loses, Arrears or discontinuance of dividends, Inability to pay creditors on the due dates.
B) Operating Indicators
Shortage of important supplies, Loss of Key Management Personnel without replacement, Loss of major market etc.
C) Other Indicators
Non-compliance of statutory requirements, Pending Legal proceedings, Changes in Government policy
3) Audit Evidence
Discuss with management about their Future plans, say, Liquidating of assets, Capital Structure Planning etc.
4) Audit Conclusion and Reporting
Conclude whether Going Concern assumption is valid or not.
If not, then the F/S would be a misleading; the auditor should express an ADVERSE OPINION
AAS –17
Quality Control For Audit Work
1) Meaning of certain terms (For this AAS)
a) Auditor : - The person with the final responsibility of audit
b) Audit Firm: - A proprietorship or partnership firm providing audit service
c) Personnel: - All partner and professional staff engaged in the audit practiced of the
firm
d) Assistants: - Personnel involved in an audit other than the auditor
2) Factors to be incorporated for quality control in audit work
a) Professional requirements
b) Skills & competence
c) Assignment
d) Delegation
e) Consultation
f) Acceptance and retention of clients
g) Monitoring
3) Quality Control for Individual Audits
The quality control policies applicable to firm should be implemented for
individual audits to the extent available.
Initially guide the audit assistants, then delegate the work to them accordingly
Undertake due Supervision and Proper Review
AAS-18
Audit Of Accounting Estimates
1) Meaning
It means the approximation of an item in the absence of a precise means of
measurement. For eg. Provision for taxation, Provision for warranty claims,
Provision for a loss from a Law Suit, Accrued Revenue etc.
2) Responsibility for Accounting Estimate
MANAGEMENT
3) Audit Procedures
a) test the process used by the management
b) use of an independent estimate with that prepared with the management
c) review subsequent events, which the estimate made
e) obtain external evidence, wherever possible to support internal evidence
4) Evaluation of the Results of Audit Procedures
In case of significant difference between the estimate prepared by the auditor
& management, then management should be requested to revise the same.
If the management refuses, it would be a deemed misstatement & the auditor
will have to consider it’s impact on the F/S
AAS – 19
Subsequent Events
1) Concept
‘Subsequent Events’ refers to those significant events occurring between the balance
sheet date & the date of the audit report, whose consequential effects should be taken
into consideration for the preparation of the F/S. For eg:-
a) any development in the risk areas & contingencies existing on the B/S date
b) any unusual a/c adjustment entries being made after the B/S date
c) any event occurred / likely to occur which affects the a/c policies, say,
validity of the going concern assumption
2) Audit Conclusion and Reporting
Auditor should consider it’s impact on the F/S.
In case of any disagreement with management he may express qualified opinion
AAS – 20
Knowledge Of The Business
1) Concept
Knowledge of the business helps in assessing the inherent and control risks & in
determining the nature, timing and extent of the audit procedures, which might have
a significant effect on the F/S and / or Audit Report.
2) Obtaining the Knowledge
The auditor’s level of knowledge would include:-
a) General Knowledge :- about economy & the industry
b) Particular Knowledge :- about the operations & working of the entity
Imp:- Re-evaluate and Update such knowledge in case of recurring audits
3) Sources of obtaining knowledge
a) Discussion with the people within the entity i.e. Management
b) Discussion with the people outside the entity i.e. Persons related to that Industry
c) Discussion with other auditors and advisors
d) Personal visit to the entity premises & plant locations etc.
e) Previous experience with the entity & it’s industry
4) Using the Knowledge (Same as concept)
AAS – 21
Consideration Of Laws & Regulations In An Audit Of Financial statements
1) Introduction
An auditor might not be aware about the various applicable laws on the entity.
But, he should recognize that any non-compliance might materially affect the F/S.
2) Responsibility of compliance of such laws and regulations
Responsibility of compliance rests with the MANAGEMENT
It should monitor the various legal requirements & ensure that operating procedures
are designed to meet the requirements.
3) Auditor’s Consideration
After obtaining a general understanding of the applicable legal framework, he should
obtain evidence regarding compliance / non-compliance & financial impact thereof.
4) Management Representation
In case of actual / possible non-compliance a WRITTEN Representation should be
obtained.
5) Communication / Reporting of non-compliance
To the Appropriate Level of Management
Material non-compliances can be expressed by way of qualified / adverse opinion
6) Withdrawal From The Engagement
Any Remedial Not Considered Auditor MUST
Steps, deemed by Management WITHDRAW
necessary
Very Imp. :- MATERIALITY of non-compliance being IRRELEVANT
AAS – 22
Initial Engagements – Opening Balances
1) Introduction
Audit of the Opening Balances in case of initial audit engagements
2) Audit Procedures
a) A/c Policies being consistently followed
b) Correct balances of various a/c’s have been correctly b/f
c) Nature of Op. Bal. & risk of their misstatement in the current period
d) The Op. Bal. do not contain misstatements that materially affect the financial
statements of the current period
3) Audit Reporting and Conclusions
S.No. Type of problem with Opening Balances Opinion to be framed in Audit Report
a) Unable to obtain sufficient audit evidence Qualified / Disclaimer of opinion
b) Material misstatements that affect the current period financial statements Qualified / Adverse opinion
AAS – 23
Related Parties
1) Existence of Related Parties (to be checked)
2) Transactions with the Related Parties (to be identified)
3) Examine the identified Related Party transactions
4) Management Representation (to be scrutinized)
5) Audit Conclusion and Reporting
In case he is unable to obtain sufficient audit evidence either about the Related Parties
or about any Transactions thereof, then he may frame Qualified / Disclaimer of opinion
AAS – 24
Audit Considerations Relating To Entities Using Service Organizations
1) Introduction
When the client of the auditor uses a service organization for eg. Information
processing, maintenance of a/c records, maintenance of safe custody of assets
like Investments etc.
2) Auditor’s Considerations
a) The auditor should consider how a service organization affects the client’s
accounting & internal control systems
b) When Service Org’n Performs
Recording & Processing Follow the Policies Whoever maintains
of transactions of client & Procedures of accountability
(Whether of client or
of service Org’n)
c)
Where activities of Auditor should
service org’n are
Significant
Either Or
Understanding should be If required the request the auditor
Developed of the Service of that Service Org’
Org’n Accounting and furnish the required information
Internal Control system
3) Service Organization’s Audit Report
The auditor of the Service Organization issues his report to the auditor of client
in any of the following modes:-
TYPE –A : Report of Suitability Of Design
TYPE – B : Report of Suitability Of Design and Operating Effectiveness
The client’s auditor should consider whether he controls tested by the auditor of the service organization are relevant and provide proper evidence for lowering the risk assessed by the auditor or not. The client’s auditor may also request the auditor of the service organization to perform substantive tests in some areas.
Most Imp: The audit report of the client should not should nor make any reference to
report received from the service organization’s auditor.
AAS – 25
Comparatives
1) Introduction
This AAS specifies that the auditor should determine whether the comparatives
comply in all material respects, with the financial reporting framework* relevant
to the F/S being audited.
2) Auditor’s Responsibilities
a) For obtaining the sufficient audit evidence, involves assessing whether the a/c
policies and the corresponding figures agree with the A/c policies of the current
period or requires adjustments, if any
b) In case the F/S of the prior period have been audited by another auditor or are
unaudited, the Incoming Auditor should comply with the requirements of
relevant Financial Reporting Framework
3) Reporting
When the auditor’s report on the prior period, as previously issued included a qualified opinion / disclaimer of opinion / adverse opinion and the matter, which gave rise to the modification in, the audit report is still: -
Unresolved, and results in a modification of the auditor’s report regarding the current period figures, the auditor’s report should be modified regarding the corresponding figures ; or
Unresolved, but does not result in a modification of the auditor’s report regarding the current period figures, the auditor’s report should be modified regarding the corresponding figures
c) In case the prior period F/S are unaudited, the incoming auditor should state
such fact in the auditor’s report
à financial reporting framework* means:
Financial Statements are ordinarily prepared & presented to provide information to a wide range of users for whom it is the only source of information for their own decision making. Thus Financial Statements need to be prepared according to :-
Relevant Statutory Requirements eg: Companies Act,1956
Accounting Standards issued by ICAI
Other recognized accounting and auditing principles eg : Guidance Notes issued by ICAI
AAS – 26
Terms Of Audit Engagement
1) Concept
The auditor should send an engagement letter, preferably before the commencement
of the engagement, to help avoid any misunderstanding.
2) Contents of the Engagement Letter – An Illustrative List Only
a) Management’s responsibility for the F/S
b) Management’s responsibility for the selection and consistent application of the
various a/c policies and accounting standards
c) Mgt’s responsibility for the maintenance of adequate records & internal controls
d) Scope of audit, with reference to applicable Statutes
e) Some fraud and error may remain undetected due to the test nature of audit
f) Unrestricted access to any information, being available in any mode
g) Fees and billing arrangements
h) Involvements of other auditors and experts
3) Acceptance of a change in engagement
a) Whenever an auditor is requested to change to an engagement with lower level of
assurance, if reasonable, should agree on new terms
b) Before agreeing to change, the auditor should consider, any legal or contractual
implications of the change
c) The auditor would not agree to change of engagement, unless justified in doing so.
AAS – 27
Communications Of Audit Matters With Those Charged With Governance
1) Governance
It means the role of persons entrusted with supervision, control & direction of an entity
2) Audit Matters of Governance Interest
Those matters that arise from the audit of F/S and are in opinion of the auditor, both important and relevant to those charged with governance in overseeing
the financial reporting and disclosure process
3) Audit Matters of Governance Interest to be Communicated
A) General Matters:
à The general approach and overall scope of the audit
à Any expected limitation or any additional requirements
B) Special Matters:
à Audit adjustments that could have a significant effect on the entity’s financials
à Material uncertainties that may cast a doubt on the going concern assumption
à Material weaknesses in the internal control system
4) Communication Of Such Matters
a) on Timely Basis
b) in Oral or Written form depending upon :-
- size & operating structure of the entity
- nature, sensitivity & significance of the audit matters
5) Laws and Regulations
CASE – I :-
Sometimes professional pronouncements, legislations or regulations etc. restrict the
auditor’s communication . Then the auditor may consult legal counsel.
CASE – II :-
Sometimes professional pronouncements, legislations or regulations etc. impose the
obligation of auditor’s communication.
Imp. Note:- In certain when a modification of the auditor’s report on the F/S is required
as per AAS – 28 , a qualified, adverse or disclaimer of opinion can’t be a
substitute
AAS – 28
The Auditor’s Report On Financial Statements
1) Introduction
The auditor should review & assess the conclusions drawn from the audit evidence
obtained on the basis for the expression of an opinion in the F/S.
2) Basic Elements of an Audit Report
a) Title
b) Addressee
c) Opening / Introductory Paragraph
d) Scope Paragraph
e) Opinion Paragraph
f) Date of Report
g) Place of Signature
h) Auditor’s Signature
3) Matters that Do Affect Auditor’s Opinion
Factors* that may result in other than an Unqualified Opinion:-
a) Limitation of scope
b) Disagreement with Management
c) Uncertainty eg. Litigation involving legal claims of the company
S.No. Type of Opinion to be Framed Factors* affecting Auditor’s Opinion Whether “True & Fair” View is Affected?
a) Qualified Opinion Not having Material Effect NOT, Affected
b) Disclaimer of Opinion Having a Significant Effect Can’t Conclude
c) Adverse Opinion Having a Very Material Effect YES, Affected
AAS – 29
Information Systems Environment
1) Introduction
Procedures to be followed when an audit is conducted in a Computer Information
systems (CIS) environment
2) Computer Information Systems (CIS)
CIS environment is one where one or more computers of any type or size is involved
in the processing in the processing if the financial information of significance to the
audit
3) Factors Involved in Planning of a CIS Audit
a) Extent of recording, compilation and analyses of the accounting information
b) Internal Controls with regard to the flow complete and correct data to the
processing center and the various reporting tasks undertaken
c) The impact of computer based accounting system on the Audit Trail that would
otherwise be available in a manual system
d) Significance of complexities of the CIS activities
e) Degree of Access / Availability of data for use in audit
4) Skills and Competence Requirements
5) Auditor’s Considerations
a) The CIS infrastructure and the application software used by the entity
b) Potential for Computer Assisted Audit Techniques – CAAT’s
c) Internal Controls with regard to the authorization and access to the information
d) Lack of Transaction Trials
e) Dependence of controls over computer processing
6) Evaluating the Reliability of the Accounting and Internal Control Systems
a) Completeness of data available for processing
b) Provide for timely detection of errors
c) Adequate data security & back-up as Disaster Recovery Plans
7) Documentation – a Special Consideration
In a CIS environment, some of the audit trail may be in electronic form. He should
satisfy himself that such evidence is safely stored & can be retrieved in entirety as
and when required
AAS – 30
External Confirmations
1) Meaning
It is the process of obtaining and evaluating audit evidence thru a direct communication from a third party in the response to a request for information about a particular item affecting the assertions of the management
2) Situations where External Confirmations may be Used
a) Bank Balances and other information from the bankers
b) Stock held by third parties
c) Property title deeds held by the third parties
d) Investments purchased but not taken
3) Process of External Confirmations - SDCOE
a) Selection of items
b) Designing the Form of Communication Request *
c) Communicating the confirmation request to the appropriate party
d) Obtaining the response from that third party
e) Evaluation of the information or absence thereof
Form of Communication Request *
a) Positive Confirmation Request :- It asks the respondent to answer the auditor in all
cases in any mode
b) Negative Confirmation Request :- It asks the respondent to answer the auditor only
in the event of disagreement with the information
provide in the request
AAS – 34
Audit Evidence – Additional Considerations For Specific Items
à This AAS is a Specific Extension of AAS – 5 i.e. Audit Evidence
à It is sub-divided into 4 parts
PART – A : Attendance at Physical Inventory Counting
1) It lays due emphasis on the attendance of the auditor at Physical Inventory Counting
2) Physical Verification is the responsibility of the management
3) When the inventory is material to the F/S, he should get the proper evidence regarding
it’s existence and proper condition
4) Unless impracticable, due to the nature / location of inventory or unforeseen situations
he should devise some alternative sufficient evidence for framing an opinion in the F/S
5) The auditor can opt for a direct confirmation as well, for eg. In case of Consignment
Stock, Stock in Transit, Branch Stock Transfers etc.
6) Management’s instructions relating to the stage of completion of WIP, items of slow
moving nature, obsolete / damaged / rejected stock items
PART – B : Inquiry Regarding Litigation & Claims
à “Litigation” means a lawful suit or legal action including all proceedings therein
à “Claims” means right to an equitable breach of performance
à When any material litigation or claims have been identified by the management the
auditor may seek direct confirmation from the lawyer’s and other professionals. Such
correspondence letters should be prepared by the management, under the control of
of the auditor.
PART – C : Valuation & Disclosure of Long Term Investments
1) Proper evidence should be obtained for the valuation, disclosure & ownership of the
investments
2) Discussions with the management about as to whether the entity has the ability to
continue to hold the investments on a long term basis or not.
PART – D : Segment Information
1) The auditor should obtain the sufficient audit evidence as to the proper disclosure in
accordance with the identified reporting framework
2) The auditor should consider the segment information in relation to the F/S as a whole.
He is not required to apply the auditing procedures on the single segment alone.
However, the auditing procedures normally consist of analytical procedures & other
tests as appropriate in the given circumstances
à Common Points for the Parts – A / B / C / D
I) - Management Representation
1) The information asked for should be complete & accurate as per the requirements
2) Proper Valuation / Quantification should be complete
3) The change in the related Accounting policy, if any should be brought to the notice
of the auditor
II) – Audit Conclusions & Reporting
à In case, the auditor is unable to obtain sufficient audit evidence he may frame a
Qualified Opinion or Disclaimer of Opinion, as the case may be.
AAS – 31 : Engagements To Compile Financial Information
AAS – 32 : Engagements To Perform Agreed Upon Procedures
Regarding The Financial Information
AAS – 33 : Engagements To Review Financial Statements
à Similar Points :-
1) General Principles
To comply with the “Code of Ethics” issued by ICAI. The Ethical principles are
Technical Standards, Objectivity, Professional Competence, Integrity,
Confidentiality,( TOPIC ) and Due Care, Professional Conduct,
2) Terms of Engagement
As per AAS – 26 & it should be specifically mentioned in the terms of engagement
the engagement has been specifically made under this AAS.
3) Planning & Documentation
The auditor should plan the work an effective engagement can be performed in
providing evidence to support the report & evidence that the report was carried out in accordance under this AAS.
4) Procedure & Evidence
à I O I C A as per AAS – 5
à Management Representation wherever required as appropriate
à Additional Points for AAS - 31:-
S.No. Special Considerations for Clients Disagreements thereof
a) Having an Identified Reporting In case of any material
Framework Disagreements the auditor will
b) Not Having an Identified Reporting mention in the Report as well as
Framework In Notes to Accounts
à Difference Points :-
S.No. Basis of Difference AAS – 31 AAS – 32 AAS – 33
a) Nature Specific General Specific
b) Objective To use Accounting expertise to collect, classify & summarize the financial info. To provide a report on the actual fact findings To state whether the F/S are not prepared in all material respects according to Financial Reporting framework
c) Example Compilation of F/S for an intended purpose, say, for documentation to a financial institution Perform agreed upon procedures related to Accounts Payable, Receivable etc. Review Interim Financial Reports
d) Level of Assurance - -NIL - - - -NIL - - Moderate
(in –ve form)
e) Work performed by others, can be used - - N.A. - - - - N.A. - - - -YES- -
