2. A CA in practice is not guilty of professional misconduct as if he teaches within prescribed hours i.e. not exceeding 25 hours a week as per Regulation 190A.
3. Clause (8) - Part I - First Schedule to the CA Act, 1949, A CA in practice will be held guilty of professional misconduct if he has accepted the tax audit, without first communicating with the previous auditor in writing.
4. Internal auditor of a company (xyz) is not eligible to undertake GST Audit of that company (xyz).
5. Website designed is not in compliance with the guidelines given in Clause (6) of Part I of First Schedule to the CA Act, 1949 if names of the partners of the firm and the major clients were displayed without any disclosure obligation from any Regulator.
6. With respect to the non-consolidation of financial statements of subsidiary with the financial statements of holding company, the auditor should give an adverse opinion if the impact is material and pervasive in his audit report.
7. The auditor’s opinion shall not refer to the corresponding figures except if
o the previous period audit report is other than an unqualified opinion or
o Auditor has sufficient evidence that a material misstatement exist in the F.St. of prior period which was not addressed earlier.
8. In case, the prior period financial statements are not audited
o Report such matter in the other matter paragraph and
o Obtain sufficient appropriate audit evidence that opening balance so not contain any material misstatement.
9. With regard to disclosure of management responsibility, the auditor report should describe the management responsibility in a section with heading “responsibility of management for financial statements”.
10. EOM paragraph on a matter can be added if
o auditors opinion is neither qualified/ nor adverse in respect to that particular matter and
o matter is fundamental to the user’s understanding of financial statements.
11. As per the Companies Act, 2013, if amount of fraud is more than Rs. 100 lac;
o the auditor should have reported the matter within 2 days of his knowledge to the Board of Directors/ Audit committee of the Company
o Seeking their reply or observations within 45 days.
o After completion of 45 days, the auditor should forward his report to the CG along with the reply, if any, received from Board/Audit Committee.
12. As per SA 701- Communicating Key audit matters in the Independent auditor’s Report, the areas should be taken into account to determine “Key Audit Matter” are
o The effect on audit of significant transactions that took place in the FY.
o Significant auditor judgment relating to areas in the financials that involved significant management judgment.
13. Agreement on Audit Engagement Terms : As per SA 210. The auditor shall agree the terms of the audit engagement with management or TCWG, as appropriate. The agreed terms of the audit engagement shall be recorded in an audit engagement letter and shall include:
o The objective and scope of the audit of the financial statements;
o The responsibilities of the auditor;
o The responsibilities of management;
o Identification of the applicable FRF for the preparation of the F.St.; and
o Reference to the expected form and content of any reports to be issued by the auditor and
o A statement that there may be circumstances in which a report may differ from its expected form and content.
14. Reporting by the User Auditor: As per SA 402, the user auditor shall modify the opinion in the user auditor’s report in accordance with SA 705,
o If the user auditor is unable to obtain sufficient appropriate audit evidence regarding the services provided by the service organisation relevant to the audit of the user entity’s financial statements.
o The user auditor shall not refer to the work of a service auditor in the user auditor’s report containing an unmodified opinion unless required by law or regulation to do so.
o If such reference is required by law or regulation, the user auditor’s report shall indicate that the reference does not diminish the user auditor’s responsibility for the audit opinion.
15. Applicability of Provisions related to Cost Records and Audit: Section 148 of the Companies Act, 2013 + the Companies (Cost Records and Audit) Rules, 2014.
o Exemption criteria of Cost audit - To a company which is covered under Rule 3, and,
§ whose revenue from exports, in foreign exchange, exceeds 75% of its total revenue; or
§ which is operating from a SEZ.
§ which is engaged in generation of electricity for captive consumption.
16. As per SA 706, an Emphasis of Matter Paragraph refers to matter appropriately disclosed in the financials (Condition 1), that in the auditor’s judgement is of such importance that it is fundamental to users’ understanding (Condition 2) of the financials.
17. As per SA 705, where the auditor is unable to obtain sufficient and appropriate audit evidence and where such mater is material but not pervasive, the auditor shall issue a qualified opinion.
18. SEBIT LODR Regulations
o Regulation 26 - a Director cannot be a Chairman in more than 5 committees across all listed entities. However, for the purpose of reckoning the limit under this Regulation, chairmanship of committees in a private company shall be excluded.
o Regulation 19, Part D of Schedule II - every listed company should have a Nomination & Remuneration Committee, which shall meet at least once in a year.
o Regulation 21 - only in case of a listed entity having outstanding SR equity shares, at least two thirds of Risk Management Committee shall comprise of independent directors.
19. As per the RBI guidelines, banks are required to get their investments under PMS separately audited by external auditors. If PMS transactions are not separately maintained then, advise the bank to segregate the PMS transactions from its own investments and provide the certificate of external auditor as described above. In case Bank does not provide the same the auditor may report accordingly.
20. Maintenance of Solvency Margin: Section 64VA of the Insurance Act, 1938 as amended by Insurance Laws (Amendment) Act, 2015 requires
o Every insurer and reinsurer to maintain an excess of the value of assets over the amount of liabilities at all times
§ which shall not be less than 50% of the amount of minimum capital as stated under section 6 (requirement as to capital) of the Act and arrived at in the manner specified by the regulations.
o If, at any time, an insurer or re-insurer does not maintain the required control level of solvency margin, he is required
§ to submit a financial plan to the Authority indicating the plan of action to correct the deficiency.
§ If, on consideration of the plan, the Authority finds it inadequate,
§ the insurer has to modify the financial plan.
o Sub-section (2) of section 64VA states that if an insurer or re-insurer fails to comply with the prescribed requirement of maintaining excess of value of assets over amount of liabilities, it shall deemed to be insolvent.
21. As per Clause 21(a) of Form 3CD, the auditor is required to furnish the details of amounts debited to PNL, being in the nature of advertisement expenditure in any souvenir, brochure, tract, pamphlet or the like published by a political party in his tax audit report.
22. Responsibility of Compliances and filing of Returns: GST auditor’s prime responsibility on this engagement is limited to GST audit, audit of reconciliation statement between books of accounts vis-a-vis GST returns prepared by the Company. The GST auditor is, however, not responsible for any compliances like uploading GST periodic returns for the relevant audit period.
23. Over-Valued Assets: The areas of analysis in order to ensure that the assets are not stated at overvalued amounts during conduct of Due Diligence are:
o Uncollected/uncollectable receivables.
o Obsolete, slow non-moving inventories or inventories valued above NRV; huge inventories of packing materials etc. with name of company.
o Underused or obsolete Plant and Machinery and their spares; asset values which have been impaired due to sudden fall in market value etc.
o Assets carried at much more than current market value due to capitalization of expenditure/foreign exchange fluctuation, or capitalization of expenditure mainly in the nature of revenue.
o Litigated assets and property.
o Investments carried at cost though realizable value is much lower.
o Investments carrying a very low rate of income / return.
o Infructuous project expenditure/deferred revenue expenditure etc.
o Group Company balances under reconciliation etc.
o Intangibles of no value.
24. Printing of Designation “Chartered Accountant” on Invitations for Religious Ceremony: As per Clause (6) of Part I of the First Schedule to the CA, 1949, a CA in practice shall be deemed to be guilty of professional misconduct if he solicits clients or professional work either directly or indirectly by circular, advertisement, personal communication or interview or by any other means.
25. The Council of the ICAI is of the view that the designation “Chartered Accountant” as well as the name of the firm may be used in greeting cards, invitations for marriages, religious ceremonies and any other specified matters, provided that such greeting cards or invitations etc. are sent only to clients, relatives and close friends of the members concerned.
26. Disrepute to the Profession: As per Clause 2 of Part IV of First Schedule of the CA Act, 1949, a CA will be deemed to be guilty of other misconduct if he in the opinion of the Council brings disrepute to the profession or the Institute as a result of his action whether or not related to his professional work. Example: To withdraw the money which does not belongs to him will bring disrepute to the profession.
27. Permission from the Council: As per Clause (11) of Part I of First Schedule to the CA Act, 1949, a CA in practice will be deemed to be guilty of professional misconduct if he engages in any business or occupation other than the profession of Chartered Accountant unless permitted by the Council so to engage.
28. The Council has granted general permission to the members to engage in certain specific occupation. In respect of all other occupations specific permission of the Institute is necessary. Editorship of professional journals is covered under the general permission and specific permission is not required.
29. Selection of Sample by the Reviewer in case of Peer Review:
o Within 15 days of receiving the information from the Practice Unit (PU) select a sample of the assurance services and intimate the same to the PU.
o The Reviewer may also seek further / additional clarification from the PU on the information furnished / not furnished.
o Plan for an on–site Review visit or initial meeting in consultation with the PU.
o The Reviewer shall give the PU at least 15 days’ time to keep ready the necessary records of the selected assurance services
o The Reviewer and PU shall mutually cooperate and ensure that the entire Review process is completed within 90 days from the date of notifying the Practice Unit about its selection for Review.
30. Classification of Frauds by NBFC: In based mainly on the provisions of the Indian Penal Code:
o Misappropriation and criminal breach of trust.
o Fraudulent encashment through forged instruments, manipulation of books of account or through fictitious accounts and conversion of property.
o Unauthorised credit facilities extended for reward or for illegal gratification.
o Negligence and cash shortages. (1)
o Cheating and forgery.
o Irregularities in foreign exchange transactions. (2)
o Any other type of fraud not coming under the specific heads as above.
o (1) and (2) are to be reported as fraud if the intention to cheat/ defraud is suspected/ proved.
o Exception (i.e. deemed fraud)
§ cases of cash shortages more than Rs. 10,000/- and
§ cases of cash shortages more than Rs. 5000/- if detected by management/ auditor/ inspecting officer and not reported on the occurrence by the persons handling cash.
31. Contents of an Audit Plan: The auditor shall develop an audit plan that shall include a description of-
o SA 315 - NTE of planned risk assessment procedures.
o SA 330 - NTE of planned further audit procedures at the assertion level
o Other SA - Other planned audit procedures that as required by SAs.
o Planning for these audit procedures takes place over the course of the audit as the audit plan for the engagement develops.
o Planning NTE of specific further audit procedures depends on the outcome of those risk assessment procedures.
o Auditor may begin the execution of further audit procedures for some classes of transactions, account balances and disclosures before planning all remaining further audit procedures.
32. General Steps in the Conduct of Risk Base Audit:
o Step 1 Understand auditee operations to identify and prioritize risks:
o Step 2 Assess auditee management strategies and controls to determine residual audit risk:
o Step 3 Manage residual risk to reduce it to acceptable level
o Step 4 Inform auditee of audit results through appropriate report
This is extremely helpful. Thank you very much sir.
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