Implementation Guide on
Reporting Standards
(Revised SA 700, Revised SA 705
and Revised SA 706)
The Institute of Chartered Accountants of India
(Set up by an Act of Parliament)
New Delhi
© The Institute of Chartered Accountants of India.
All rights reserved. No part of this publication may be reproduced,
stored in a retrieval system, or transmitted, in any form, or by any
means, electronic mechanical, photocopying, recording, or
otherwise, without prior permission, in writing, from the publisher.
First Edition : November 2010
Revised Edition : May 2018
Committee/ : Auditing and Assurance Standards Board
Department
Email : aasb@icai.in
Website : www.icai.org
Price : Rs. 200/-
Published by : The Publication Department on behalf of
the Institute of Chartered Accountants of
India, ICAI Bhawan, Post Box No. 7100,
Indraprastha Marg, New Delhi 110 002.
Printed by : Sahitya Bhawan Publications, Hospital
Road, Agra 282 003
Foreword
In 2016, ICAI issued the revised auditor's reporting
standards i.e. Revised SA 700 `Forming an Opinion and
Reporting on Financial Statements', Revised SA 705
`Modifications to the Opinion in the Independent Auditor's
Report' and Revised SA 706 - 'Emphasis of Matter
Paragraphs and Other Matter Paragraphs in the
Independent Auditor's Report'. These standards have
prescribed new formats of audit reports and have completely
changed the manner of auditor's reporting. These standards
are effective for audits of financial statements for periods
beginning on or after April 1, 2018. In view of the
comprehensive changes which have been made by these
standards, a need was felt to provide guidance to the
members on these standards so that they can discharge
their reporting responsibilities under these standards
effectively.
I am happy that continuing with its efforts to issue
Implementation Guides on various Standards on Auditing
(SA) for the benefit of our members, the Auditing and
Assurance Standards Board of ICAI has brought out this
revised edition of the "Implementation Guide on Reporting
Standards (Revised SA 700, Revised SA 705 and Revised
SA 706)" whose first edition was issued in 2010. The
Implementation Guide has been written in an easy to
understand lucid language in the form of frequently asked
questions (FAQs) and is quite comprehensive.
I compliment CA. Shyam Lal Agarwal, Chairman, CA. Sanjay
Vasudeva, Vice-Chairman and all the members of the
Auditing and Assurance Standards Board of ICAI for bringing
out this Implementation Guide for the benefit of the
members. I am sure that the members and other interested
readers would find this Implementation Guide immensely
useful.
May 1, 2018 CA. Naveen N.D. Gupta
New Delhi President, ICAI
Preface
The independent auditor's report on financial statements of
an entity lends credibility to the financial statements
prepared by the management of the entity. Since, audited
financial statements are relied upon by the various users of
financial statements e.g. shareholders, creditors, investors,
regulators, government agencies and other users, it is
essential that audit reports convey the auditor's opinion on
financial statements in clear and unambiguous manner in
order to serve a meaningful purpose to these users.
Uniformity and comparability in the format and contents of
audit reports are also elements essential to enhance their
usability and value to these users.
In 2010, the Institute of Chartered Accountants of India,
issued three separate Standards on Auditing (SA) to deal
with the form and content of independent auditor's report
namely SA 700, Forming an Opinion and Reporting on
Financial Statements; SA 705, Modifications to the Opinion
in the Independent Auditor's Report; and SA 706, Emphasis
of Matter Paragraphs and Other Matter Paragraphs in the
Independent Auditor's Report. These Standards are
collectively known as reporting standards. In the same year,
the Auditing and Assurance Standards Board (AASB) of ICAI
brought out an Implementation Guide on these reporting
standards. In 2016, ICAI revised these reporting standards
and issued revised SA 700, revised SA 705 and revised SA
706. These revised standards are effective for audits of
financial statements for periods beginning on or after April 1,
2018. Soon after the issuance of these revised standards,
AASB started the process of revising the existing
Implementation Guide on Reporting Standards (SA 700, SA
705 and SA 706).
It gives me immense pleasure to place in hands of the
members, this thoroughly revised Implementation Guide on
Reporting Standards (Revised SA 700, Revised SA 705 and
Revised SA 706) brought out by AASB. The Implementation
Guide has been written in simple and easy to understand
language and contains detailed guidance on various issues
involved in these revised standards. For ease of usage and
understanding of the readers, the Implementation Guide is
written in a "Question Answer" format containing frequently
asked questions (FAQs) on these Standards.
At this juncture, I wish to express my sincere gratitude to CA.
Abhijit Bandyopadhyay and his team for their dedicated
efforts in developing the basic draft of this Implementation
Guide despite their other pressing preoccupations. I would
also like to thank CA. Khushroo Panthaky, CA. Deepa
Agarwal and their team who have updated and aligned this
Implementation Guide in line with the discussion held in the
Board.
I wish to express my sincere thanks to CA. Naveen N.D.
Gupta, Honourable President, ICAI and CA. Prafulla
Premsukh Chhajed, Honourable Vice-President, ICAI for
their guidance and support to the activities of the Board.
I wish to place on record high appreciation of CA. Sanjay
Vasudeva, Vice-Chairman of the Board for his whole-hearted
support. I also wish to place on record my sincere thanks to
all the Board Members and all the Council Members for their
suggestions, support and guidance in finalising this
Implementation Guide as well as other pronouncements of
the Board. I also wish to thank CA. Megha Saxena,
Secretary, AASB and other officers and staff of AASB for
their continued co-operation.
I am confident that the Implementation Guide would be well
received by the members and other interested readers.
May 1, 2018 CA. Shyam Lal Agarwal
New Delhi Chairman,
Auditing and Assurance Standards Board
Contents
Page No.
Chapter 1 Introduction 1-2
Chapter 2 Importance of Independent 3-8
Auditor's Report
Chapter 3 SA 700 (Revised), Forming An 9-42
Opinion And Reporting On
Financial statements
Chapter 4 SA 705 (Revised), Modifications 43-66
to the Opinion in the Independent
Auditor's Report
Chapter 5 SA 706 (Revised), Emphasis of 67-79
Matter Paragraphs and Other
Matter Paragraphs in the
Independent Auditor's Report
APPENDICES 80-202
1 Illustrations of Independent 81-118
Auditor's Reports on Financial
Statements (reproduced from
Appendix of Revised SA 700)
2 Illustrations of Auditor's Reports 119-140
with Modifications to the Opinion
(reproduced from Appendix of
Revised SA 705)
3 Illustrations of an Auditor's Report 141-149
that includes an Emphasis of
Matter Paragraph/Other Matter
Paragraph (reproduced from
Appendix of Revised SA 706)
4 Illustrations of Auditor's Reports 150-161
Relating to Going Concern
(reproduced from Appendix of
Revised SA 570)
5 Illustrations of Auditor's Reports 162-202
Relating to Other Information
(reproduced from Appendix of
Revised SA 720)
Chapter 1
Introduction
1.1 The Standards on Auditing and Quality Control are
divided into two groups: Standards on Quality Control (which
apply to quality control at the firm level) and the Standards
on Auditing (SAs) which apply to audits of historical financial
information. The latter are further categorised into:
Standards dealing with (a) general principles and
responsibilities (200-series), (b) risk assessment and
response to assessed risks (300 and 400-series), (c) audit
evidence (500- series), (d) using the work of others (600-
series), (e) audit conclusions and reporting (700-series); and
(f) specialised areas (800-series).
Scope of the Implementation Guide
1.2 The scope of this Implementation Guide is limited to
SA 700 (Revised), "Forming and Opinion and Reporting on
Financial Statements", SA 705 (Revised), "Modifications to
the Opinion in the Independent Auditor's Report" and SA 706
(Revised), "Emphasis of Matter Paragraph and Other Matter
Paragraph in the Independent Auditor's Report" that deal
with how to form an audit opinion, reach audit conclusions
and issue different types of auditor's reports.
1.3 These Standards are arguably the most important
ones because they deal with processes that culminate into
the end product of an auditor's work i.e. the auditor's report.
They are crucial from an auditor's risk perspective because
they lay down the principles and procedures on how an
auditor forms his opinion and the manner in which he
communicates the opinion, which determines how the
society in general or specific stakeholders will make
important economic decisions. In other words, the opinions
and conclusions stated in an auditor's report and how those
were reached will be what regulators and investigative
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agencies challenge in the event that something goes wrong
subsequently. It is therefore of great professional concern
that the practitioners appropriately understand and carefully
implement the Standards relating to these areas that are
broadly referred to in this Implementation Guide as "the
Reporting Standards".
1.4 It should, however, be noted that this Implementation
Guide is not a replacement of or a substitute for the original
Standard(s) and must not therefore be read on a stand-alone
basis. It is meant to clarify and augment a practitioner's
understanding of the Standards and provide guidance where
appropriate. Practitioners are therefore urged to first read the
relevant Standard(s) and refer to them as they use this
Implementation Guide. For ease of usage, the various issues
in reporting standards (revised SA 700, revised SA 705 and
revised SA 706) have been dealt with in an easy-to-follow
"Question Answer" format.
2
Chapter 2
Importance of Independent
Auditor's Report
2.1 Credible financial information is essential to the very
existence of our society. The underlying objective of an
independent audit is to add credibility to the financial
statements prepared by management. Access to capital
markets, mergers, acquisitions, and investments in an entity
depend not only on the information that management
provides in financial statements, but also on the assurance
that such financial statements are free of material
misstatements. This assurance is provided, to a
considerable extent, by an independent audit. While an audit
does not by itself guarantee accuracy of the financial
statements, it provides users with a reasonable assurance
that an entity's financial statements give a true and fair view
in conformity with accounting pronouncements within the
applicable financial reporting framework.
2.2 Whether it is a business granting trade credit, an
investor buying or selling securities, a banker sanctioning a
loan, or a government collecting taxes, stakeholders depend
on financial information provided by the very people whose
interests often run directly counter to their own. The audit
report issued by an independent auditor is what such
stakeholders therefore seek.
2.3 The contribution of the independent auditor is
therefore to give credibility to the financial statements.
Credibility means that the financial statements can be
believed; that is, they can be relied upon by stakeholders
such as creditors, bankers, stockholders, government and
other interested third parties as being true and fair.
2.4 Audited financial statements are the accepted means
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by which business corporations report their operating results
and financial position. The word "audit", when applied to
financial statements, means that the balance sheet,
statements of profit and loss and cash flows and statement
of changes in equity, where applicable, and the related
accounting policies and notes which are covered by an
auditor's report given by an independent auditor, expressing
his professional opinion as to the fairness or otherwise of the
entity's financial statements and the fact that in his view, the
said financial statements are or are not (a) free from material
misstatement and (b) that they are fairly presented.
2.5 The goal is to determine whether these financial
statements have been prepared in conformity with the
generally accepted accounting principles (GAAPs). While
audits of financial statements in India are performed by
chartered accountants, the key users of auditors' reports
include trade creditors, management, investors, bankers,
financial analysts and government agencies.
2.6 The auditor's report is the key and most obvious
deliverable of audit. It is a deliverable that has remained
largely unchanged in many jurisdictions for quite a long time.
Following the events of the past few years, investors and
other users and stakeholders, have called for the auditor's
report to provide more information in particular, for auditors
to provide more relevant information about the audit that was
performed.
2.7 Given below is the summary of the revised/new
reporting standards:
SA 700 (Revised), Represents the overarching
Forming an Opinion and standard for auditor reporting in
Reporting on Financial accordance with the SAs;
Statements includes the required elements
of the auditor's report, and
specifies the contents of the
sections for the opinion, basis
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Importance of Independent Auditor's Report
for opinion, management
responsibilities and auditor
responsibilities.
SA 701, Communicating Includes the requirements and
Key Audit Matters in the guidance for communicating Key
Independent Auditor's Audit Matters (KAMs) the
Report centerpiece of the new auditor's
report and the most significant
change to auditor reporting.
SA 705 (Revised), Addresses how the elements of
Modifications to the the auditor's report are affected
Opinion in the when a qualified, adverse or
Independent Auditor's disclaimer of opinion is
Report expressed.
SA 706 (Revised), Addresses the requirements for
Emphasis of Matter inclusion of Emphasis of Matter
Paragraphs and Other (EOM) and Other Matter (OM)
Matter Paragraphs in the paragraphs in the auditor's
Independent Auditor's report, and has been updated to:
Report · Explain the relationship of
EOM and KAMs.
· Remove reporting of material
uncertainties related to going
concern as a form of EOM
reporting1.
2.8 The revised auditor's report in accordance with the
new/revised Standards on Auditing (SAs) maintains all its
existing elements and information. The introduction of
several new elements and enhancements results in a
1SA 570(Revised), "Going Concern" deals with the reporting requirements for
material uncertainties related to going concern.
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significant expansion to the content and length of the
standard auditor's report.
2.9 The significant changes to the auditor's report are as
follows:
Opinion: The auditor's opinion is now required to be
positioned at the beginning of the audit report, followed
by the Basis for Opinion.
Basis for Opinion: The Basis for Opinion section
previously was required only when the auditor's opinion
was modified. Now, this section will be required for all
auditor's reports and will explain that the audit was
conducted in accordance with the SAs and whether the
audit evidence obtained is sufficient and appropriate to
provide a basis for the opinion.
New affirmative statement about the auditor's fulfillment
of independence and other relevant ethical requirements.
The Basis for Opinion section will also include a new
affirmative statement that the auditor is independent of
the entity and has fulfilled the auditor's other relevant
ethical responsibilities relating to the audit, which
includes the Code of Ethics issued by the ICAI together
with the ethical requirements that are relevant to the audit
of the financial statements under the provisions of the
Companies Act, 2013 and the Rules thereunder.
A new Key Audit Matters (KAMs) section for audits of
listed entities and circumstances when the auditor
otherwise decides to communicate key audit matters in
the auditor's report; and when the auditor is required by
law or regulation to communicate key audit matters in the
auditor's report. The new Key Audit Matters section is the
centerpiece of the revised auditor's report, and the
subject of a new separate standard, SA 701.
A new section on Other Information (where applicable) in
accordance with requirements of Revised SA 720, The
Auditor's Responsibilities relating to other Information.
6
Importance of Independent Auditor's Report
New descriptions of responsibilities relating to going
concern to be included in the respective sections for
management's and auditor's responsibilities. The
description of management's responsibility for going
concern is intended to reflect the requirements of the
applicable financial reporting framework, while the
description of the auditor's responsibility reflects
responsibilities under SA 570(Revised), which are
required regardless of the applicable financial reporting
framework.
Enhanced reporting requirements when a material
uncertainty related to going concern exists and disclosure
in the financial statements are adequate. Instead of the
current requirement to report material uncertainties within
an Emphasis of Matter paragraph, reporting of a material
uncertainty is required to be made within a separate
section that includes a heading and specific wording that
are prescribed. However, if the auditor concludes that
there is a material uncertainty and the disclosure given in
the financial statements are inadequate, the auditor
should modify the audit report in accordance with the
requirements specified in Revised SA 705.
Identification of those charged with governance within the
management's responsibilities section. This section of
the auditor's report shall also identify those responsible
for the oversight of the financial reporting process, when
those responsible for such oversight are different from
those who fulfill the responsibilities for preparing financial
statements (in many cases, the audit committee). In this
case, the heading of this section shall also refer to
"Those Charged with Governance" or such term that is
appropriate in the context of the legal framework
applicable to the entity.
Expanded description of the auditor's responsibilities.
This approach results in a fuller description of the
auditor's responsibilities in relation to specific matters,
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including fraud, internal control, accounting policies and
accounting estimates, evaluating the overall presentation,
structure and content of the financial statements and
disclosures, group audits, and communications with
those charged with governance. Because of the
increased length of this section, revised SA 700 includes
a provision that certain components of this description
may be presented in an appendix to the auditor's report
or, where law, regulation or national auditing standards
expressly permit, by reference to a website of an
appropriate authority.
8
Chapter 3
SA 700 (Revised), Forming an
Opinion and Reporting on Financial
Statements
Introduction to the Standard
3.1 An audit report is a very important document which is
attached to the audited financial statements. The
shareholders, stakeholders and the public at large rely
significantly on the contents in an audit report as it provides
auditor's opinion on the entity's financial statements. SA 700
(Revised) deals with the responsibility of the auditors to form
an opinion on the financial statements. The Standard also
deals with the form and content of the audit report.
3.2 This SA deals with:
(a) How to form an opinion, and
(b) How to give a `clean' (unmodified) opinion on the general
purpose financial statements.
3.3 There are other SAs to be adhered to in case the
opinion is modified (such as qualified, disclaimer or adverse
opinion) or in case the audit report contains an emphasis of
matter and/ or other matter paragraph and/ or key audit
matter or in case the report is on special purpose financial
statements or on a single financial statement (such as audit
of income statement alone) or of a specific element, account
or item of a financial statement (such as audit of
receivables).
3.4 SA 700 (Revised) is like a parent of all the reporting
standards because it lays down the fundamental principles
and guidelines of reporting. The other reporting standards
draw their structure from those principles.
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3.5 Given below are the key issues brought out in this
Standard in a Question Answer format.
Question 1: For which audits does the auditor need to
follow the revised reporting standard i.e. SA 700
(Revised)?
Response 1: The revised reporting standard, SA 700
(Revised), is applicable for audits of financial statements for
periods beginning on or after April 1, 2018.
Question 2: Is SA 700(Revised) applicable for audit
reports signed after April 1, 2018?
Response 2: Since the revised reporting standard, SA
700(Revised) is applicable for audits of financial statements
for periods beginning on or after April 1, 2018, audit reports
signed after April 1, 2018 pertaining to financial statements
for periods beginning before April 1, 2018 will not be
governed by SA 700 (Revised).
Question 3: SA 700 (Revised) applies to audits of
general purpose financial statements. What does that
mean?
Response 3: Firstly, this SA applies to `audits' and therefore
not to engagements where a practitioner performs, for
example, `reviews' or `compilations' or `agreed-upon
procedures'.
Secondly, this SA applies to audits of complete set of
`financial statements'. This includes the set of general
purpose financial statements, generally comprising of a
balance sheet, statement of profit and loss (or income
statement), cash flow statement, significant accounting
policies and notes, and where applicable, statement of
changes in equity.
Thirdly, `general purpose' financial statements are those that
are prepared in accordance with a `general purpose financial
reporting framework', which is a framework designed to meet
the common financial information needs of a wide range of
10
SA 700 (Revised)
users, as distinguished from a `special purpose financial
reporting framework' that caters to the needs of a specific
set of users. Reports on special purpose financial
statements are discussed in SA 8002.
Question 4: Is SA 700 (Revised) applicable to audits for
which SA 800 or SA 805 applies?
Response 4: SA 800 states that when forming an opinion
and reporting on special purpose financial statements, the
auditor shall apply the requirements in SA 700 (Revised).
Similarly, SA 805 states that when forming an opinion and
reporting on a single financial statement or on a specific
element of a financial statement, the auditor shall apply the
requirements in SA 700 (Revised), adapted as necessary in
the circumstances of the engagement. Therefore, the
requirements of SA 700 (Revised) should be considered
when issuing an audit report under SA 800 or SA 805.
Question 5: A `general purpose framework' includes two
sub-groups a `fair presentation framework' and a
`compliance framework'. What are these?
Response 5: A fair presentation framework is where the
auditor gives a "true and fair" report, whereas a compliance
framework is one where the auditor reports on whether the
financial statements comply with the requirements of the
applicable laws, or rules and regulations, or a set of
contractual terms and conditions. There can be a situation
wherein the auditor reports on the financial statements of a
bank or a non-banking financial company (NBFC) that is
regulated by the Reserve Bank of India (RBI), and a part of
the auditor's report is in relation to the compliance with RBI
rules and the other part of the auditor's report is on the true
and fair view of the entity's financial position, its performance
and the cash flows.
Technically, for a framework to be a fair presentation
2SA 800, Special Considerations--Audits of Financial Statements Prepared in
Accordance with Special Purpose Frameworks.
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framework, it should meet the requirements of the framework
and, to achieve this, the management has the freedom to (a)
provide disclosures beyond those that are mandated by the
framework or, (b) in rare cases, to even depart from the
requirements of the framework, in order to achieve a true
and fair presentation. A compliance framework, on the other
hand, necessitates meeting the requirements of the
framework but does not give the management, such
freedom.
Question 6: In an auditor's report there is an `opinion
paragraph' where he expresses his opinion on the
financial statements (which could be a fair presentation
opinion or a compliance opinion or a combination of
both). How does an auditor decide whether he should
give a `clean' or `unmodified' opinion?
Response 6: When the auditor gives a clean opinion, he
says that the financial statements are prepared, in all
material respects, in accordance with the applicable financial
reporting framework. It needs to be noted that (a) he is
forming his opinion on the whole set of financial statements
taken together, and not on a component or element of those
financial statements, and (b) his opinion is formed in the
context of the overall `materiality' of those financial
statements.
In order to assert that the financial statements are prepared,
in all material respects, in accordance with the applicable
financial reporting framework, the auditor needs to reach a
conclusion that those financial statements, taken as a whole,
are free from material misstatement, whether due to fraud or
error.
To reach this conclusion, the auditor has to determine
whether:
(a) Sufficient appropriate audit evidence has been obtained
12
SA 700 (Revised)
in accordance with SA 3303;
(b) Uncorrected misstatements are, individually or in the
aggregate, not material in accordance with SA 4504;
(c) Requirements of the financial reporting framework (e.g.,
the Accounting Standards) have been materially
complied with;
(d) Management's judgements in preparing the financial
statements are free from `bias' (refer SA 260 (Revised)5
and SA 5406);
(e) The financial statements adequately disclose the
accounting policies selected and applied;
(f) Those accounting policies are appropriate and
consistent with the financial reporting framework;
(g) The accounting estimates made by management are
reasonable;
(h) The information presented in the financial statements is
relevant, reliable, comparable and understandable;
(i) There are adequate disclosures in financial statements
for the users to understand the effect of material
transactions and events on the information conveyed in
the financial statements;
(j) The terminology used in the financial statements and the
title of each financial statements is appropriate, and the
financial reporting framework is adequately referred to or
described;
(k) In reporting under a fair presentation framework, the
financial statements indeed achieve a true and fair
presentation, after considering
The overall presentation, structure and content of
3 SA 330, The Auditor's Responses to Assessed Risks.
4 SA 450, Evaluation of Misstatements Identified During the Audit.
5 SA 260 (Revised), Communication with Those Charged with Governance.
6 SA 540, Auditing Accounting Estimates, including Fair Value Accounting
Estimates and Related Disclosures.
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the financial statements, and that
The financial statements, including the related notes,
represent the underlying transactions in a manner
that is true and fair.
If one considers the relevant body of GAAP (Generally
Accepted Accounting Principles which includes accounting
standards and other pronouncements as well as the relevant
law) that comprises the financial reporting framework with
which the financial statements must be in accordance with,
as well as the auditor's responsibilities under the auditing
standards and other pronouncements, reaching an audit
opinion on a set of financial statements, indeed requires
doing a considerable amount of diligent work, and
documenting the work done, in order to be able to "prove"
that the auditor reached an informed opinion before signing
a clean audit opinion. Issuing a clean opinion is, therefore,
an outcome based on meticulous collection of evidence,
detailed documentation of work performed, and analyzing it
all with professional skill, competence and reasoned
judgements.
Question 7: One of the factors affecting the nature of
opinion is whether the requirements of the financial
reporting framework (e.g., the Accounting Standards)
have been materially complied with or not. What does
these Accounting Standards include?
Response 7: SA 700 (Revised) states that the Accounting
Standards includes the following as may be applicable to the
entity:
The Accounting Standards issued by the ICAI7; or
The Standards of Accounting notified by the Central
Government in pursuance of section 133 of the
Companies Act, 2013 and the Rules thereunder; or
The International Financial Reporting Standards
7
For example, the Accounting Standards for Local Bodies issued by the ICAI.
14
SA 700 (Revised)
(IFRSs); or
The International Public Sector Accounting Standards
(IPSASs) issued by the International Public Sector
Accounting Standards Board.
Question 8: When should an auditor refuse to give a
clean (unmodified) opinion?
Response 8: There can be two situations: (a) when the
auditor has obtained sufficient appropriate audit evidence,
and (b) when the auditor is unable to obtain sufficient
appropriate audit evidence.
In the first situation, he cannot give an unmodified opinion if
he reaches a conclusion that the financial statements taken
as a whole are not free from material misstatement(s). In the
second situation, due to non-availability of sufficient
appropriate audit evidence, he does not have the ability to
reach a definite conclusion that the financial statements,
taken as a whole, are free from material misstatement(s). In
either situation, he must give a modified opinion under SA
705 (Revised)8.
When reporting under a fair presentation framework, if the
auditor concludes that the fair presentation is not achieved,
he should discuss the matter with management to resolve
the issue (by giving additional disclosures or, in rare cases,
departing from the framework) and, based on the outcome,
decide whether he should give a modified opinion.
Question 9: Is it necessary that an auditor's report
should follow a particular form and style?
Response 9: Yes. Consistency in auditor's reports (as
required under this SA) promotes credibility in the global
marketplace. It helps to promote the users' understanding,
and to identify unusual circumstances when they occur. It
needs to be ensured that the formats of auditor's report as
laid out under various Illustrations to SA 700 (Revised) are
8SA 705(Revised), Modifications to the Opinion in the Independent Auditor's
Report.
15
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fully adhered to.
Question 10: What are the headings of the various
paragraphs needed in an auditor's report?
Response 10: The `Headings' and the order of the various
paragraphs for inclusion in the auditor's report are as
follows:
(a) Title
(b) Addressee
(c) Auditor's Opinion
(d) Basis for Opinion
(e) Going Concern, where applicable9
(f) Key Audit Matters10
(g) Other Information, where applicable11
(h) Responsibilities of Management for the Financial
Statements
(i) Auditor's responsibilities for the audit of the Financial
Statements
(j) Report on Other Legal and Regulatory Requirements
(k) Signature of the Auditor
(l) Place of Signature
(m) Date of the auditor's report
Question 11: What has changed in the structure of the
Independent auditor's report?
Response 11: The opinion section is now required to be
presented first, instead of placing after the responsibility
9 In accordance with the requirements of SA 570 (Revised), Going Concern.
10 In accordance with the requirements of SA 701, Communicating Key Audit
Matters in the Independent Auditor's Report.
11 In accordance with the requirements of SA 720 (Revised), The Auditor's
Responsibilities relating to other information.
16
SA 700 (Revised)
paragraphs, which was the erstwhile requirement, followed
by the basis for opinion paragraph. There is no separate
introductory paragraph as the same has now become part of
opinion paragraph. There are two new sections, namely,
going concern (where applicable) and key audit matters (as
applicable). The key audit matters paragraph needs to be
mandatorily provided only in the case of listed entities or in
case of unlisted entities where the auditor believes that such
matters are required to be reported (refer Implementation
Guide to SA 701 issued by the Auditing and Assurance
Standards Board of ICAI for detailed guidance). An overview
of the key changes in the structure of the independent
auditor's report is given below:
Pre-revised SA 700 Revised SA 700
Report on the Financial Report on the Audit of the
Statements Financial Statements
· Title: Independent Auditor's · Title: Independent Auditor's
Report Report
· Addressee: As per · Addressee: As per
Engagement terms Engagement terms
· Subtitle: Report on the · Subtitle: Report on the
Financial Statements Audit of the Financial
· Introductory Paragraph: To Statements
mention · Opinion: Including information
Whose Financial to be mentioned in
Statements are audited introductory paragraph before
and period covered · Basis for Opinion
Title of each statement in · Emphasis of Matter
Financial Statements · Key Audit Matters
Refer summary of · Responsibilities of
significant accounting Management and Those
policies and explanatory Charged with Governance for
information the Financial Statements
· Management's · Auditor's Responsibilities for
Responsibility for the the Audit of the Financial
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Financial Statements Statements
· Auditor's Responsibility · Other Matter
· Basis for modified opinion, if · Subtitle: Report on Other
any Legal and Regulatory
· Auditor's Opinion Requirements
· Emphasis of Matter · Signature
· Other Matter · Date
· Subtitle: Report on Other · Place
Legal and Regulatory
Requirements
· Signature
· Date
· Place
Question 12: Who should the audit report be addressed
to?
Response 12: The auditor's report is usually addressed to
those for whom it is prepared. For example, an audit report
on the year-end financial statements under the Companies
Act, 2013, is addressed to the members of the company.
Similarly, an audit report on the financial statements of a
partnership firm may be addressed to the partners, and an
audit report on the financial statements of a government
undertaking may be addressed to the President of India or to
the appropriate shareholder/s of the undertaking.
Question 13: Where would the information which was
presented under the introductory paragraph of erstwhile
SA 700 be presented in the prescribed format of the
audit report under SA 700 (Revised)?
Response 13: It may be noted that the introductory
paragraph of erstwhile SA 700 has been merged with
Opinion section in revised SA 700. Under SA 700 (Revised),
the Opinion section of the auditors' report identifies the entity
whose financial statements are audited, states that the
18
SA 700 (Revised)
financial statements have been audited, identifies the title of
each statement that comprises the financial statements,
refers to the notes, including the summary of significant
accounting policies, and specifies the date or period covered
by each of the statement comprising the financial
statements.
Question 14: What is the section on `Responsibilities of
Management for the Financial Statements'?
Response 14: It is important for the users of the financial
statements to explicitly know that the independent auditors
do not have or share the responsibility for the preparation of
the financial statements on which they report. This is
therefore an important section that clarifies the extent of the
auditor's responsibility.
The word `management' is illustrative. The auditor's report
shall use the term that is appropriate in the context of the
legal framework applicable to the entity and need not refer
specifically to `management'. In some entities, the
appropriate reference may be to those charged with
governance.
It is inappropriate for an auditor to describe management's
responsibility in his audit report, unless the management and
he have clearly agreed on it. It is therefore very important for
the auditor to include the exact language that he intends to
insert in his auditor's report on management's responsibility
in the engagement letter that is signed by both the parties at
the start of the audit.
The illustrative language of management's responsibility
paragraph (in a fair presentation framework scenario) for a
company is as under:
The Company's Board of Directors is responsible for the
matters stated in section 134(5) of the Companies Act,
2013 ("the Act"), with respect to the preparation of these
standalone financial statements that give a true and fair
view of the financial position, financial performance,
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(changes in equity) and cash flows of the Company, in
accordance with the accounting principles generally
accepted in India, including the Accounting Standards
specified under section 133 of the Act. This responsibility
also includes maintenance of adequate accounting
records in accordance with the provisions of the Act for
safeguarding of the assets of the Company and for
preventing and detecting frauds and other irregularities;
selection and application of appropriate accounting
policies; making judgments and estimates that are
reasonable and prudent; and design, implementation
and maintenance of adequate internal financial controls,
that were operating effectively for ensuring the accuracy
and completeness of the accounting records, relevant to
the preparation and presentation of the financial
statement that give a true and fair view and are free from
material misstatement, whether due to fraud or error.
In preparing the financial statements, management is
responsible for assessing the Company's ability to
continue as a going concern, disclosing, as applicable,
matters related to going concern and using the going
concern basis of accounting, unless management either
intends to liquidate the Company or to cease operations,
or has no realistic alternative but to do so.
The Board of Directors are also responsible for
overseeing the Company's financial reporting process.
In circumstances, where the nature of the entity or its
jurisdiction casts additional responsibilities on the
management in respect of the financial statements, the
auditor may deem it appropriate to suitably add those
responsibilities in this paragraph as well as in the
engagement letter.
The management's responsibility section cannot be
qualified, although the auditor may include a qualification
in the auditor's report in accordance with the
requirements of SA 705 (Revised). Similarly, even when
there is no material uncertainty and the company's
20
SA 700 (Revised)
financial statements are prepared on a going concern
basis, the management's responsibility section must
include the going concern paragraph, as stated above.
A question that arises is that if the auditor finds that the
internal controls are not up to his expectations, should he
`qualify' the management's responsibility paragraph? The
answer is clearly "no". The management's responsibility
section cannot be qualified. This section's limited purpose is
to recite the fact that the management is responsible for the
design, implementation and maintenance of internal controls.
If the auditor subsequently finds that their design,
implementation or maintenance is so poor that it entails a
qualification, then the ideal position of such a qualification
would be in the auditor's opinion section if it also results into
a modified opinion on the financial statements (as explained
in Question 6 above).
Question 15: What happens when those responsible for
oversight of the financial reporting process are different
from the management (i.e., those who fulfill the
responsibilities for preparing financial statements and
assessment of going concern, as per paragraph 33 of
SA 700 (Revised)?
Response 15: There could be situations when some, but not
all, of the individuals involved in the oversight of the financial
reporting process are also involved in preparing the financial
statements. Under such circumstances, the auditor's report
should clearly title the responsibilities for the financial
statements as `Responsibilities of Management and Those
Charged with Governance'.
This is more likely to arise in the case of consolidated
financial statements when the holding company's board of
directors (i.e., those charged with governance) would be
responsible for the consolidated financial statements and the
board of directors of components (i.e., management) would
be responsible for the respective financial statements of the
components.
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Question 16: What is the Auditor's Responsibility for the
audit of the financial statements paragraph?
Response 16: Like the management's responsibility
paragraph, the auditor's responsibility for the audit of the
financial statements paragraph (hereinafter referred as
auditor's responsibilities paragraph) is also an important
paragraph since the auditor makes certain very important
assertions in this paragraph about the work that he has
done.
The illustrations provided in SA 700 (Revised), contain
illustrative wordings for the auditor's responsibility
paragraph. The illustrative language of an auditor's
responsibility paragraph (in a fair presentation framework
scenario) is as under:
Our objectives are to obtain reasonable assurance about
whether the financial statements as a whole are free
from material misstatement, whether due to fraud or
error, and to issue an auditor's report that includes our
opinion. Reasonable assurance is a high level of
assurance, but is not a guarantee that an audit
conducted in accordance with SAs will always detect a
material misstatement when it exists. Misstatements can
arise from fraud or error and are considered material if,
individually or in the aggregate, they could reasonably
be expected to influence the economic decisions of
users taken on the basis of these financial statements.
As part of an audit in accordance with SAs, we exercise
professional judgment and maintain professional
skepticism throughout the audit. We also:
1) Identify and assess the risks of material
misstatement of the financial statements, whether
due to fraud or error, design and perform audit
procedures responsive to those risks, and obtain
audit evidence that is sufficient and appropriate to
provide a basis for our opinion. The risk of not
detecting a material misstatement resulting from
22
SA 700 (Revised)
fraud is higher than for one resulting from error, as
fraud may involve collusion, forgery, intentional
omissions, misrepresentations, or the override of
internal control.
2) Obtain an understanding of internal control relevant
to the audit in order to design audit procedures that
are appropriate in the circumstances. Under section
143(3)(i) of the Companies Act, 2013, we are also
responsible for expressing our opinion on whether
the company has adequate internal financial controls
system in place and the operating effectiveness of
such controls12.
3) Evaluate the appropriateness of accounting policies
used and the reasonableness of accounting
estimates and related disclosures made by
management.
4) Conclude on the appropriateness of management's
use of the going concern basis of accounting and,
based on the audit evidence obtained, whether a
material uncertainty exists related to events or
conditions that may cast significant doubt on the
entity's ability to continue as a going concern. If we
conclude that a material uncertainty exists, we are
required to draw attention in our auditor's report to
the related disclosures in the financial statements or,
if such disclosures are inadequate, to modify our
opinion. Our conclusions are based on the audit
evidence obtained up to the date of our auditor's
report. However, future events or conditions may
cause the entity to cease to continue as a going
concern.
12 In circumstances when the auditor does not have responsibility to express an
opinion on the effectiveness of internal control in conjunction with the audit of the
financial statements (for example, for audit of financial statements of non-
corporate entities), this sentence would be worded as follows: "Obtain an
understanding of internal control relevant to the audit in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the entity's internal control."
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5) Evaluate the overall presentation, structure and
content of the financial statements, including the
disclosures, and whether the financial statements
represent the underlying transactions and events in
a manner that achieves fair presentation.
6) Communicate with those charged with governance
regarding, among other matters, the planned scope
and timing of the audit and significant audit findings,
including any significant deficiencies in internal
control that we identify during our audit.
7) Provide those charged with governance with a
statement that we have complied with relevant
ethical requirements regarding independence, and
communicate with them all relationships and other
matters that may reasonably be thought to bear on
our independence, and where applicable, related
safeguards.
8) From the matters communicated with those charged
with governance, determine those matters that were
of most significance in the audit of the financial
statements of the current period and are therefore
the key audit matters. We describe these matters in
our auditor's report unless law or regulation
precludes public disclosure about the matter or
when, in extremely rare circumstances, we
determine that a matter should not be
communicated in our report because the adverse
consequences of doing so would reasonably be
expected to outweigh the public interest benefits of
such communication. (Note: This point is required to
be given in case of audits of all such entities for
which key audit matters are communicated in
accordance with SA 701)
A key assertion that is made in this paragraph is that the
24
SA 700 (Revised)
audit was conducted in accordance with the SAs. SA 200 13,
which in a way is the "parent standard" on auditing, prohibits
the auditor from representing compliance with SAs in the
auditor's report, unless the auditor has complied with the
requirements of this SA and all other SAs relevant to the
audit.
This is a very broad and onerous assertion for an auditor to
make. If during a subsequent review of the audit process, it
is found that some of the audit procedures detailed in the
SAs were not in fact complied with, it may tantamount to the
auditor making a deliberately false declaration in his report
and the consequences for the auditor could be serious.
It would therefore be advisable for the practitioner signing
the audit report to ensure that the audit team plans and
performs audits in a way that covers all the relevant SAs.
Subsequently, when reviewing the audit file, he should
ensure that the auditing standards' compliance checklist
(including compliance with SQC 114) has been thoroughly
looked into. If, in certain circumstances, a departure has
been made from compliance with SAs, a detailed
memorandum explaining the reasons for such a departure
and the alternate procedures performed to overcome such
non-compliance should be kept in the audit working papers
file.
It is one thing to have done the work and another to be able
to prove that such work was indeed done. Notwithstanding
the Standard dealing with Documentation, SA 23015, and
other specific references to documentation in other SAs,
looking to the generality of the assertion being made, an
auditor would be well advised to adequately document the
work performed and conclusions arrived at. This is especially
critical in instances where the auditor has applied his
13 SA 200, Overall Objectives of the Independent Auditor and the Conduct of an
Audit in Accordance with Standards on Auditing.
14 SQC 1, Quality Control for Firms that Perform Audits and Reviews of Historical
Financial Information, and Other Assurance and Related Services Engagements.
15
SA 230, Audit Documentation.
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professional judgment in a situation where more than one
view might have been possible.
Question 17: Where should the Auditor's Responsibility
paragraph be located?
Response 17: The description of the auditor's responsibility
shall be included:
Within the body of the auditor's report;
Within an appendix to the auditor's report, in which
case the auditor's report shall include a reference to
the location of the appendix; or
By a specific reference within the auditor's report to
the location of such a description on a website of an
appropriate authority, where law, regulation or the
national auditing standards expressly permit the
auditor to do so.
Given that the Companies Act, 2013 has not specifically
provided for a website of an appropriate authority where the
auditor's responsibility paragraph can be located, auditors
may be well advised to either include the same within the
body of the auditor's report or in an appendix, as stated
above.
Question 18: Apart from including in the auditor's
responsibility paragraph, is there a requirement for all
entities to have a separate paragraph on going concern
in the auditor's report?
Response 18: Where there is a requirement as per SA 570
(Revised)16 for inclusion, the auditor's report is required to
contain a separate paragraph on `going concern' with a
heading, `Material Uncertainty Related to Going Concern'. In
short, the requirement for a separate paragraph over and
above the inclusion in the auditor's responsibility paragraph
is in the event where there is a material uncertainty that
16 SA 570(Revised), `Going Concern' which is effective for audits of financial
statements for periods beginning on or after April 1, 2017.
26
SA 700 (Revised)
casts a significant doubt on the ability of an entity to continue
as a going concern and disclosure in the financial
statements are adequate (currently included as an emphasis
of matter as per existing SA 570). However, if the auditor
concludes that there is a material uncertainty and the
disclosure given in the financial statements are inadequate,
the auditor should modify the audit report in accordance with
the requirements specified in Revised SA 705.
Question 19: Where an entity does not have any material
uncertainty regarding the entity's ability to continue as a
going concern, should the Auditor's Responsibility
paragraph continue to include the disclosure as
required by paragraph 38(b)(iv) of SA 700 (Revised)?
Response 19: Yes, even if there is no material uncertainty
regarding an entity's ability to continue as a going concern,
the auditor's responsibility paragraph regarding going
concern would need to be included. This is because the
auditor's responsibility paragraph provides a summary of
responsibility, including going concern assessment.
Question 20: What is new in the basis for opinion
paragraph and whether this paragraph should be
included in all audit reports, whether modified or not?
Response 20: Earlier, the basis for opinion paragraph was
required only in case of modified audit reports. The basis for
opinion paragraph now is mandatorily required to be
provided in all the audit reports, whether modified or not. It
requires the auditor to make specific assertion of conducting
an audit in accordance with the Standards on Auditing, to
refer to auditor's responsibility paragraph, to include a
statement that the auditor is independent of the entity in
accordance with the relevant ethical requirements relating to
the audit and has fulfilled other ethical responsibilities, and
whether the audit evidence obtained is sufficient and
appropriate to provide a basis for the auditor's opinion.
Specific reference is required to be made to the Code of
Ethics issued by the ICAI.
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Illustrative paragraph for Basis for Opinion in case of audit of
standalone financial statements of a company:
"We conducted our audit in accordance with the Standards
on Auditing (SAs) specified under section 143(10) of the
Companies Act, 2013. Our responsibilities under those
Standards are further described in the Auditor's
Responsibilities for the Audit of the Financial Statements
section of our report. We are independent of the Company in
accordance with the Code of Ethics issued by the Institute of
Chartered Accountants of India together with the ethical
requirements that are relevant to our audit of the financial
statements under the provisions of the Companies Act, 2013
and the Rules thereunder, and we have fulfilled our other
ethical responsibilities in accordance with these
requirements and the Code of Ethics. We believe that the
audit evidence we have obtained is sufficient and
appropriate to provide a basis for our opinion".
Question 21: Is there a requirement for all entities to
have a separate paragraph on key audit matters in the
auditor's report?
Response 21: No, this is mandatorily required only in the
case of listed entities. Key audit matters may sometimes be
required for inclusion by law or regulation. In other cases, an
auditor may include key audit matters in the auditor's report
on a voluntary basis. Refer Implementation Guide to SA 701
issued by the Auditing and Assurance Standards Board of
ICAI for detailed guidance.
Question 22: How and where should materiality be
described in the auditor's report?
Response 22: SA 700 (Revised) requires the auditor to
state that misstatements can arise from fraud or error, and
either:
Describe that they are considered material if, individually
or in the aggregate, they could reasonably be expected
28
SA 700 (Revised)
to influence the economic decisions of users taken on
the basis of these financial statements; or
Provide a definition or description of materiality in
accordance with the applicable financial reporting
framework.
An Illustration for the aforesaid requirement for inclusion in
the auditor's responsibility paragraph is hereunder:
"Misstatements can arise due to fraud or error and are
considered material if, individually or in the aggregate, they
could reasonably be expected to influence the economic
decisions of users taken on the basis of these financial
statements".
Whilst there is no requirement to provide the amount of
materiality that was considered by the auditor in the planning
and performance of the audit, it is observed that in many
jurisdictions across the world who have adopted ISA 700
(Revised), there are instances where the amount of
materiality has been included in the auditor's report.
Question 23: Consequent to the enhancement in the
auditor's responsibility paragraph, is there a real
increase in the auditor's responsibility insofar as the
audit is concerned?
Response 23: No, the auditor's responsibility remains the
same. SA 700(revised) requires the auditor to put out to the
readers of the auditor's report, such responsibility in a more
enhanced manner.
To explain a few:
The auditor has to clearly state that he evaluates the
appropriateness of accounting policies used and
reasonableness of accounting estimates and related
disclosures made by the management.
Whilst the auditor as part of his audit procedures, does
evaluate all what has been stated in the aforesaid
paragraph, he now has to specifically include such
29
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responsibility in the audit report.
The auditor has to conclude on the appropriateness of
management's use of the going concern basis of
accounting and, based on the audit evidence obtained,
whether a material uncertainty exists in relation to
events or conditions that may cast significant doubt on
the entity's ability to continue as a going concern. If the
auditor concludes that a material uncertainty exists, he
is required to draw attention in his auditor's report to the
related disclosures in the financial statements or, if such
disclosures are inadequate, to modify his opinion. The
auditor's conclusions are based on the audit evidence
obtained up to the date of the auditor's report. However,
future events or conditions may cause the entity to
cease to continue as a going concern.
Whilst the auditor would assess the appropriateness of
management's use of the going concern basis as
required by SA 570 (Revised), he has to now specifically
state such responsibility and situations under which the
audit report would be modified.
From the matters communicated with those charged
with governance, the auditor determines those matters
that were of most significance in the audit of the
financial statements of the current period and are
therefore the key audit matters. The auditor describes
these matters in his auditor's report, unless law or
regulation precludes public disclosure about the matter
or when, in extremely rare circumstances, he
determines that a matter should not be communicated in
his report because the adverse consequences of doing
so would reasonably be expected to outweigh the public
interest benefits of such communication.
Whilst the auditor would perform all the procedures as
required by SA 701, insofar as key audit matters are
concerned, a specific mention of the process he follows
to determine which matters are key audit matters for
30
SA 700 (Revised)
inclusion in the audit report, is required to be made in
the auditor's responsibility paragraph, where applicable.
Question 24: Does the auditor still need to report on
other legal and regulatory requirements?
Response 24: Yes, in case of a company, the requirement
to report on other legal and regulatory requirements is as per
Section 143(3) of the Companies Act, 2013. In accordance
with paragraph A54 of SA 700 (Revised) and the illustrations
of auditor's report provided in SA 700 (Revised), the auditor
must include his reporting on requirements of the
Companies Act, 2013 as part of his report on the general
purpose financial statements of a company.
Question 25: How is an unmodified opinion worded
generally for non-corporates entities in case of a fair
presentation framework and in case of a compliance
framework?
Response 25: The opinion paragraphs in the illustrative
auditor's reports given at the end of this SA are reproduced
below.
Under a fair presentation framework:
<< We have audited the financial statements of ABC &
Associates (the entity), which comprise the balance sheet at
March 31st 20XX, and the profit and loss account, (and
statement of cash flows)17 for the year then ended, and
notes to the financial statements, including a summary of
significant accounting policies.
In our opinion, the accompanying financial statements give a
true and fair view of the financial position of the entity as at
March 31, 20XX, and of its financial performance (and its
cash flows)18 for the year then ended in accordance with the
Accounting Standards issued by the Institute of Chartered
Accountants of India (ICAI). >>
17 Where applicable
18
Where applicable
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Under a compliance framework:
<< We have audited the financial statements of ABC &
Associates (the entity), which comprise the balance sheet as
at March 31, 20X1, and the Profit and Loss Account (and the
cash flow statement)19 for the year then ended, and notes to
the financial statements, including a summary of significant
accounting policies.
In our opinion, the accompanying financial statements of the
entity are prepared, in all material respects, in accordance
with XYZ Laws. >>
Question 26: How should an unmodified opinion be
worded in case of a fair presentation framework under
the Companies Act 2013?
Response 26: Considering the fact that Schedule III of the
Companies Act, 2013 prescribes the form and contents of
the financial statements of companies in India, it is
appropriate for the auditor to word the opinion paragraph in
conformity with Section 143(2) of the Companies Act, 2013
to the extent that it meets the spirit (rather than the letter) of
the law as well as meets the needs of this SA.
The following wording should be used:
<< In our opinion and to the best of our information and
according to the explanations given to us, the aforesaid
standalone financial statements give the information required
by the Act in the manner so required and give a true and fair
view in conformity with the accounting principles generally
accepted in India, of the state of affairs of the Company as at
March 31, 20XX, and profit/loss, (changes in equity, where
applicable) and its cash flows for the year ended on that
date. >>
It needs to be noted that presently, the financial reporting
framework that is referred to as "accounting principles
generally accepted in India" comprises the Accounting
19
Where applicable
32
SA 700 (Revised)
Standards and other accounting pronouncements issued by
the Institute of Chartered Accountants of India that are also
applicable to non-corporate entities. For companies, the
financial reporting framework comprises of and should be
described as the "Accounting Standards prescribed under
section 133 of the Companies Act, 2013".
Question 27: Is it possible for the financial statements to
be prepared in accordance with two financial reporting
frameworks and if so, how is auditor's opinion
expressed?
Response 27: In some cases, the financial statements may
represent that they are prepared in accordance with two
financial reporting frameworks (e.g., Accounting Standards
referred to in section 133 of the Companies Act, 2013 and
the IFRSs). This may be because management is required,
or has chosen, to prepare the financial statements in
accordance with both frameworks, in which case both are
applicable financial reporting frameworks. Such description
is appropriate only if the financial statements comply with
each of the frameworks individually. To be regarded as
being prepared in accordance with both frameworks, the
financial statements need to comply with both frameworks
simultaneously and without any need for reconciling
statements.
If, for instance, the local country GAAP of a jurisdiction is
very slightly different from the IFRSs, the management may
prepare a single set of financial statements that are
simultaneously in accordance with both the financial
reporting frameworks.
Each framework is considered separately in forming an
auditor's opinion. If the financial statements are found to be
in compliance with each of the frameworks, the auditor may
issue two separate opinions, one for compliance with each
framework, in either two different sentences or in a single
sentence, e.g., "the financial statements give a true and fair
view in accordance with the accounting principles generally
33
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accepted in India and with International Financial Reporting
Standards".
If the financial statements are in compliance with one
framework but not the other framework, an unmodified
opinion may be given on the former under this SA and a
modified opinion on the latter under SA 705 (Revised).
Question 28: If the financial statements are prepared as
per one financial reporting framework but contain
information on the extent of compliance with another
financial reporting framework, what is the auditor's
responsibility in such a situation?
Response 28: Such a case could be, for example, where
the Notes to the Financial Statements include a Note giving
reconciliation of Indian GAAP profit with, say, US GAAP. As
this information forms part of the financial statements, it gets
covered by the auditor's opinion.
What this means is that the financial statements as covered
by the auditor's report in effect assert that the said
reconciliation to US GAAP is free of material misstatement,
due to fraud or error. In order to be able to make such an
assertion, the auditor would obviously have to audit this
financial information (i.e., the reconciliation) and obtain audit
assurance that the numbers in the reconciliation are arrived
at after considering all the applicable provisions of US GAAP
and are in compliance with at least the recognition and
measurement principles of US GAAP. However, nothing is
specifically required to be reported in the opinion in case
such reconciliation is properly audited and presented.
Question 29: How should an auditor frame his opinion
where a statute or court order or government directive/
permission allows an entity to prepare financial
statements without meeting a GAAP requirement?
Response 29: Sometimes the Central Government or a
court of law, say, at the request of the entity, permits it to
follow a specific accounting treatment in respect of a
particular transaction. For example, an entity may be
34
SA 700 (Revised)
permitted to account for a certain type of income or
expenditure on cash basis or on a deferral basis that may
not be permitted by the Accounting Standards. The question
is whether a departure from the framework under such
circumstances requires an auditor to qualify his report?
The answer is "no". In such a situation, the departure is not a
non-compliance with the framework but compliance with a
modified framework. If the effect of doing this is material, the
auditor should describe the resultant deviation from the
framework in sufficient detail in an emphasis of matter
paragraph.
Question 30: How the report on other legal and
regulatory requirements is separated from the opinion
paragraph?
Response 30: One of the example could be that under the
Companies Act, 2013, the auditors are required to respond
to a set of questions pertaining to the entity under the
Companies (Auditor's Report) Order, 2016 (CARO). The
responses are normally given in an Annexure that is referred
to in the auditor's report. Under this SA, the reference
paragraph in the auditor's report will now be included in a
separate section of the audit report following the Auditor's
Responsibility paragraph. This section may be titled "Report
on Other Legal and Regulatory Requirements".
Another example is of the assertions required to be made
under Section 143(3) of the Companies Act, 2013 on
seeking and obtaining all the information and explanations
necessary for audit, keeping of proper books of account,
agreement of balance sheet and statement of profit and loss
with the books, compliance with accounting standards
prescribed under section 133, disqualification of directors
and adequacy of the internal financial controls over financial
reporting. All these assertions are made in the "Report on
Other Legal and Regulatory Requirements" section. If any of
these assertions is negative or partial, that fact needs to be
brought out while reporting on that assertion.
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The question one may ask is whether the audit opinion will
be modified if one or more of the legally required assertions
above is negative. The answer will depend on the merits of
each case. For example, if there has been a material
departure from Accounting Standards prescribed under
Section 133 as reported in the "Report on Other Legal and
Regulatory Requirements" section of the audit report, the
opinion will also obviously need to be modified. If all the
information and explanations have not been provided to the
auditor, it is likely that there may have been a scope
restriction on the audit which, if material and pervasive,
would require a disclaimer of opinion. But if a director is
disqualified from being a director, it may have no bearing on
the true and fair view of the financial statements, and a clean
opinion may be given.
Question 31: How does an auditor sign an auditor's
report?
Response 31: This SA mentions that "Where the firm is
appointed as the auditor, the report is signed in the personal
name of the auditor and in the name of the audit firm." The
intention of this SA here is not to have two separate
signatures, one in personal name and one in the firm name,
but that the partner signing should sign in his personal name
for and on behalf of the firm which has been appointed as
the auditor with the name and registration number of the firm
also mentioned as signatory.
Where a firm is appointed as auditor, the suggested manner
to sign audit report would be:
For XYZ and Co
Chartered Accountants
Firm's registration number
Signature
Name of the signing member
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SA 700 (Revised)
Designation (partner/proprietor)
Membership number
Place of signature
Date:
Question 32: What is the significance of the date of the
auditor's report?
Response 32: Date of the auditor's report informs the user
that the auditor has considered subsequent events up to that
date in making his audit report20 and makes the auditor
responsible for events and transactions up to that date.
Further, the auditor's report cannot be dated earlier than the
date on which the auditor has obtained sufficient appropriate
audit evidence to base opinion on the financial statements.
Such evidence includes evidence that the financial
statements, including notes, have been prepared and the
recognised authority (in the case of a company, the board of
directors) have asserted that they have taken the
responsibility for such financial statements.
Also, since the financial statements are the responsibility of
management, the auditor's report should not be signed
before the date of approval of the financial statements by the
board of directors or equivalent governing body. It may,
however, be dated after the date of the board meeting in
which the financial statements are approved.
Question 33: Can an auditor sign the auditor's report at
a place other than the city where the registered office of
the entity is situated? Do the directors and auditor need
to sign the financial statements at the same location?
Response 33: SA 700 (Revised) does not contain any such
requirement or mandate. An auditor should mention the
20 It is therefore important to ensure that the working paper on subsequent events
is dated the same as the date of the auditor's report and has been reviewed as at
that date by the signing partner.
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name of the place where he signs the audit report. For
example, if the auditor signs the audit report when he is in
Hyderabad, he should mention the place of signature as
Hyderabad, irrespective of the fact that the registered office
of the entity is in New Delhi or that directors may have
signed the financial statements in Mumbai.
Question 34: How does the auditor comply with this SA
if the law or regulation prescribes a format of auditor's
report that is different from the format required under
this SA?
Response 34: This situation frequently confronts an auditor
in India. Various laws and regulatory agencies prescribe the
form in which they expect the auditor's report to be given.
This often creates a hard situation for an auditor, as he finds
that he has performed audits as per the SAs but the form in
which he is required to report puts a greater burden on him.
For example, there are situations when the auditor is
expected to "certify" the financial statements or to attest
them as being "true and correct" rather than "true and fair".
Also, in most cases the format prescribed does not have the
management's and auditor's responsibility paragraphs.
The advice to auditors is that wherever they have the liberty
to modify the prescribed format to broadly bring it in line with
the requirements of this SA, they should do so to the extent
possible. This is important from the viewpoint of achieving
the fundamental objective of this SA, namely, to achieve
consistency in reporting that promotes credibility for an
auditor's report in the marketplace. So, for example, if the
prescribed format does not have the responsibility
paragraphs, he may insert them without disturbing the other
layout of the prescribed format of the report.
This SA requires that if the difference between the
prescribed format and this SA are only in layout and some
wording, the auditor needs to assess if, at a minimum, the
various elements required under paragraph 48 of this SA
form a part of the prescribed format. If they are all there but
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SA 700 (Revised)
in a different layout, he may give his report in the prescribed
format, so long as the basic principles of this SA are met.
Paragraph 48 of this SA requires an auditor's report to
contain, at a minimum, the following elements: (a) title, (b)
addressee, (c) opinion section with reference to the
applicable financial reporting framework, (d) identification of
the financial statements audited, (e) Auditor's independence,
(f) management's responsibility, (g) auditor's responsibility
for the audit with reference to SAs/ laws/ regulations, (g)
signature, (h) place of signature and (i) date.
However, if the prescribed format of the audit report does not
include the minimum elements required under paragraph 48
of this SA and if the auditor does not have the liberty to
change the format to include the missing elements, then he
cannot include a statement in the auditor's responsibility
paragraph of the report that "We conducted the audit in
accordance with the Standards on Auditing specified under
Section 143(10) of the Act" or "We conducted the audit in
accordance with the Standards on Auditing issued by the
Institute of Chartered Accountants of India." As regard the
other assertions that are made in the auditor's responsibility
paragraph or elsewhere in the report, the auditor will have to
determine if it is appropriate in the circumstances for him to
make those assertions or if he should modify them to suit the
exact circumstances.
Further, in some situations, the wordings of auditor's report
(including the auditor's opinion) may sometimes be
prescribed by the law or regulation applicable to the client.
While mostly that is not the case, it is possible that the
prescribed terms may be significantly different from the
requirements of SAs.
When this is so, SA 210 requires an auditor to evaluate:
· Whether users might misunderstand the assurance
obtained from the audit, and if so
· Whether providing additional explanation in the auditor's
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report can mitigate such misunderstanding.
Where the auditor concludes that even additional
explanation in the auditor's report cannot mitigate possible
misunderstanding, SA 210 requires the auditor not to accept
the audit engagement.
If the applicable law or regulation compels an auditor to
accept such an engagement, then as per SA 210, such an
audit does not comply with the SAs. The auditor when
reporting on such audit therefore does not include any
reference to the audit having been conducted in accordance
with the SAs in his auditor's report.
Also, it goes without saying that in no event should an
auditor accede to making an assertion for which he has not
been able to perform adequate procedures or for which there
was a scope limitation or inadequate evidence. Under such
circumstances, the auditor is well advised to give a modified
report under SA 705 (Revised) or an emphasis of matter
paragraph under SA 706 (Revised), as may be appropriate.
Question 35: Can an audit be done under two different
sets of auditing standards: such as the SAs and
International Standards on Auditing (ISAs)? How will
reporting be done in such a situation?
Response 35: This situation often arises when the Indian
GAAP financial statements of a foreign subsidiary or a
branch of a foreign company are statutorily audited for
complying with the local requirements under SAs; and for
parent reporting, where the audit under ISAs is required,
assuming that the year-ends are the same for both the
reports. In such a situation, an auditor performs audit
procedures that simultaneously meet the requirements of
both sets of Standards, in order to prevent from doing two
audits.
If the two sets of Standards do not have any conflict that
would require the auditor to form a different opinion under
40
SA 700 (Revised)
each of them, then his audit report may refer to compliance
with both the Standards by specifically naming them in his
report. e.g. "We conducted the audit in accordance with the
Standards on Auditing issued by the Institute of Chartered
Accountants of India and the International Standards on
Auditing".
If a conflict exists, the auditor needs to give two separate
auditor's reports, where, for example, one could include a
clean opinion and the other may include an emphasis of
matter paragraph or modified opinion, as may be necessary.
Question 36: How does an auditor deal with a situation
where the audited entity voluntarily provides
supplementary information or where a law or regulation
requires additional information that is outside the scope
of the applicable financial reporting framework?
Response 36: At the outset, supplementary information, in
this context, should not be confused with "Other Legal or
Regulatory Requirements" mentioned in Question 30 above.
Where there is such information embedded in the financial
statements, the auditor should consider discussing with the
client if such information could be displayed separately
outside the financial statements. If that is possible, there is
no further issue.
Where such supplementary information (e.g., a GAAP
reconciliation between Indian GAAP and IFRS, included in
the Notes to the Financial Statements) cannot be clearly
differentiated from the rest of the financial statements, the
auditor's opinion shall have to cover that too. This means
that the auditor would need to audit this information and
report on it, in the ordinary course.
If the management (or law/ regulation) requires such
information not to be subjected to audit, the auditor must
ensure that such information is presented in a way that
clearly shows that it is "unaudited". For example, if prior
period numbers that were not audited are presented as
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comparative information, the columns giving such
information could be clearly labeled as "Unaudited" and an
explanatory note may be given to explain why such
unaudited information is presented. Alternatively, the
relevant Notes to the Financial Statements that include such
information could be placed together in a separate section of
the Notes that is clearly labeled as "Unaudited".
A question arises as to whether the auditor will have any
responsibility for the supplementary information included in
the financial statements if it is labeled as "Unaudited"? The
answer is "yes". Under revised SA 720,21 the auditor still has
the responsibility to read such information to identify if it
contains any material inconsistency with the audited financial
statements. If so, he will have to deal with it as per revised
SA 720.
21
Revised SA 720, The Auditor's Responsibilities Relating to Other Information.
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Chapter 4
SA 705 (Revised), Modifications
to the Opinion in the Independent
Auditor's Report
Introduction to the Standard
4.1 SA 705(Revised) deals with the auditor's
responsibility to issue an appropriate report in circumstances
when, in forming an opinion in accordance with SA 700
(Revised), the auditor concludes that a modification to the
auditor's opinion on the financial statements is necessary.
4.2 SA 705(Revised) establishes three types of modified
opinions, namely, a qualified opinion, an adverse opinion,
and a disclaimer of opinion. The decision regarding which
type of modified opinion is appropriate depends upon:
(a) The nature of the matter giving rise to the modification,
that is, whether the financial statements are materially
misstated or, in the case of an inability to obtain
sufficient appropriate audit evidence, may be materially
misstated; and
(b) The auditor's judgment about the pervasiveness of the
effects or possible effects of the matter on the financial
statements.
4.3 Given below are the key issues brought out in this
Standard in a QuestionAnswer format.
Question 1: For which audits does the auditor need to
follow this revised reporting standard i.e. SA 705
(Revised)?
Response 1: The revised reporting standard, SA 705 is
applicable for audits of financial statements for periods
beginning on or after April 1, 2018.
IG on Reporting Standards (Revised 2018)
Question 2: Is SA 705 (Revised) applicable for audit
reports signed after April 1, 2018?
Response 2: Since the revised reporting standard, SA 705
is applicable for audits of financial statements for periods
beginning on or after April 1, 2018, audit reports signed after
April 1, 2018 pertaining to financial statements for periods
beginning before April 1, 2018 will not be governed by SA
705 (Revised).
Question 3: What is the difference between a "qualified"
auditor's report and a "modified" auditor's report?
Response 3: In fact, it is not the auditor's report which is
"qualified" or "modified", it is the audit opinion within the
auditor's report, which can be a "qualified opinion" or a
"modified opinion". Generally, the terms `qualified' and
`modified' are loosely used interchangeably; however, there
is a significant difference between the two terms.
When the auditor has no reservation on the financial
statements (beyond the tolerance limits of materiality), he
gives what is generally called a "clean" opinion. This is an
auditor's report containing an "unmodified opinion", governed
by SA 700(Revised) which has been discussed in Chapter 3.
Then there are auditor's reports containing "modified
opinions". These are issued where the auditor has some
reservation about the financial statements. Under SA 705
(Revised) there can be three types of "modifications" to an
auditor's opinion: (a) a "qualified opinion", (b) a "disclaimer of
opinion", or (c) an "adverse opinion".
So, a qualified opinion is one kind of a modified opinion, the
other two being either a disclaimer or an adverse opinion.
When an audit opinion is other than "clean", the standard
language of the opinion in SA 700(Revised) is modified to
express the auditor's reservation about the financial
statements.
Question 4: What are the circumstances requiring issue
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SA 705 (Revised)
of modified opinions?
Response 4: There are two circumstances as given below:
1. The auditor concludes that, based on the audit evidence
obtained, the financial statements as a whole are not
free from material misstatement.
2. The auditor is unable to obtain sufficient appropriate
audit evidence to conclude that the financial statements
as a whole are free from material misstatement.
Question 5: How does the auditor decide the nature of
modification that should be made?
Response 5: An auditor has to evaluate the situation
carefully before making his judgment as to the nature of
modification. It is very important that the auditor, in terms of
the principles laid down in SA 230, Audit Documentation,
also documents in his work papers, how and why he
reached this professional judgment.
There can be two situations:
(a) There is a matter for which the auditor has sufficient
appropriate audit evidence to determine that due to such
matter, the financial statements are materially misstated,
and
(b) There is a matter for which the auditor is unable to
obtain sufficient appropriate audit evidence to determine
whether due to it, the financial statements may be
materially misstated.
In either case, the audit report will be modified, but the
nature of modification can be different.
After this, the auditor uses his professional judgment to
determine if the effects or possible effects of the matter on
the financial statements is/ are pervasive or not pervasive.
Again, depending on the extent of pervasiveness, the nature
of modification can be different.
The following table summarises the criteria and the nature of
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modification in different situations:
Nature of matter Auditor's judgment about the
giving rise to Materiality and Pervasiveness of the
modification Effects or Possible Effects on the
financial statements
Material but Not Material and
Pervasive Pervasive
Financial Qualified opinion Adverse opinion
Statements are
materially
misstated
Inability to obtain Qualified opinion Disclaimer of
sufficient opinion
appropriate audit
evidence
Question 6: What is a `material misstatement'?
Response 6: For financial statements to comply with an
applicable financial reporting framework, the transactions
and events as reflected therein need to comply with four
aspects. These are:
(a) Recognition
(b) Measurement
(c) Classification and presentation, and
(d) Disclosure
A "misstatement" of the financial statements occurs when
there is a difference between how each of these aspects is
reported by the management in the financial statements and
how it should be reported as per the applicable financial
reporting framework.
As per SA 450, Evaluation of Misstatements Identified during
the Audit, material misstatement of the financial statements
may arise in relation to:
(a) The appropriateness of the selected accounting policies;
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SA 705 (Revised)
(b) The application of the selected accounting policies, or
(c) The appropriateness or adequacy of disclosures in the
financial statements.
The selected accounting policies may not be consistent with
the applicable financial reporting framework, or the financial
statements (including the Notes) do not reflect the events
and transactions in a manner that achieves fair presentation,
for example, where a change in accounting policy from prior
period is not adequately reported. There might also be
inconsistency in application of accounting policies between
periods or transactions and events of a similar nature or the
method of application of the accounting policy is erroneous.
As regard disclosures, all the required disclosures may not
be given or, if given, may not be presented as they should
be, or the financial statements may not give disclosures that
ensure a fair presentation (that is, they do not contain
disclosures of events or transactions that are needed to
properly reflect a true and fair view).
It is often wrongly believed that a "material misstatement" is
only a recognition and measurement issue alone. In other
words, there is a perception that one does not need to
modify an opinion, unless the rupee amounts are misstated.
Due to this perception, auditors may fail to modify their
opinion in respect of material misstatement of the financial
statements caused by inappropriate classification or
presentation, or inadequate disclosure.
Modifying an audit opinion where such modification is
warranted is a very important decision that an auditor has to
make. It is a decision that may subsequently be challenged
by the client, or called into question by a regulator, or by
investigating agencies and courts of law in the course of a
fraud or any other investigation. Therefore, in reaching his
decision on modifying or not modifying an auditor's report,
the auditor should ensure that the decision is not only in
accordance with the related accounting and auditing
pronouncements but one that will stand up to scrutiny.
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It is therefore crucial for an auditor, when making an
evaluation for purposes of modifying or not modifying an
audit opinion to properly understand the meaning, context
and importance of these three key concepts: "evidence",
"materiality" and "misstatement". Each of these topics have
been dealt with in separate Standards on Auditing. For
example:
SA 320, Materiality in Planning and Performing an Audit.
SA 450, Evaluation of Misstatements Identified during
the Audit.
SA 500, Audit Evidence.
SA 501, Audit Evidence Specific Considerations for
Selected Items.
SA 505, External Confirmations.
SA 570 (Revised), Going Concern.
Attention is also invited to SQC 1, wherein, it is stated that
the firm should establish policies and procedures designed
to provide it with reasonable assurance that: (a) Appropriate
consultation takes place on difficult or contentious matters;
(b) Sufficient resources are available to enable appropriate
consultation to take place; (c) The nature and scope of such
consultations are documented; and (d) Conclusions resulting
from consultations are documented and implemented.
Question 7: What is inability of an auditor to obtain
sufficient appropriate audit evidence?
Response 7: Ordinarily, an auditor would be unable to
obtain sufficient appropriate audit evidence in the following
situations:
(a) Circumstances beyond the control of an entity For
example, the entity's accounting records are destroyed
by fire or are seized by an investigating agency;
(b) Circumstances related to the nature and timing of the
auditor's work Examples: (a) for equity accounting of
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SA 705 (Revised)
an associate, adequate financial information of the
associate is not available; (b) the auditor is appointed
after year-end, and is therefore unable to observe
physical verification of inventory; or (c) where the
controls of the entity are not effective and the auditor
concludes that performing substantive procedures alone
is not sufficient;
(c) Limitation imposed by management For example,
management prevents the auditor from observing
inventory count or from requesting external confirmation
of specific account balances, or imposes unrealistic time
deadlines within which to issue an auditor's report.
Question 8: If the management imposes a scope
limitation after the auditor has accepted the
engagement, what should he do?
Response 8: As a first step, the auditor should request the
management to remove the scope restriction. If the
management refuses, he should communicate with those
charged with governance and simultaneously explore ways
to perform alternative procedures to obtain sufficient
appropriate audit evidence.
If the auditor concludes that he is still unable to get sufficient
appropriate audit evidence, he should determine if the
possible effect of undetected misstatements is likely to be
material but not pervasive. If so, he should qualify his
opinion.
If he concludes that the possible effect of undetected
misstatements is likely to be both material and pervasive and
qualification of the opinion alone would not suffice, he should
withdraw from the audit, if permitted to do so, by the
applicable law or regulation. But where the law or regulation
does not permit withdrawal of the auditor for such reason
after accepting an audit, he should give a disclaimer of
opinion.
49
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Question 9: When is the effect of a misstatement or a
possible misstatement considered to be "pervasive"?
Response 9: As can be seen from the question itself, both a
material misstatement (where evidence is available) and a
possible misstatement (where evidence is not available) are
to be evaluated for being pervasive or otherwise. (Refer the
table in response to Question 5)
The effect of a material misstatement/possible misstatement
is Pervasive, when:
(a) Where it pertains to an amount(s) in the financial
statements, it is not confined to specific components,
accounts or items of the financial statements. If it is so
confined, it represents or could represent a substantial
portion of the financial statements; or
(b) Where it pertains to disclosures, such disclosures or the
matter(s) therein are / could be fundamental to the user's
understanding of the financial statements.
For example, where an auditor detects a bias in the
valuation of estimates on the assets side of a balance sheet
(such as increasing the useful lives of fixed assets without
justification, not treating impairment in investments as other
than temporary, treating doubtful receivables as good, not
providing adequately for inventory obsolescence, etc.) all
building up to an overstatement of earnings, the aggregate
effect of which, may be material to the financial statements
taken as a whole, then the possible misstatement is said to
be pervasive.
In another example, when the misstatement is only in
valuing inventory of a major raw material at cost instead of at
net realisable value and when clear evidence is available
that the fair value of the material was substantially lower
than cost and the selling price of the finished product is
pegged to current raw material prices, and the difference in
valuation, if booked, could wipe out a substantial portion of
the profit before tax of the entity, the misstatement is said to
be pervasive.
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SA 705 (Revised)
In yet another example, the entity is unable to resolve to the
satisfaction of the auditor, a going concern issue in relation
to one of its major subsidiaries, in which the entity has a
substantial exposure in terms of equity, debt and guarantee
commitments and it refuses to either make a provision or a
satisfactory disclosure of the matter, the misstatement is
said to be pervasive.
Question 10: There is a misstatement or a series of
misstatements in the financial statements that the
auditor evaluates as material and pervasive to the
financial statements, individually or in the aggregate.
The auditor explains each such misstatement by giving
separate paragraphs in his audit report and then states
in his opinion that `except for the effects/ possible
effects of the matters stated in the said paragraphs, the
financial statements give a true and fair view'... Is this
permissible?
Response 10: No. The auditor's duty is to evaluate in case
the effect of all the misstatements and possible
misstatements in the aggregate is material and pervasive to
the financial statements, taken as a whole. If that is true, he
cannot give an overall qualified opinion. He has to give an
adverse opinion, as in this instance, he has been able to
obtain all the information to give an opinion and that there is
no scope limitation. This means he has to state in the audit
opinion that the financial statements do not give a true and
fair view. This is a very important and a significant matter,
where professional judgement needs to be well-founded.
Question 11: There is a possible misstatement or a
series of possible misstatements in the financial
statements or a mix of misstatements and possible
misstatements that the auditor evaluates as material and
pervasive to the financial statements, individually or in
the aggregate. The auditor explains each such
misstatement by giving separate paragraphs in his audit
report. In case of misstatements he quantifies the
impact thereof. In case of possible misstatements he
51
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states the matter and expresses his inability to quantify
the impact thereof in the absence of availability of
evidence. He then states in his opinion that except for
the possible effects of the matters stated in the said
paragraphs, the financial statements give a true and fair
view... Is this permissible?
Response 11: No. The auditor's duty is to evaluate if the
possible effect of a single possible misstatement or a
number of possible misstatements taken together, is likely to
be material and pervasive to the financial statements, taken
as a whole. If that is true, he cannot give an overall qualified
opinion. He has to give a disclaimer of opinion. This means
he has to state in his audit opinion that due to the
significance of the matters described, he has been unable to
obtain sufficient appropriate audit evidence, and accordingly
he is unable to express an opinion on the financial
statements.
In case of a mix of misstatements and possible
misstatements that are singly and/or collectively evaluated
as being material and pervasive, the auditor would have to
decide if his opinion should be adverse or a disclaimer. It
cannot be both, a disclaimer for some matters and adverse
in respect of others, as such reporting would confuse the
users. In such cases, the auditor should give an adverse
opinion. This means he has to state that the financial
statements do not give a true and fair view.
Question 12: In the situations described in Questions 10
and 11, if the misstatements or possible misstatements
or a mix of the two are evaluated by the auditor as being
material but not pervasive to the financial statements,
can he give a narration of the material misstatements,
possible misstatements or a mix of the two in separate
paragraphs of his report and then, giving reference to
those paragraphs, state that `except for the possible
effects of the matters stated in the said paragraphs the
financial statements give a true and fair view'...?
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SA 705 (Revised)
Response 12: Yes. Where the aggregate effect of
misstatements or possible misstatements is material but not
pervasive, the auditor can express a qualified opinion.
Needless to mention, the auditor needs to exercise his best
professional judgement for determining whether the impact
is material but not pervasive.
Question 13: What does this Standard bring out in terms
of an auditor's responsibility for correct reporting?
Response 13: The auditor's opinion on a set of financial
statements is read very keenly by a variety of users, who
make important economic decisions based on it. The
distinction between a clean opinion, a qualified opinion, a
disclaimer of opinion and an adverse opinion is therefore
critical for such users. An opinion that is inappropriately
worded could result in a user making a wrong economic
decision that could have significant financial implication and
for which he could hold the auditor to be accountable.
Using professional judgement in making his decision for
modifying or not modifying his opinion is of course the
privilege of an independent auditor. But such professional
judgement has to be made within the framework of the
accounting and auditing standards, in keeping with the
competencies expected from the training, knowledge and
experience of the auditor, as well as due processes of
internal/ external consultation and documentation. It is
important therefore to understand what using "professional
judgement" entails.
SA 200, Overall Objectives of the Independent Auditor and
the Conduct of an Audit in Accordance with Standards on
Auditing, deals with the subject of professional judgement as
well as with other fundamental matters of great importance
to auditors. Extracts from that SA are given below for ready
reference:
"Professional Judgment
16. The auditor shall exercise professional judgment in
planning and performing an audit of financial statements.
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(Ref: Para. A23- A27)
Professional Judgment (Ref: Para. 16)
A23. Professional judgment is essential to the proper
conduct of an audit. This is because interpretation of
relevant ethical requirements and the SAs and the informed
decisions required throughout the audit cannot be made
without the application of relevant knowledge and
experience to the facts and circumstances.
Professional judgment is necessary in particular regarding
decisions about:
Materiality and audit risk
The nature, timing, and extent of audit procedures used
to meet the requirements of the SAs and gather audit
evidence
Evaluating whether sufficient appropriate audit evidence
has been obtained, and whether more needs to be done
to achieve the objectives of the SAs and thereby, the
overall objectives of the auditor
The evaluation of management's judgments in applying
the entity's applicable financial reporting framework
The drawing of conclusions based on the audit evidence
obtained, for example, assessing the reasonableness of
the estimates made by management in preparing the
financial statements.
A24. The distinguishing feature of the professional judgment
expected of an auditor is that it is exercised by an auditor
whose training, knowledge and experience have assisted in
developing the necessary competencies to achieve
reasonable judgments.
A25. The exercise of professional judgment in any particular
case is based on the facts and circumstances that are
known by the auditor. Consultation on difficult or contentious
matters during the course of the audit, both within the
engagement team and between the engagement team and
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SA 705 (Revised)
others at the appropriate level within or outside the firm,
such as that required by SA 220 assist the auditor in making
informed and reasonable judgments.
A26. Professional judgment can be evaluated based on
whether the judgment reached reflects a competent
application of auditing and accounting principles and is
appropriate in the light of, and consistent with, the facts and
circumstances that were known to the auditor up to the date
of the auditor's report.
A27. Professional judgment needs to be exercised
throughout the audit. It also needs to be appropriately
documented. In this regard, the auditor is required to prepare
audit documentation sufficient to enable an experienced
auditor, having no previous connection with the audit, to
understand the significant professional judgments made in
reaching conclusions on significant matters arising during
the audit. Professional judgment is not to be used as the
justification for decisions that are not otherwise supported by
the facts and circumstances of the engagement or sufficient
appropriate audit evidence."
It should also be noted that when an auditor expects to give
a modified opinion, he has a duty to first discuss the matter
giving rise to the expected modification with those charged
with governance which generally means with the audit
committee, board of directors, or equivalent governing body,
and not just with the management or the Chief Financial
Officer.
Question 14: If there are multiple uncertainties, but for
each of those uncertainties the auditor has been able to
obtain sufficient appropriate audit evidence, can he still
give a disclaimer of opinion on the financial statements?
Response 14: Such a situation is rare but possible. If the
auditor concludes that notwithstanding his having obtained
sufficient appropriate audit evidence regarding individual
uncertainties, it is not possible for him to form an overall
opinion on the financial statements due to the possible
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interaction of the uncertainties and their possible cumulative
effect on the financial statements, he would need to give a
disclaimer of opinion.
Question 15: Can an auditor give an unmodified opinion
in respect of one (or more) financial statements or
account or element or item of a financial statements
while giving an adverse or disclaimer of opinion on the
financial statements as a whole?
Response 15: No. If an auditor is engaged to audit and
report on the financial statements of an entity and he
concludes that his overall opinion on those financial
statements is either disclaimer or adverse, he cannot give in
the same report an unmodified opinion in respect of a single
financial statement or an account or element or item of a
financial statement.
However, if he is engaged to audit and report under SA 805,
Special Considerations Audits of Single Financial
Statements and Specific Elements, Accounts or Items of a
Financial Statement, where his engagement is to audit and
report on a single financial statement or a specific account or
element or item of a financial statement, he may give a
separate unmodified report under that SA. The two reports,
one under SA 805 and the other on the audit of financial
statements as a whole, must be separate and with separate
terms of engagement.
In another situation, where an auditor is engaged to report
on a set of financial statements under two different financial
reporting frameworks say Indian GAAP and IFRSs, and
instead of giving separate reports under each GAAP, he
chooses to issue a combined report, he may give an
unmodified opinion on the financial statements under one
framework but an adverse opinion or disclaimer of opinion
under the other framework. In such circumstances, he would
have to word the report carefully in order to prevent any
misinterpretation of his intent by the users.
Thirdly, even where he is appointed to audit and report on
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SA 705 (Revised)
the financial statements as a whole, it would be possible for
an auditor to give, for example, a disclaimer of opinion on
the results of operations and cash flows but an unmodified
opinion on the financial position of the entity in a situation
envisaged under SA 510, Initial Audit Engagements
Opening Balances, paragraphs 10 and A5. In this situation,
he does not express any overall audit opinion on the
financial statements, as a whole.
Question 16: Is there a difference in the way an audit
opinion is modified now?
Response 16: Yes. Firstly, it may be reiterated that inserting
an Emphasis of Matter paragraph or an Other Matters
paragraph in the auditor's report is not considered to be a
"modification" of the audit opinion. A separate Standard viz.,
SA 706 (Revised), `Emphasis of Matter Paragraphs and
Other Matter Paragraphs in the Independent Auditor's
Report' now deals with these aspects.
Secondly, the opinion paragraph which is provided at the
beginning of the audit report, is to be clearly titled as
"Qualified Opinion" or "Adverse Opinion" or "Disclaimer of
Opinion", respectively and refers to the matter given in the
"Basis for Modified Opinion" paragraph. Accordingly, the
matter giving rise to modification is to be described in a
separate Basis for Modified Opinion paragraph that follows
the Opinion Paragraph also need to be titled as "Basis for
Qualified Opinion" or "Basis for Adverse Opinion" or "Basis
for Disclaimer of Opinion", as may be appropriate.
Question 17: What does the Basis for Modified Opinion
paragraph contain?
Response 17: The Basis for Modified Opinion paragraph at
a minimum would contain all the elements specified by
paragraph 28 of SA 700 (Revised). However, when an
auditor gives a disclaimer of opinion, the audit report should
not include the following elements required by paragraphs
28(b) and 28(d) of SA 700 (Revised):
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reference to the auditor's responsibilities paragraph;
and
statement about whether the audit evidence obtained is
sufficient and appropriate to provide a basis for the
auditor's opinion
Additionally, if there is a material misstatement in the
financial statements that relates to specific amounts,
including amounts given in the Notes, the auditor gives a
description and a modification of the misstatement. Where
an accurate quantification is not possible but a management
estimate is available, the auditor performs such audit tests
on those management estimate as are possible, and clearly
indicates that the amount quantified is based on
management's estimate. (This could be presented in a Note
with the auditor drawing reference to such Note in his
report.) If it is impracticable for him to quantify or estimate
the effect of the misstatement, he states so in the Basis for
Modified Opinion paragraph.
If there is a material misstatement in the financial statements
that relates to narrative disclosures, the auditor gives an
explanation of how the disclosures are misstated.
If required disclosures are not made in the financial
statements, the auditor is required to follow the following
process:
(a) He discusses the non-disclosure with those charged
with governance22.
This could present a practical difficulty if the auditor's
report is to be issued on the date of the audit committee
meeting itself. The auditor may overcome this by
seeking an audio/ video conference call with the audit
22 Wherever possible, communication with Those Charged with Governance
should be in writing. Where such communication is done orally, it is advisable for
the auditor to document the minutes of the conversation and, unless
impracticable, send the minutes to the other party stating that he would presume
confirmation unless objection is received. This creates evidence that he fulfilled
his duty of communicating with Those Charged with Governance.
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committee or a one-on-one meeting with its chairperson
and discuss the matter, well in advance of the
scheduled audit committee meeting.
(b) He describes the nature of the omitted information in
the Basis for Modified Opinion paragraph, and
(c) Unless prohibited by law/ regulation, he includes the
omitted disclosures in his report, provided it is
practicable to do so (e.g., it may not be practicable if
the disclosures are not prepared by the management,
or are not otherwise readily available to the auditor, or
are far too voluminous to be included in an auditor's
report) and he has obtained sufficient appropriate audit
evidence about the omitted information.
If the modification is because of his inability to obtain
sufficient appropriate audit evidence, the auditor provides
the reasons for that inability. In such cases, the auditor
should be careful that his explanations in the report about
the said inability are his own assertions and not inadvertently
an advocacy of the management's representations.
Where an auditor gives a disclaimer or an adverse opinion
for a given reason that he explains in the Basis for
Disclaimer of Opinion or Basis for Adverse Opinion
paragraph but there are also other matters that would have
independently merited a modification, he needs to describe
and give the reasons and effects of those matters as well in
the same paragraph.
Question 18: How is the Modified Opinion paragraph to
be given?
Response 18: Where auditor's opinion is modified, the
paragraph is titled as "Qualified Opinion" or "Adverse
Opinion" or "Disclaimer of Opinion", as may be appropriate.
Qualified Opinion
Where the opinion is qualified due to material misstatement
in the financial statements, the auditor uses the words:
"Except for the effects of the matter(s) described in the Basis
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for Qualified Opinion paragraph, the accompanying financial
statements present fairly in all material respects or give a
true and fair view in accordance with the applicable financial
reporting framework" (Reporting under a fair presentation
framework)
Where the opinion is qualified due to material misstatement
in the financial statements, the auditor uses the words:
"Except for the effects of the matter(s) described in the Basis
for Qualified Opinion paragraph, the accompanying financial
statements have been prepared in all material respects in
accordance with the applicable financial reporting
framework" (Reporting under a compliance framework)
Where the qualification is because of inability to obtain
sufficient appropriate audit evidence, the phrase to be used
is: "Except for the possible effect(s) of the matter(s)
described in the Basis for Qualified Opinion paragraph, the
accompanying financial statements present fairly in all
material respects or give a true and fair view in accordance
with the applicable financial reporting framework"
(Reporting under a fair presentation framework)
Where the qualification is because of inability to obtain
sufficient appropriate audit evidence, the phrase to be used
is: "Except for the possible effect(s) of the matter(s)
described in the Basis for Qualified Opinion paragraph, the
accompanying financial statements have been prepared in
all material respects in accordance with the applicable
financial reporting framework" (Reporting under a
compliance framework)
It may be noted that use of the words "Subject to" for
qualified opinions is discouraged under Revised SA 705, as
these words are considered to be not sufficiently clear or
forceful.
Disclaimer of Opinion
Where the opinion is a disclaimer of opinion due to inability
to obtain sufficient appropriate audit evidence, the auditor
shall state that: "We do not express an opinion on the
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SA 705 (Revised)
accompanying financial statements of the entity. Because of
the significance of the matter(s) described in the Basis for
Disclaimer of Opinion section of our report, we have not
been able to obtain sufficient appropriate audit evidence to
provide a basis for an audit opinion on these financial
statements."
Adverse Opinion
Where the auditor expresses an adverse opinion under a
fair presentation framework, he states that "in his opinion,
because of the significance of the matter(s) described in the
Basis for Adverse Opinion paragraph, the accompanying
financial statements do not present fairly or give a true and
fair view in accordance with the applicable financial reporting
framework...."
Where the auditor expresses an adverse opinion under a
compliance framework, he states that "in his opinion,
because of the significance of the matter(s) described in the
Basis for Adverse Opinion paragraph, the accompanying
financial statements have not been prepared, in all material
respects, in accordance with the applicable financial
reporting framework..."
Question 19: When a modified opinion is given, does the
Auditor's Responsibility paragraph also
correspondingly change?
Response 19: Yes, only when the auditor gives a disclaimer
of opinion. In case of disclaimer of opinion due to an inability
to obtain sufficient appropriate audit evidence, the auditor is
required to amend the description of the auditor's
responsibilities to include only the following aspects:
A statement that the auditor's responsibility is to conduct
an audit of the entity's financial statements in
accordance with Standards on Auditing and to issue an
auditor's report.
A statement that, however, because of the matter(s)
described in the Basis for Disclaimer of Opinion section,
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the auditor was not able to obtain sufficient appropriate
audit evidence to provide a basis for an audit opinion on
the financial statements.
The statement about auditor independence and other
ethical responsibilities required by paragraph 28(c) of SA
700 (Revised).
Question 20: When a modified opinion is given, does the
Basis for Opinion section also correspondingly change?
Response 20: Yes. When the auditor gives a modified
opinion, the heading of `Basis for Opinion' need s to be
suitably changed based on the nature of modification (Basis
for Qualified Opinion/ Basis for Adverse Opinion/ Basis for
Disclaimer of Opinion).
For the content of Basis for Modified Opinion paragraph,
please refer response to Question 17 above.
When the auditor gives a qualified opinion, the last sentence
of the Basis for Qualified Opinion would state, "We believe
that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our qualified audit opinion."
When the auditor gives an adverse opinion, the
aforementioned last sentence of the Basis for Adverse
Opinion paragraph would stand modified as follows, `We
believe that the audit evidence we have obtained is sufficient
and appropriate to provide a basis for our adverse audit
opinion."
When the auditor gives a disclaimer of opinion, the auditor
will not state anything about the sufficiency and
appropriateness of audit evidence obtained.
Question 21: When the auditor's report is modified, does
this impact the auditor's opinion on internal financial
controls over financial reporting?
Response 21: Yes. When the auditor's report is modified
(qualification, adverse or disclaimer), this may have an
impact on the opinion on internal financial controls over
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SA 705 (Revised)
financial reporting.
A modification is made to the auditor's report when:
a) The auditor concludes that, based on the audit evidence
obtained, the financial statements as a whole are not
free from material misstatement: or
b) The auditor is unable to obtain sufficient appropriate
audit evidence to conclude that the financial statements
as a whole are free from material misstatement.
Internal control system means all the policies and
procedures adopted by the management of an entity to
assist in achieving management's objective of ensuring, as
far as practicable, the orderly and efficient conduct of its
business, including adherence to management policies, the
safeguarding of assets, the prevention and detection of fraud
and error, the accuracy and completeness of the accounting
records, and the timely preparation of reliable financial
information.
A modification in the audit report on financial statements
may have a direct impact on accounting records and reliable
financial information and therefore may trigger a modification
in the auditor's reporting on internal financial controls over
financial reporting. However, there could be situations e.g.
disagreement with management in interpretation of an
accounting standard, wherein modification in the audit report
on financial statements may not have an impact on auditor's
report on internal financial controls over financial reporting.
Reference should be made to the Guidance Note on Audit of
Internal Financial Controls Over Financial Reporting issued
by the ICAI in this regard.
Question 22: When the auditor's report carries a
modification from earlier years, does this impact the
auditor's opinion on internal financial controls over
financial reporting?
Response 22: Yes. Refer response to Question 21 above.
Even when the auditor's report carries a modification from
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earlier years, it may have a direct impact on accounting
records and reliable financial information. Hence the auditor
needs to exercise professional judgement to determine
whether a modification in the auditor's reporting on in ternal
financial controls over financial reporting should be made.
Question 23: When the auditor's report on internal
financial controls over financial reporting is modified,
does this impact the auditor's opinion on the financial
statements?
Response 23: Not necessarily. A modified report on internal
financial controls over financial reporting does not in effect
imply that the audit report on financial statements should
also be modified. In an audit of financial statements, the
assurance obtained by the auditor is through both testing of
internal controls and performance of substantive procedures.
Therefore, if the auditor is of the opinion that as a result of
substantive procedures performed, sufficient appropriate
audit evidence has been obtained to address the risk
identified or gain assurance on the account balance being
tested, the audit opinion on the financial statements should
not be modified.
Question 24: Is there a change in the placement of the
opinion (including modified opinions) and basis for
opinion in the revised reporting standards?
Response 24: Yes. There is a change in the structure of the
auditor's report, as stated in Question 16 above.
The opinion is placed as the first paragraph in the revised
auditor's report format followed by the basis for opinion.
Question 25: What is an auditor obligated to do if he
expects to modify his report?
Response 25: If the auditor expects to modify his audit
report or include an Emphasis of matter /Other matter
paragraph in his audit report, he has an obligation to
communicate this to those charged with governance (e.g.,
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SA 705 (Revised)
an audit committee or board of directors or partners/ trustees
in case of a firm/ trust) that he intends to do so, as well as
provide them the proposed wording. Reference should be
made to SA 260(Revised), "Communication with Those
Charged with Governance", in this regard.
An issue that results in a modification to the audit opinion or
which involves including an emphasis of matter or other
matter paragraph in the auditor's report, is obviously
important enough to require such communication before
issue of audit report. Likewise, those charged with
governance too get the opportunity to provide further
information and explanations that hitherto might not have
been provided to the auditor by the management, which
might lead the auditor to reconsider his earlier decision.
Question 26: The amended paragraph 17 of the
Guidance Note on Audit of Consolidated Financial
Statements (Revised 2016) issued by the ICAI states that
"While considering the observations (for instance
modification and /or emphasis of matter/other matter in
accordance with SA 705/706) of the component auditor
in his report on the standalone financial statements, the
parent auditor should comply with the requirements of
SA 600, "Using the Work of Another Auditor"." Whether
principal auditor has to mandatorily reproduce all the
observations of component auditors and ensure same is
in compliance with the requirements of SA 705
(Revised)?
Response 26: In addition to the amended paragraph 17
referred above, practitioners are advised to refer Paragraph
16 of the Guidance Note on Audit of Consolidated Financial
Statements (Revised 2016) issued by the ICAI which states
that "If the principal auditor, if he decides to use the work of
another auditor in relation to the audit of consolidated
financial statements, he should comply with the
requirements of SA 600."
Further, paragraph 23 of SA 600 states that "If the other
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auditor issues, or intends to issue, a modified auditor's
report, the principal auditor should consider whether the
subject of the modification is of such nature and significance,
in relation to the financial information of the entity on which
the principal auditor is reporting that it requires a
modification of the principal auditor's report."
Accordingly, while reporting on the Consolidated Financial
Statements, the practitioners have to give due consideration
to the nature and significance of the findings of component
auditors with reference to the Consolidated Financial
Statements as a whole before concluding whether to
reproduce the comments (Qualification/ Emphasis of Matter/
Other Matter) of component auditor in his report on the
Consolidated Financial Statements. Once the practitioner
concludes to include qualification reported by the component
auditor in the report on consolidated financial statements
also, then the same needs to be in compliance with the
requirements of SA 705 (Revised) and the said Guidance
Note.
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Chapter 5
SA 706 (Revised), Emphasis of
Matter Paragraphs and Other
Matter Paragraphs in the
Independent Auditor's Report
Introduction to the Standard
5.1 In some circumstances, having formed an opinion on
the financial statements, the auditors wish to draw users'
attention to a matter disclosed in the financial statements or
a matter about the audit. The auditors are required to do this
by using an Emphasis of matter paragraph or Other matter
paragraph, respectively, to draw users' attention to the
matter. Revised SA 706 deals with additional communication
in the auditor's report when the auditor considers it
necessary to:
(a) Draw users' attention to a matter or matters presented or
disclosed in the financial statements that are of such
importance that they are fundamental to users'
understanding of the financial statements; or
(b) Draw users' attention to any matter or matters other than
those presented or disclosed in the financial statements
that are relevant to users' understanding of the audit, the
auditor's responsibilities or the auditor's report.
Because an Emphasis of matter paragraph relates to a
matter already appropriately presented or disclosed in the
financial statements, the auditor includes the paragraph only
when it is of fundamental importance to highlight the matter
to users of the financial statements. Widespread use of
Emphasis of matter paragraphs would diminish the
effectiveness of the auditor's communication about such
matters.
IG on Reporting Standards (Revised 2018)
5.2 SA 706 (Revised) states that an Emphasis of matter
paragraph or an Other matter paragraph cannot be used as
a substitute for a key audit matter (when auditor is required
or otherwise decides to communicate key audit matters).
5.3 In some cases, a matter that has been determined to
be a key audit matter in accordance with SA 701 may also
be in the auditor's judgment fundamental to users'
understanding of the financial statements. In such cases, in
communicating the matter as a key audit matter in
accordance with SA 701, the auditor may wish to highlight or
draw further attention to its relative importance. The auditor
may do so by presenting the matter more prominently than
other matters in the Key Audit Matters section (e.g., as the
first matter) or by including additional information in the
description of the key audit matter to indicate the importance
of the matter to users' understanding of the financial
statements.
5.4 Given below are the key issues brought out in this
Standard in a Question Answer format.
Question 1: For which audits does the auditor need to
follow this revised reporting standard i.e. SA 706
(Revised)?
Response 1: The revised SA 706 is applicable for audits of
financial statements for periods beginning on or after April 1,
2018.
Question 2: Is SA 706 (Revised) applicable for audit
reports signed after April 1, 2018?
Response 2: Since the revised reporting standard, SA 706
is applicable for audits of financial statements for periods
beginning on or after April 1, 2018, audit reports signed after
April 1, 2018 pertaining to financial statements for periods
beginning before April 1, 2018 will not be governed by SA
706 (Revised).
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SA 706 (Revised)
Question 3: Does insertion of an emphasis of matter
paragraph in the auditor's report make the opinion
"modified"?
Response 3: No. SA 705 (Revised) excludes emphasis of
matter paragraphs and other matter paragraphs from being
termed as "modifications to the audit opinion". These form
the subject-matter of SA 706 (Revised).
The point to note is that an emphasis of matter is not a part
of the audit opinion at all. It is a separate, independent
paragraph designed to provide "additional communication" to
the users by emphasizing on the subject matter.
Question 4: Why is an "emphasis of matter" paragraph
given by an auditor?
Response 4: An extremely important point to note is that an
emphasis of matter paragraph deals with matters that are
already appropriately presented or disclosed in the financial
statements. This means that the auditor does not have any
reservations about such matters.
Using an emphasis of matter paragraph where a qualification
should be given, is clearly a non-compliance with the
Standards. Standard on Auditing (SA) 706 (Revised)
specifically states that "An Emphasis of Matter paragraph is
not a substitute for either the auditor expressing a qualified
opinion or an adverse opinion, or disclaiming an opinion,
when required by the circumstances of a specific audit
engagement."
The question then is, if the matter is already appropriately
presented or disclosed in the financial statements, why is it
necessary for an auditor to emphasize it in his report?
An emphasis of matter paragraph is defined as "A paragraph
included in the auditor's report that refers to a matter
appropriately presented or disclosed in the financial
statements that, in the auditor's judgment, is of such
importance that it is fundamental to users' understanding of
the financial statements."
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Question 5: What kind of circumstances may require
issuing an emphasis of matter paragraph?
Response 5: Examples given in the Standard itself are:
An uncertainty relating to the future outcome of an
exceptional litigation or regulatory action.
A significant subsequent event that occurs between the
date of the financial statements and the date of the
auditor's report.23
Early application (where permitted) of a new Accounting
Standard that has a material effect on the financial
statements.
A major catastrophe that has had, or continues to have,
a significant effect on the entity's financial position.
Another example could be the impact, if significant, of an
unconventional interpretation of an Accounting Standard that
an entity may have taken, even though the auditor is fully in
agreement with it.
Some more examples given in other Standards on Auditing
are as under:
· 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.
· To alert users that the financial statements are prepared
in accordance with a special purpose framework.
· 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).24
Question 6: Is it advisable for an auditor to give
emphasis of matter paragraphs to highlight all
significant matters and transactions that affect the
financial statements?
23 SA 560, Subsequent Events, paragraph 6.
24 SA 560, Subsequent Events, paragraphs 12(b) and 16.
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SA 706 (Revised)
Response 6: No. The SA 706 (Revised) clearly states that
"widespread use of emphasis of matter paragraphs may
diminish the effectiveness of the auditor's communication
about such matters". An auditor's report is a carefully worded
document that should contain such information as is
required.
When giving an emphasis of matter, care should also be
taken to ensure that the auditor does not introduce new fact
or information that is not already presented or disclosed in
the financial statements. It is because the Standard is clear
that "An Emphasis of Matter paragraph is not a substitute for
disclosures in the financial statements that the applicable
financial reporting framework requires management to
make."
Question 7: Will key audit matters be emphasis of matter
paragraphs?
Response 7: No, key audit matters are not emphasis of
matter paragraphs. By definition, an emphasis of matter
paragraph can be included, where SA 701 applies, only
when the matter has not been determined to be a key audit
matter to be communicated in the auditor's report.
However, where SA 701 does not apply, there is no
requirement to communicate key audit matters in the
auditor's report. Under such circumstance, assessment
under SA 706 (Revised) is required to be made to determine
if the matter requires an emphasis or not.
Question 8: Will all emphasis of matter paragraphs be
key audit matters?
Response 8: No. However, there could be situations
wherein a key audit matter may also be fundamental to the
user's understanding of the financial statements. In such
cases, such matter may be presented more prominently
(e.g., as first matter) in the key audit matters section.
Similarly, there could be a matter that is not determined to
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be a key audit matter but which is fundamental to the user's
understanding of the financial statements. Such matters
would qualify as emphasis of matter paragraphs.
Question 9: What is an "Other Matter" paragraph, and
how is it different from an Emphasis of Matter
paragraph?
Response 9: An Other Matter Paragraph is defined as "A
paragraph included in the auditor's report that refers to a
matter other than those presented or disclosed in the
financial statements that, in the auditor's judgment, is
relevant to users' understanding of the audit, the auditor's
responsibilities or the auditor's report."
In other words, the distinction is that while an Emphasis of
Matter Paragraph refers to matters that are appropriately
presented or disclosed in the financial statements, an Other
Matter paragraph refers to matters that are not presented or
disclosed in the financial statements but the auditor feels the
need to bring them to the users' attention.
The other point of difference to note is that while the
definition of emphasis of matter paragraph uses the word
"fundamental" with reference to understanding of the
financial statements, the definition of other matter paragraph
uses the word "relevant". The reason is that matters of
emphasis are mentioned in the financial statements and are
therefore already available to the users. By highlighting them
in his report, the auditor specifically points the readers'
attention to these matters. It is only the most "fundamentally
important" matters that are therefore included in emphasis of
matter.
On the other hand, other matters are those related to the
users' understanding of the audit, the auditor's responsibility
or the auditor's report, that are not mentioned at all in the
financial statements and therefore the users are likely to be
unaware of them. So, if the auditor believes that such
information is "relevant", he informs the users through his
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SA 706 (Revised)
report.
A key point to note is that an Other Matter paragraph is
limited to information about the audit, the auditor's
responsibility or the auditor's report, and does not include
matters related to the financial statements, as is the case
with the Emphasis of Matter paragraph.
Question 10: Is there a change in the definition of
emphasis of matter paragraph and other matter
paragraph in the revised SA 706?
Response 10: No, there is no change in the definition of
emphasis of matter paragraph or other matter paragraph in
SA 706 (Revised).
Question 11: If an auditor disagrees with or is
uncomfortable about the recognition, measurement,
disclosure or presentation of a transaction or event
reflected in the financial statements, can he highlight it
in an emphasis of matter paragraph?
Response 11: No. It is important to note that Emphasis of
Matter is given only in respect of matters that are
"appropriately presented or disclosed" in the financial
statements. This means that the auditor should and is
deemed to agree entirely with the treatment of that matter in
the financial statements.
In case the auditor has a reservation about a matter, he
refers to SA 705 (Revised) and considers if his reservation
merits a modification to the auditor's opinion. If, in terms of
the guidance given in SA 705 (Revised), he concludes that
the matter is not worthy of a modification to his opinion, he
cannot then use an Emphasis of Matter paragraph to
highlight that matter merely because he cannot modify his
opinion.
Question 12: What are the requirements for including an
Emphasis of Matter paragraph in the auditor's report?
Response 12: Following are the requirements for including
an Emphasis of Matter paragraph in the auditor's Report:
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(a) Include the paragraph within a separate section of the
auditor's report with an appropriate heading that includes
the term "Emphasis of Matter".
(b) Include in the paragraph a clear reference to the matter
being emphasized and to where relevant disclosures
that fully describe the matter can be found in the
financial statements. The paragraph shall refer only to
information presented or disclosed in the financial
statements.
(c) Indicate that the auditor's opinion is not modified in
respect of the matter emphasized.
Question 13: Is it appropriate to insert an emphasis of
matter paragraph also in the section of the auditor's
report titled "Report on Other Legal and Regulatory
Requirements"?
Response 13: An emphasis of matter paragraph is given to
draw the uses' attention to a fundamentally important matter
that is already appropriately presented or disclosed in the
financial statements.
Where the auditor also has reporting obligations under a law
or regulation in addition to providing an audit opinion, these
obligations would be more or less in the nature of
compliance reporting i.e. where the auditor makes assertions
about whether something exists or does not exist or whether
something has been done or not. Such reporting would, by
and large, be on factual matters, even if it requires
exercising the auditor's professional judgement.
In the light of this, it is difficult to visualize a situation where it
may be appropriate to give an emphasis of matter paragraph
also in the section of the auditor's report titled "Report on
Other Legal and Regulatory Requirements".
Question 14: What are the placement rules for emphasis
of matter paragraphs and other matter paragraphs?
Response 14: The placement of an Emphasis of Matter
paragraph or Other Matter paragraph in the auditor's report
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SA 706 (Revised)
depends on the nature of the information to be
communicated, and the auditor's judgment as to the relative
significance of such information to intended users compared
to other elements required to be reported in accordance with
SA 700 (Revised). For example:
Emphasis of Matter Paragraphs
When the Emphasis of Matter paragraph relates to the
applicable financial reporting framework, including
circumstances where the auditor determines that the
financial reporting framework prescribed by law or
regulation would otherwise be unacceptable, the auditor
may consider it necessary to place the paragraph
immediately following the Basis of Opinion section to
provide appropriate context to the auditor's opinion.
When a Key Audit Matters section is presented in the
auditor's report, an Emphasis of Matter paragraph may
be presented either directly before or after the Key Audit
Matters section, based on the auditor's judgment as to
the relative significance of the information included in the
Emphasis of Matter paragraph. The auditor may also
add further context to the heading "Emphasis of Matter",
such as "Emphasis of Matter Subsequent Event", to
differentiate the Emphasis of Matter paragraph from the
individual matters described in the Key Audit Matters
section.
Other Matter Paragraphs
When a Key Audit Matters section is presented in the
auditor's report and an Other Matter paragraph is also
considered necessary, the auditor may add further
context to the heading "Other Matter", such as "Other
Matter Scope of the Audit", to differentiate the Other
Matter paragraph from the individual matters described
in the Key Audit Matters section.
When an Other Matter paragraph is included to draw
users' attention to a matter relating to Other Reporting
Responsibilities addressed in the auditor's report, the
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paragraph may be included in the Report on Other Legal
and Regulatory Requirements section.
When relevant to all the auditor's responsibilities or
users' understanding of the auditor's report, the Other
Matter paragraph may be included as a separate section
following the Report on the Audit of the Financial
Statements and the Report on Other Legal and
Regulatory Requirements.
Question 15: What kind of circumstances may require
issuing an Other Matter paragraph?
Response 15: An Other Matter paragraph may be required
to enhance users' understanding of an audit. For example,
assume that a client imposes a major scope limitation after
the auditor has, in good faith, accepted the engagement and
performed a substantial part of the audit. Paragraphs 11 to
14 of SA 705 (Revised) deal with this situation and say that
in case the possible effects on the financial statements of
resulting undetected misstatements is both, material and
pervasive, such that giving a qualified opinion would not be
adequate, the auditor should resign from the engagement.
Further, assume that the appointment of the auditor is under
a law and that law does not permit the auditor once
appointed to resign. Under these circumstances, the auditor
should explain the scope limitation and his inability to resign
in an Other Matter paragraph.
An Other Matter paragraph could also be required if it is
relevant to users' understanding of the auditor's
responsibilities or the auditor's report. For example, the
same auditor is engaged to audit financial statements of an
entity both under Indian GAAPs and under IFRSs. He issues
two separate auditor's reports on the two sets of financial
statements, both under the general purpose framework for
the same accounting period. In such case, the auditor may
include an Other Matter paragraph in the auditor's report,
referring to the fact that another set of financial statements
has been prepared by the same entity in accordance with
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SA 706 (Revised)
another general purpose framework and that the auditor has
issued a report on those financial statements.
In another instance, if the financial statements are special
purpose financial statements but prepared as per a general
purpose framework, an other matter paragraph is the place
where the auditor would state that the auditor's report is
intended solely for the intended users, and should not be
distributed to or used by other parties.
Question 16: What does an Other Matter paragraph not
include?
Response 16: An Other Matter Paragraph does not include:
Any matter that is required to be presented or disclosed
in the financial statements this is because anything to
do with such matters falls within the purview of an
emphasis of matter paragraph;
Any information that the auditor is prohibited from
providing by law, regulation or other professional
Standards, for example, ethical requirements relating to
confidentiality of client information;
Information that is required to be provided by
management this is because auditors should keep
away from trespassing into management's territory in
order to retain their independence. The management's
and auditor's responsibility paragraphs clearly
demarcate what each is responsible for.
Question 17: What is an auditor obligated to do if he
expects to include either an Emphasis of Matter
Paragraph or an Other Matter Paragraph in his report?
(See Question 25 of Chapter on SA 705 (Revised) above)
Response 17: If the auditor expects to modify his audit
report or include an emphasis of matter/other matter
paragraph in his audit report, he has an obligation to
communicate this to those charged with governance (e.g.,
an audit committee or board of directors or partners/ trustees
in case of a firm/ trust) that he intends to do so as well as to
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provide them the proposed wording. Reference should be
made to SA 260(Revised) in this regard.
An issue that results in modification to auditor's opinion or
which involves including an emphasis of matter or other
matter paragraph in the auditor's report is obviously
important enough to require such communication before
issue of audit report. Likewise, those charged with
governance too get the opportunity to provide further
information and explanations, hitherto not provided to the
auditor by the management, which might lead the auditor to
reconsider his earlier decision.
Question 18: What is the change in SA 706 (Revised)
read with SA 570 (Revised)?
Response 18: Earlier, where there was a material
uncertainty regarding the entity's ability to continue as a
going concern which was adequately disclosed in the
financial statements, an emphasis of matter paragraph was
required to be included as per SA 570. Similarly, when there
was no material uncertainty, but still the auditors believed
that such situations is fundamental to the user's
understanding of the financial statements, although not
required under SA 570, the auditors used to include the
same as an emphasis of matter as per SA 706.
Consequent to the revision in the SAs, the position has
changed.
1. Where SA 701 applies:
Where there is a material uncertainty regarding the
entity's ability to continue as a going concern, the same
needs to be included under a separate section `Material
uncertainty related to going concern' if the disclosures in
the financial statements are adequate. However if the
disclosures are inadequate, the auditor needs to modify
the audit report in accordance with the requirements
specified in Revised SA 705.
Where there is no material uncertainty, then the same
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SA 706 (Revised)
may be considered as a key audit matter.
2. Where SA 701 does not apply:
Where there is a material uncertainty regarding the
entity's ability to continue as a going concern, the same
needs to be included under a separate section `Material
uncertainty related to going concern' if the disclosures in
the financial statements are adequate. However if the
disclosures are inadequate, the auditor needs to modify
the audit report in accordance with the requirements
specified in Revised SA 705.
Where there is no material uncertainty, and the auditor
believes that it is fundamental to the users understanding
of the financial statements, then the same can be
considered as an emphasis of matter paragraph.
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Appendices
Appendix 1: Illustrations of Independent Auditor's Reports
on Financial Statements (reproduced from
Appendix of Revised SA 700, Forming an
Opinion and Reporting on Financial
Statements)
Appendix 2: Illustrations of Auditor's Reports with
Modifications to the Opinion (reproduced from
Appendix of Revised SA 705, Modifications to
the Opinion in the Independent Auditor's
Report)
Appendix 3: Illustrations of an Auditor's Report that includes
an Emphasis of Matter Paragraph/Other Matter
Paragraph (Reproduced from Appendix of
Revised SA 706, Emphasis of Matter
Paragraphs and Other Matter Paragraphs in
the Independent Auditor's Report)
Appendix 4: Illustrations of Auditor's Reports Relating to
Going Concern (Reproduced from Appendix of
Revised SA 570, Going Concern)
Appendix 5: Illustrations of Auditor's Reports Relating to
Other Information (Reproduced from Appendix
of Revised SA 720, The Auditor's
Responsibilities Relating to Other Information)
Appendix I
Illustrations of Independent Auditor's Reports
on Financial Statements
· Illustration 1: An auditor's report on financial statements
of a listed entity prepared in accordance with a fair
presentation framework
· Illustration 2: An auditor's report on consolidated
financial statements of a listed company prepared in
accordance with a fair presentation framework
· Illustration 3 Auditor's Report on Financial Statements
of an Unlisted Company Prepared in Accordance with a
Fair Presentation Framework
· Illustration 4 Auditor's Report on Financial Statements
of a Non-Corporate Entity Prepared in Accordance with
a Fair Presentation Framework
· Illustration 5 Auditor's Report on Financial Statements
of Non-Corporate Entity Prepared in Accordance with a
General Purpose Compliance Framework
IG on Reporting Standards (Revised 2018)
Illustration 1: Auditor's Report on Financial Statements
of a Listed Entity Prepared in Accordance with a Fair
Presentation Framework
For purposes of this illustrative auditor's report, the following
circumstances are assumed:
· Audit of a complete set of financial statements of a listed
company (registered under the Companies Act, 2013)
using a fair presentation framework. The audit is not a
group audit (i.e., SA 600 does not apply).
· The financial statements are prepared by management of
the entity in accordance with the accounting Standards
prescribed under section 133 of the Companies Act, 2013.
· The terms of the audit engagement reflect the description
of management's responsibility for the financial
statements in SA 210.
· The auditor has concluded an unmodified (i.e., "clean")
opinion is appropriate based on the audit evidence
obtained.
· The relevant ethical requirements that apply to the audit
comprise the Code of Ethics issued by ICAI together with
the other relevant ethical requirements relating to the
audit and the auditor refers to both.
· Based on the audit evidence obtained, the auditor has
concluded that a material uncertainty does not exist
related to events or conditions that may cast significant
doubt on the entity's ability to continue as a going concern
in accordance with SA 570 (Revised).
· Key audit matters have been communicated in
accordance with SA 701.
· Those responsible for oversight of the financial
statements differ from those responsible for the
preparation of the financial statements.
· In addition to the audit of the financial statements, the
auditor has other reporting responsibilities required under
the Companies Act, 2013.
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INDEPENDENT AUDITOR'S REPORT
To the Members of ABC Company Limited
Report on the Audit of the Standalone Financial
Statements25
Opinion
We have audited the standalone financial statements of ABC
Company Limited ("the Company"), which comprise the
balance sheet as at 31st March 20XX, and the statement of
Profit and Loss, (statement of changes in equity)26 and
statement of cash flows for the year then ended, and notes
to the financial statements, including a summary of
significant accounting policies and other explanatory
information [in which are included the Returns for the year
ended on that date audited by the branch auditors of the
Company's branches located at (location of branches)]27.
In our opinion and to the best of our information and
according to the explanations given to us, the aforesaid
standalone financial statements give the information required
by the Act in the manner so required and give a true and fair
view in conformity with the accounting principles generally
accepted in India, of the state of affairs of the Company as at
March 31, 20XX, and profit/loss, (changes in equity)28 and its
cash flows for the year ended on that date.
Basis for Opinion
We conducted our audit in accordance with the Standards
on Auditing (SAs) specified under section 143(10) of the
Companies Act, 2013. Our responsibilities under those
Standards are further described in the Auditor's
Responsibilities for the Audit of the Financial Statements
section of our report. We are independent of the Company in
25 The sub-title "Report on the Audit of the Standalone Financial Statements" is
unnecessary in circumstances when the second sub-title "Report on Other Legal
and Regulatory Requirements" is not applicable.
26 Where applicable.
27 Where applicable.
28
Where applicable
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accordance with the Code of Ethics issued by the Institute of
Chartered Accountants of India together with the ethical
requirements that are relevant to our audit of the financial
statements under the provisions of the Companies Act, 2013
and the Rules thereunder, and we have fulfilled our other
ethical responsibilities in accordance with these
requirements and the Code of Ethics. We believe that the
audit evidence we have obtained is sufficient and
appropriate to provide a basis for our opinion.
Key Audit Matters
Key audit matters are those matters that, in our professional
judgment, were of most significance in our audit of the
financial statements of the current period. These matters
were addressed in the context of our audit of the financial
statements as a whole, and in forming our opinion thereon,
and we do not provide a separate opinion on these matters.
[Description of each key audit matter in accordance with SA
701.]
Management's Responsibility for the Standalone
Financial Statements
The Company's Board of Directors is responsible for the
matters stated in section 134(5) of the Companies Act, 2013
("the Act") with respect to the preparation of these
standalone financial statements that give a true and fair view
of the financial position, financial performance, (changes in
equity)29 and cash flows of the Company in accordance
with30 the accounting principles generally accepted in India,
including the accounting Standards specified under section
133 of the Act. This responsibility also includes maintenance
of adequate accounting records in accordance with the
provisions of the Act for safeguarding of the assets of the
Company and for preventing and detecting frauds and other
29Where applicable.
30Where management's responsibility is to prepare financial statements that give
a true and fair view, this may read: "Management is responsible for the
preparation of financial statements that give a true and fair view in accordance
with International Financial Reporting Standards, and for such ..."
84
Appendices
irregularities; selection and application of appropriate
accounting policies; making judgments and estimates that
are reasonable and prudent; and design, implementation
and maintenance of adequate internal financial controls, that
were operating effectively for ensuring the accuracy and
completeness of the accounting records, relevant to the
preparation and presentation of the financial statement that
give a true and fair view and are free from material
misstatement, whether due to fraud or error.
In preparing the financial statements, management is
responsible for assessing the Company's ability to continue
as a going concern, disclosing, as applicable, matters
related to going concern and using the going concern basis
of accounting unless management either intends to liquidate
the Company or to cease operations, or has no realistic
alternative but to do so.
Those Board of Directors are also responsible for overseeing
the Company's financial reporting process.
Auditor's Responsibilities for the Audit of the Financial
Statements
Our objectives are to obtain reasonable assurance about
whether the financial statements as a whole are free from
material misstatement, whether due to fraud or error, and to
issue an auditor's report that includes our opinion.
Reasonable assurance is a high level of assurance, but is
not a guarantee that an audit conducted in accordance with
SAs will always detect a material misstatement when it
exists. Misstatements can arise from fraud or error and are
considered material if, individually or in the aggregate, they
could reasonably be expected to influence the economic
decisions of users taken on the basis of these financial
statements.
Paragraph 40(b) of this SA explains that the shaded material
below can be located in an Appendix to the auditor's report.
Paragraph 40(c) explains that when law, regulation or
applicable auditing standards expressly permit, reference
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can be made to a website of an appropriate authority that
contains the description of the auditor's responsibilities,
rather than including this material in the auditor's report,
provided that the description on the website addresses, and
is not inconsistent with, the description of the auditor's
responsibilities below.
As part of an audit in accordance with SAs, we exercise
professional judgment and maintain professional skepticism
throughout the audit. We also:
· Identify and assess the risks of material misstatement
of the financial statements, whether due to fraud or
error, design and perform audit procedures responsive
to those risks, and obtain audit evidence that is
sufficient and appropriate to provide a basis for our
opinion. The risk of not detecting a material
misstatement resulting from fraud is higher than for one
resulting from error, as fraud may involve collusion,
forgery, intentional omissions, misrepresentations, or
the override of internal control.
· Obtain an understanding of internal control relevant to
the audit in order to design audit procedures that are
appropriate in the circumstances. Under section
143(3)(i) of the Companies Act, 2013, we are also
responsible for expressing our opinion on whether the
company has adequate internal financial controls
system in place and the operating effectiveness of such
controls.
· Evaluate the appropriateness of accounting policies
used and the reasonableness of accounting estimates
and related disclosures made by management.
· Conclude on the appropriateness of management's use
of the going concern basis of accounting and, based on
the audit evidence obtained, whether a material
uncertainty exists related to events or conditions that
may cast significant doubt on the Company's ability to
continue as a going concern. If we conclude that a
material uncertainty exists, we are required to draw
86
Appendices
attention in our auditor's report to the related
disclosures in the financial statements or, if such
disclosures are inadequate, to modify our opinion. Our
conclusions are based on the audit evidence obtained
up to the date of our auditor's report. However, future
events or conditions may cause the Company to cease
to continue as a going concern.
· Evaluate the overall presentation, structure and content
of the financial statements, including the disclosures,
and whether the financial statements represent the
underlying transactions and events in a manner that
achieves fair presentation.
We communicate with those charged with governance
regarding, among other matters, the planned scope and
timing of the audit and significant audit findings, including
any significant deficiencies in internal control that we identify
during our audit.
We also provide those charged with governance with a
statement that we have complied with relevant ethical
requirements regarding independence, and to communicate
with them all relationships and other matters that may
reasonably be thought to bear on our independence, and
where applicable, related safeguards.
From the matters communicated with those charged with
governance, we determine those matters that were of most
significance in the audit of the financial statements of the
current period and are therefore the key audit matters. We
describe these matters in our auditor's report unless law or
regulation precludes public disclosure about the matter or
when, in extremely rare circumstances, we determine that a
matter should not be communicated in our report because
the adverse consequences of doing so would reasonably be
expected to outweigh the public interest benefits of such
communication.
Other Matter
We did not audit the financial statements/ information of
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................... (number) branches included in the stand
alone financial statements of the Company whose financial
statements/financial information reflect total assets of Rs.
.................... as at 31st March 20XX and the total revenue
of Rs. ................... for the year ended on that date, as
considered in the standalone financial statements/
information of these branches have been audited by the
branch auditors whose reports have been furnished to us,
and our opinion in so far as it relates to the amounts and
disclosures included in respect of branches, is based solely
on the report of such branch auditors.
Our opinion is not modified in respect of these matters.
Report on Other Legal and Regulatory Requirements
As required by the Companies (Auditor's Report) Order,
2016 ("the Order"), issued by the Central Government of
India in terms of sub-section (11) of section 143 of the
Companies Act, 2013, we give in the Annexure a statement
on the matters specified in paragraphs 3 and 4 of the Order,
to the extent applicable.
As required by Section 143(3) of the Act, we report that:
(a) We have sought and obtained all the information and
explanations which to the best of our knowledge and
belief were necessary for the purposes of our audit.
(b) In our opinion, proper books of account as required by
law have been kept by the Company so far as it appears
from our examination of those books [and proper returns
adequate for the purposes of our audit have been
received from the branches not visited by us.31]
(c) [The reports on the accounts of the branch offices of the
Company audited under Section 143(8) of the Act by
branch auditors have been sent to us and have been
properly dealt with by us in preparing this report32.]
31 Where applicable.
32
Where applicable.
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Appendices
(d) The Balance Sheet, the Statement of Profit and Loss,
and the Cash Flow Statement dealt with by this Report
are in agreement with the books of account [and with the
returns received from the branches not visited by us33].
(e) In our opinion, the aforesaid standalone financial
statements comply with the Accounting Standards
specified under Section 133 of the Act, read with Rule 7
of the Companies (Accounts) Rules, 2014.
(f) On the basis of the written representations received from
the directors as on 31st March, 20XX taken on record by
the Board of Directors, none of the directors is
disqualified as on 31st March, 20XX from being
appointed as a director in terms of Section 164 (2) of the
Act.
(g) With respect to the adequacy of the internal financial
controls over financial reporting of the Company and the
operating effectiveness of such controls, refer to our
separate Report in "Annexure A".
(h) With respect to the other matters to be included in the
Auditor's Report in accordance with Rule 11 of the
Companies (Audit and Auditors) Rules, 2014, in our
opinion and to the best of our information and according
to the explanations given to us:
i The Company has disclosed the impact of pending
litigations on its financial position in its financial
statements Refer Note XX to the financial
statements; [or the Company does not have any
pending litigations which would impact its financial
position34]
ii The Company has made provision, as required
under the applicable law or accounting standards,
for material foreseeable losses, if any, on long-term
contracts including derivative contracts Refer Note
XX to the financial statements; [or the Company did
33 Where applicable.
34
As may be applicable.
89
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not have any long-term contracts including derivative
contracts for which there were any material
foreseeable losses.35]
iii There has been no delay in transferring amounts,
required to be transferred, to the Investor Education
and Protection Fund by the Company {or, following
are the instances of delay in transferring amounts,
required to be transferred, to the Investor Education
and Protection Fund by the Company or there were
no amounts which were required to be transferred to
the Investor Education and Protection Fund by the
Company36}.
For XYZ & Co
Chartered Accountants
(Firm's Registration No.)
Signature
(Name of the Member Signing the Audit Report)
(Designation37)
(Membership No. XXXXX)
Place of Signature:
Date:
35 As may be applicable.
36 As may be applicable.
37
Partner or Proprietor, as the case may be
90
Appendices
Illustration 2: Auditor's Report on Consolidated
Financial Statements of a Listed Company (incorporated
under the Companies Act, 2013) Prepared in
Accordance with a Fair Presentation Framework
For purposes of this illustrative auditor's report, the following
circumstances are assumed:
· Audit of a complete set of consolidated financial
statements of a listed Company (incorporated under the
Companies Act, 2013) using a fair presentation
framework. The audit is a group audit of an entity with
subsidiaries (i.e., SA 600 applies).
· The consolidated financial statements are prepared by
management of the entity in accordance with the
Accounting Standards prescribed under section 133 of the
Companies Act, 2013 (a general purpose framework).
· The terms of the audit engagement reflect the description
of management's responsibility for the consolidated
financial statements in SA 210.
· The auditor has concluded an unmodified (i.e., "clean")
opinion is appropriate based on the audit evidence
obtained.
· The Code of Ethics issued by ICAI comprises all of the
relevant ethical requirements that apply to the principal
auditor in relation to this audit.
· Based on the audit evidence obtained, the principal
auditor has concluded that a material uncertainty does not
exist related to events or conditions that may cast
significant doubt on the entity's ability to continue as a
going concern in accordance with SA 570 (Revised).
· Key audit matters have been communicated in
accordance with SA 701.
· Those responsible for oversight of the consolidated
financial statements differ from those responsible for the
preparation of the consolidated financial statements.
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· In addition to the audit of the consolidated financial
statements, the principal auditor has other reporting
responsibilities required under the Companies Act, 2013.
INDEPENDENT AUDITOR'S REPORT
To the Members of ABC Company Limited
Report on the Audit of the Consolidated Financial
Statements38
Opinion
We have audited the accompanying consolidated financial
statements of ABC Company Limited (hereinafter referred to
as the `Holding Company") and its subsidiaries (Holding
Company and its subsidiaries together referred to as "the
Group"), its associates and jointly controlled entities, which
comprise the consolidated Balance Sheet as at March 31,
20XX, and the consolidated statement of Profit and Loss,
(the consolidated statement of changes in equity)39 and the
consolidated cash flows Statement for the year then ended,
and notes to the consolidated financial statements, including
a summary of significant accounting policies (hereinafter
referred to as "the consolidated financial statements").
In our opinion and to the best of our information and
according to the explanations given to us, the aforesaid
consolidated financial statements give the information
required by the Act in the manner so required and give a true
and fair view in conformity with the accounting principles
generally accepted in India, of their consolidated state of
affairs of the Company as at March 31, 20XX, of
consolidated profit/loss, (consolidated changes in equity)40
and its consolidated cash flows for the year then ended.
38 The sub-title "Report on the Audit of the Consolidated Financial Statements" is
unnecessary in circumstances when the second sub-title "Report on Other Legal
and Regulatory Requirements" is not applicable.
39 Where applicable.
40
Where applicable.
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Appendices
Basis for Opinion
We conducted our audit in accordance with the Standards
on Auditing (SAs) specified under section 143(10) of the
Companies act, 2013. Our responsibilities under those
Standards are further described in the Auditor's
Responsibilities for the Audit of the Consolidated Financial
Statements section of our report. We are independent of the
Group in accordance with the Code of Ethics issued by ICAI,
and we have fulfilled our other ethical responsibilities in
accordance with the provisions of the Companies Act, 2013.
We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our opinion.
Key Audit Matters
Key audit matters are those matters that, in our professional
judgment, were of most significance in our audit of the
consolidated financial statements of the current period.
These matters were addressed in the context of our audit of
the consolidated financial statements as a whole, and in
forming our opinion thereon, and we do not provide a
separate opinion on these matters.
[Description of each key audit matter in accordance with SA
701.]
Responsibilities of Management and Those Charged
with Governance for the Consolidated Financial
Statements
The Holding Company's Board of Directors is responsible for
the preparation and presentation of these consolidated
financial statements in term of the requirements of the
Companies Act, 2013 that give a true and fair view of the
consolidated financial position, consolidated financial
performance and consolidated cash flows of the Group
including its Associates and Jointly controlled entities in
accordance with the accounting principles generally
accepted in India, including the Accounting Standards
specified under section 133 of the Act. The respective Board
of Directors of the companies included in the Group and of
93
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its associates and jointly controlled entities are responsible
for maintenance of adequate accounting records in
accordance with the provisions of the Act for safeguarding
the assets of the Group and for preventing and detecting
frauds and other irregularities; the selection and application
of appropriate accounting policies; making judgments and
estimates that are reasonable and prudent; and the design,
implementation and maintenance of adequate internal
financial controls, that were operating effectively for ensuring
accuracy and completeness of the accounting records,
relevant to the preparation and presentation of the financial
statements that give a true and fair view and are free from
material misstatement, whether due to fraud or error, which
have been used for the purpose of preparation of the
consolidated financial statements by the Directors of the
Holding Company, as aforesaid.
In preparing the consolidated financial statements, the
respective Board of Directors of the companies included in
the Group and of its associates and jointly controlled entities
are responsible for assessing the ability of the Group and of
its associates and jointly controlled entities to continue as a
going concern, disclosing, as applicable, matters related to
going concern and using the going concern basis of
accounting unless management either intends to liquidate
the Group or to cease operations, or has no realistic
alternative but to do so.
The respective Board of Directors of the companies included
in the Group and of its associates and jointly controlled
entities are responsible for overseeing the financial reporting
process of the Group and of its associates and jointly
controlled entities.
Auditor's Responsibilities for the Audit of the
Consolidated Financial Statements
Our objectives are to obtain reasonable assurance about
whether the consolidated financial statements as a whole
are free from material misstatement, whether due to fraud or
error, and to issue an auditor's report that includes our
94
Appendices
opinion. Reasonable assurance is a high level of assurance,
but is not a guarantee that an audit conducted in accordance
with SAs will always detect a material misstatement when it
exists. Misstatements can arise from fraud or error and are
considered material if, individually or in the aggregate, they
could reasonably be expected to influence the economic
decisions of users taken on the basis of these consolidated
financial statements.
Paragraph 40(b) of this SA explains that the shaded material
below can be located in an Appendix to the auditor's report.
Paragraph 40(c) explains that when law, regulation or the
applicable auditing standards expressly permit, reference
can be made to a website of an appropriate authority that
contains the description of the auditor's responsibilities,
rather than including this material in the auditor's report,
provided that the description on the website addresses, and
is not inconsistent with, the description of the auditor's
responsibilities below.
As part of an audit in accordance with SAs, we exercise
professional judgment and maintain professional skepticism
throughout the audit. We also:
· Identify and assess the risks of material misstatement of
the consolidated financial statements, whether due to
fraud or error, design and perform audit procedures
responsive to those risks, and obtain audit evidence that
is sufficient and appropriate to provide a basis for our
opinion. The risk of not detecting a material misstatement
resulting from fraud is higher than for one resulting from
error, as fraud may involve collusion, forgery, intentional
omissions, misrepresentations, or the override of internal
control.
· Obtain an understanding of internal control relevant to the
audit in order to design audit procedures that are
appropriate in the circumstances. Under section 143(3)(i)
of the Companies Act, 2013, we are also responsible for
expressing our opinion on whether the company has
adequate internal financial controls system in place and
95
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the operating effectiveness of such controls.
· Evaluate the appropriateness of accounting policies used
and the reasonableness of accounting estimates and
related disclosures made by management.
· Conclude on the appropriateness of management's use of
the going concern basis of accounting and, based on the
audit evidence obtained, whether a material uncertainty
exists related to events or conditions that may cast
significant doubt on the ability of the Group and its
associates and jointly controlled entities to continue as a
going concern. If we conclude that a material uncertainty
exists, we are required to draw attention in our auditor's
report to the related disclosures in the consolidated
financial statements or, if such disclosures are
inadequate, to modify our opinion. Our conclusions are
based on the audit evidence obtained up to the date of
our auditor's report. However, future events or conditions
may cause the Group and its associates and jointly
controlled entities to cease to continue as a going
concern.
· Evaluate the overall presentation, structure and content of
the consolidated financial statements, including the
disclosures, and whether the consolidated financial
statements represent the underlying transactions and
events in a manner that achieves fair presentation.
· Obtain sufficient appropriate audit evidence regarding the
financial information of the entities or business activities
within the Group and its associates and jointly controlled
entities to express an opinion on the consolidated
financial statements. We are responsible for the direction,
supervision and performance of the audit of the financial
statements of such entities included in the consolidated
financial statements of which we are the independent
auditors. For the other entities included in the
consolidated financial statements, which have been
audited by other auditors, such other auditors remain
responsible for the direction, supervision and performance
96
Appendices
of the audits carried out by them. We remain solely
responsible for our audit opinion.
We communicate with those charged with governance of the
Holding Company and such other entities included in the
consolidated financial statements of which we are the
independent auditors regarding, among other matters, the
planned scope and timing of the audit and significant audit
findings, including any significant deficiencies in internal
control that we identify during our audit.
We also provide those charged with governance with a
statement that we have complied with relevant ethical
requirements regarding independence, and to communicate
with them all relationships and other matters that may
reasonably be thought to bear on our independence, and
where applicable, related safeguards.
From the matters communicated with those charged with
governance, we determine those matters that were of most
significance in the audit of the consolidated financial
statements of the current period and are therefore the key
audit matters. We describe these matters in our auditor's
report unless law or regulation precludes public disclosure
about the matter or when, in extremely rare circumstances,
we determine that a matter should not be communicated in
our report because the adverse consequences of doing so
would reasonably be expected to outweigh the public
interest benefits of such communication.
Other Matters
(a) We did not audit the financial statements / financial
information of ______ subsidiaries, and ______ jointly
controlled entities, whose financial statements / financial
information reflect total assets of Rs.______ as at 31st
March, 20XX, total revenues of Rs._______ and net
cash flows amounting to Rs.______ for the year ended
on that date, as considered in the consolidated financial
statements. The consolidated financial statements also
include the Group's share of net profit/loss of Rs. _____
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IG on Reporting Standards (Revised 2018)
for the year ended 31st March, 20XX, as considered in
the consolidated financial statements, in respect of
____associates, whose financial statements / financial
information have not been audited by us. These financial
statements / financial information have been audited by
other auditors whose reports have been furnished to us
by the Management and our opinion on the consolidated
financial statements, in so far as it relates to the
amounts and disclosures included in respect of these
subsidiaries, jointly controlled entities and associates,
and our report in terms of sub-sections (3) and (11) of
Section 143 of the Act, in so far as it relates to the
aforesaid subsidiaries, jointly controlled entities and
associates, is based solely on the reports of the other
auditors.
(b) We did not audit the financial statements / financial
information of ______ subsidiaries and ______ jointly
controlled entities, whose financial statements / financial
information reflect total assets of Rs.______ as at 31st
March, 20XX, total revenues of Rs._______ and net
cash flows amounting to Rs.______ for the year ended
on that date, as considered in the consolidated financial
statements. The consolidated financial statements also
include the Group's share of net profit/loss of Rs. _____
for the year ended 31st March, 20XX, as considered in
the consolidated financial statements, in respect of
____associates, whose financial statements / financial
information have not been audited by us. These financial
statements / financial information are unaudited and
have been furnished to us by the Management and our
opinion on the consolidated financial statements, in so
far as it relates to the amounts and disclosures included
in respect of these subsidiaries, jointly controlled entities
and associates, and our report in terms of sub-sections
(3) and (11) of Section 143 of the Act in so far as it
relates to the aforesaid subsidiaries, jointly controlled
entities and associates, is based solely on such
unaudited financial statements / financial information. In
98
Appendices
our opinion and according to the information and
explanations given to us by the Management, these
financial statements / financial information are not
material to the Group.
Our opinion on the consolidated financial statements, and
our report on Other Legal and Regulatory Requirements
below, is not modified in respect of the above matters with
respect to our reliance on the work done and the reports of
the other auditors and the financial statements / financial
information certified by the Management.
Report on Other Legal and Regulatory Requirements
As required by Section 143(3) of the Act, we report, to the
extent applicable, that:
(a) We have sought and obtained all the information and
explanations which to the best of our knowledge and
belief were necessary for the purposes of our audit of
the aforesaid consolidated financial statements.
(b) In our opinion, proper books of account as required by
law relating to preparation of the aforesaid consolidated
financial statements have been kept so far as it appears
from our examination of those books and the reports of
the other auditors.
(c) The Consolidated Balance Sheet, the Consolidated
Statement of Profit and Loss, and the Consolidated
Cash Flow Statement dealt with by this Report are in
agreement with the relevant books of account
maintained for the purpose of preparation of the
consolidated financial statements.
(d) In our opinion, the aforesaid consolidated financial
statements comply with the Accounting Standards
specified under Section 133 of the Act.
(e) On the basis of the written representations received from
the directors of the Holding Company as on 31st March,
20XX taken on record by the Board of Directors of the
Holding Company and the reports of the statutory
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auditors of its subsidiary companies, associate
companies and jointly controlled companies incorporated
in India, none of the directors of the Group companies,
its associate companies and jointly controlled companies
incorporated in India is disqualified as on 31 st March,
20XX from being appointed as a director in terms of
Section 164 (2) of the Act.
(f) With respect to the adequacy of internal financial
controls over financial reporting of the Group and the
operating effectiveness of such controls, refer to our
separate report in Annexure.
(g) With respect to the other matters to be included in the
Auditor's Report in accordance with Rule 11 of the
Companies (Audit and Auditor's) Rules, 2014, in our
opinion and to the best of our information and according
to the explanations given to us:
i. The consolidated financial statements disclose the
impact of pending litigations on the consolidated
financial position of the Group, its associates and
jointly controlled entities Refer Note XX to the
consolidated financial statements.
Or
There were no pending litigations which would
impact the consolidated financial position of the
Group, its associates and jointly controlled entities.41
ii. Provision has been made in the consolidated
financial statements, as required under the
applicable law or accounting standards, for material
foreseeable losses, if any, on long-term contracts
including derivative contracts Refer (a) Note XX to
the consolidated financial statements in respect of
such items as it relates to the Group, its associates
and jointly controlled entities and (b) the Group's
share of net profit/loss in respect of its associates.
Or
41
Where applicable.
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Appendices
The Group, its associates and jointly controlled
entities did not have any material foreseeable losses
on long-term contracts including derivative
contracts.42
iii. There has been no delay in transferring amounts,
required to be transferred, to the Investor Education
and Protection Fund by the Holding Company and
its subsidiary companies, associate companies and
jointly controlled companies incorporated in India.
Or
Following are the instances of delay in transferring
amounts, required to be transferred, to the Investor
Education and Protection Fund by the Holding
Company, and its subsidiary companies, associate
companies and jointly controlled companies
incorporated in India43.
Or
There were no amounts which were required to be
transferred to the Investor Education and Protection
Fund by the Holding Company, and its subsidiary
companies, associate companies and jointly
controlled companies incorporated in India44.
For XYZ & Co
Chartered Accountants
(Firm's Registration No.)
Signature
(Name of the Member Signing
the Audit Report)
Place of Signature: (Designation45)
Date: (Membership No. XXXX)
42 Where applicable.
43 Where applicable.
44 Where applicable.
45
Partner or Proprietor
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Illustration 3: Auditor's Report on Financial Statements
of an Unlisted Company Prepared in Accordance with a
Fair Presentation Framework
For purposes of this illustrative auditor's report, the following
circumstances are assumed:
· Audit of a complete set of financial statements of an
unlisted company (registered under the Companies Act,
2013) using a fair presentation framework. The audit is
not a group audit (i.e., SA 600 does not apply).
· The financial statements are prepared by management of
the entity in accordance with the accounting Standards
prescribed under section 133 of the Companies Act, 2013.
· The terms of the audit engagement reflect the description
of management's responsibility for the financial
statements in SA 210.
· The auditor has concluded an unmodified (i.e., "clean")
opinion is appropriate based on the audit evidence
obtained.
· The relevant ethical requirements that apply to the audit
comprise the Code of Ethics issued by ICAI together with
the other relevant ethical requirements relating to the
audit and the auditor refers to both.
· Based on the audit evidence obtained, the auditor has
concluded that a material uncertainty does not exist
related to events or conditions that may cast significant
doubt on the entity's ability to continue as a going concern
in accordance with SA 570 (Revised).
· The auditor is not required, and has otherwise not
decided, to communicate key audit matters in accordance
with SA 701.
· Those responsible for oversight of the financial
statements differ from those responsible for the
preparation of the financial statements.
· In addition to the audit of the financial statements, the
102
Appendices
auditor has other reporting responsibilities required under
the Companies Act, 2013.
INDEPENDENT AUDITOR'S REPORT
To the Members of ABC Company Limited
Report on the Audit of the Standalone Financial
Statements46
Opinion
We have audited the standalone financial statements of ABC
Company Limited ("the Company"), which comprise the
balance sheet as at 31st March 20XX, and the statement of
Profit and Loss, (statement of changes in equity)47 and
statement of cash flows for the year then ended, and notes
to the financial statements, including a summary of
significant accounting policies and other explanatory
information [in which are included the Returns for the year
ended on that date audited by the branch auditors of the
Company's branches located at (location of branches)]48.
In our opinion and to the best of our information and
according to the explanations given to us, the aforesaid
standalone financial statements give the information required
by the Act in the manner so required and give a true and fair
view in conformity with the accounting principles generally
accepted in India, of the state of affairs of the Company as at
March 31, 20XX, and profit/loss, (changes in equity)49 and its
cash flows for the year ended on that date.
Basis for Opinion
We conducted our audit in accordance with the Standards
on Auditing (SAs) specified under section 143(10) of the
Companies Act, 2013. Our responsibilities under those
Standards are further described in the Auditor's
46 The sub-title "Report on the Audit of the Standalone Financial Statements" is
unnecessary in circumstances when the second sub-title "Report on Other Legal
and Regulatory Requirements" is not applicable.
47 Where applicable.
48 Where applicable.
49
Where applicable
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Responsibilities for the Audit of the Financial Statements
section of our report. We are independent of the Company in
accordance with the Code of Ethics issued by the Institute of
Chartered Accountants of India together with the ethical
requirements that are relevant to our audit of the financial
statements under the provisions of the Companies Act, 2013
and the Rules thereunder, and we have fulfilled our other
ethical responsibilities in accordance with these
requirements and the Code of Ethics. We believe that the
audit evidence we have obtained is sufficient and
appropriate to provide a basis for our opinion.
Responsibility of Management for Standalone Financial
Statements
The Company's Board of Directors is responsible for the
matters stated in section 134(5) of the Companies Act, 2013
("the Act") with respect to the preparation of these
standalone financial statements that give a true and fair view
of the financial position, financial performance, (changes in
equity)50 and cash flows of the Company in accordance with
the accounting principles generally accepted in India,
including the accounting Standards specified under section
133 of the Act. This responsibility also includes maintenance
of adequate accounting records in accordance with the
provisions of the Act for safeguarding of the assets of the
Company and for preventing and detecting frauds and other
irregularities; selection and application of appropriate
accounting policies; making judgments and estimates that
are reasonable and prudent; and design, implementation
and maintenance of adequate internal financial controls, that
were operating effectively for ensuring the accuracy and
completeness of the accounting records, relevant to the
preparation and presentation of the financial statement that
give a true and fair view and are free from material
misstatement, whether due to fraud or error.
In preparing the financial statements, management is
50
Where applicable.
104
Appendices
responsible for assessing the Company's ability to continue
as a going concern, disclosing, as applicable, matters
related to going concern and using the going concern basis
of accounting unless management either intends to liquidate
the Company or to cease operations, or has no realistic
alternative but to do so.
Those Board of Directors are also responsible for overseeing
the company's financial reporting process.
Auditor's Responsibilities for the Audit of the Financial
Statements
Our objectives are to obtain reasonable assurance about
whether the financial statements as a whole are free from
material misstatement, whether due to fraud or error, and to
issue an auditor's report that includes our opinion.
Reasonable assurance is a high level of assurance, but is
not a guarantee that an audit conducted in accordance with
SAs will always detect a material misstatement when it
exists. Misstatements can arise from fraud or error and are
considered material if, individually or in the aggregate, they
could reasonably be expected to influence the economic
decisions of users taken on the basis of these financial
statements.
Paragraph 40(b) of this SA explains that the shaded material
below can be located in an Appendix to the auditor's report.
Paragraph 40(c) explains that when law, regulation or the
applicable auditing standards expressly permit, reference
can be made to a website of an appropriate authority that
contains the description of the auditor's responsibilities,
rather than including this material in the auditor's report,
provided that the description on the website addresses, and
is not inconsistent with, the description of the auditor's
responsibilities below.
As part of an audit in accordance with SAs, we exercise
professional judgment and maintain professional skepticism
throughout the audit. We also:
· Identify and assess the risks of material misstatement of
105
IG on Reporting Standards (Revised 2018)
the financial statements, whether due to fraud or error,
design and perform audit procedures responsive to those
risks, and obtain audit evidence that is sufficient and
appropriate to provide a basis for our opinion. The risk of
not detecting a material misstatement resulting from fraud
is higher than for one resulting from error, as fraud may
involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal control.
· Obtain an understanding of internal control relevant to the
audit in order to design audit procedures that are
appropriate in the circumstances. Under section 143(3)(i)
of the Companies Act, 2013, we are also responsible for
expressing our opinion on whether the company has
adequate internal financial controls system in place and
the operating effectiveness of such controls.
· Evaluate the appropriateness of accounting policies used
and the reasonableness of accounting estimates and
related disclosures made by management.
· Conclude on the appropriateness of management's use of
the going concern basis of accounting and, based on the
audit evidence obtained, whether a material uncertainty
exists related to events or conditions that may cast
significant doubt on the Company's ability to continue as a
going concern. If we conclude that a material uncertainty
exists, we are required to draw attention in our auditor's
report to the related disclosures in the financial
statements or, if such disclosures are inadequate, to
modify our opinion. Our conclusions are based on the
audit evidence obtained up to the date of our auditor's
report. However, future events or conditions may cause
the Company to cease to continue as a going concern.
· Evaluate the overall presentation, structure and content of
the financial statements, including the disclosures, and
whether the financial statements represent the underlying
transactions and events in a manner that achieves fair
presentation.
We communicate with those charged with governance
regarding, among other matters, the planned scope and
106
Appendices
timing of the audit and significant audit findings, including
any significant deficiencies in internal control that we identify
during our audit.
We also provide those charged with governance with a
statement that we have complied with relevant ethical
requirements regarding independence, and to communicate
with them all relationships and other matters that may
reasonably be thought to bear on our independence, and
where applicable, related safeguards.
Other Matter
We did not audit the financial statements/ information of
................... (number) branches included in the standalone
financial statements of the company whose financial
statements/financial information reflect total assets of Rs.
......as at 31st March 20XX and the total revenue of Rs.
.........for the year ended on that date, as considered in the
standalone financial statements/information of these
branches have been audited by the branch auditors whose
reports have been furnished to us, and our opinion in so far
as it relates to the amounts and disclosures included in
respect of branches, is based solely on the report of such
branch auditors.
Our opinion is not modified in respect of these matters.
Report on Other Legal and Regulatory Requirements
As required by the Companies (Auditor's Report) Order,
2016 ("the Order"), issued by the Central Government of
India in terms of sub-section (11) of section 143 of the
Companies Act, 2013, we give in the Annexure a statement
on the matters specified in paragraphs 3 and 4 of the Order,
to the extent applicable.
As required by Section 143(3) of the Act, we report that:
We have sought and obtained all the information and
explanations which to the best of our knowledge and belief
were necessary for the purposes of our audit.
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IG on Reporting Standards (Revised 2018)
(a) In our opinion, proper books of account as required by
law have been kept by the Company so far as it appears
from our examination of those books [and proper returns
adequate for the purposes of our audit have been
received from the branches not visited by us.51]
(b) [The reports on the accounts of the branch offices of the
Company audited under Section 143(8) of the Act by
branch auditors have been sent to us and have been
properly dealt with by us in preparing this report52.]
(c) The Balance Sheet, the Statement of Profit and Loss,
and the Cash Flow Statement dealt with by this Report
are in agreement with the books of account [and with the
returns received from the branches not visited by us53].
(d) In our opinion, the aforesaid standalone financial
statements comply with the Accounting Standards
specified under Section 133 of the Act, read with Rule 7
of the Companies (Accounts) Rules, 2014.
(e) On the basis of the written representations received from
the directors as on 31st March, 20XX taken on record by
the Board of Directors, none of the directors is
disqualified as on 31st March, 20XX from being
appointed as a director in terms of Section 164 (2) of the
Act.
(f) With respect to the adequacy of the internal financial
controls over financial reporting of the Company and the
operating effectiveness of such controls, refer to our
separate Report in "Annexure A".
(g) With respect to the other matters to be included in the
Auditor's Report in accordance with Rule 11 of the
Companies (Audit and Auditors) Rules, 2014, in our
opinion and to the best of our information and according
to the explanations given to us:
51 Where applicable.
52 Where applicable.
53
Where applicable.
108
Appendices
i The Company has disclosed the impact of pending
litigations on its financial position in its financial
statements Refer Note XX to the financial
statements; [or the Company does not have any
pending litigations which would impact its financial
position54]
ii The Company has made provision, as required
under the applicable law or accounting standards,
for material foreseeable losses, if any, on long-term
contracts including derivative contracts Refer Note
XX to the financial statements; [or the Company did
not have any long-term contracts including derivative
contracts for which there were any material
foreseeable losses.55]
iii There has been no delay in transferring amounts,
required to be transferred, to the Investor Education
and Protection Fund by the Company {or, following
are the instances of delay in transferring amounts,
required to be transferred, to the Investor Education
and Protection Fund by the Company or there were
no amounts which were required to be transferred to
the Investor Education and Protection Fund by the
Company56}.
For XYZ & Co
Chartered Accountants
(Firm's Registration No.)
Signature
(Name of the Member Signing the Audit Report)
(Designation57)
(Membership No. XXXXX)
Place of Signature:
Date:
54 As may be applicable.
55 As may be applicable.
56 As may be applicable.
57
Partner or Proprietor, as the case may be
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Illustration 4: Auditor's Report on Financial Statements
of a Non-Corporate Entity Prepared in Accordance with
a Fair Presentation Framework
For purposes of this illustrative auditor's report, the following
circumstances are assumed:
· Audit of a complete set of financial statements of a non
corporate entity using a fair presentation framework. The
audit is not a group audit (i.e., SA 600 does not apply).
· The financial statements are prepared by management of
the entity in accordance with the Accounting Standards
issued by the Institute of Chartered Accountants of India.
· The terms of the audit engagement reflect the description
of management's responsibility for the financial
statements in SA 210.
· The auditor has concluded an unmodified (i.e., "clean")
opinion is appropriate based on the audit evidence
obtained.
· The relevant ethical requirements that apply to the audit
are the Code of Ethics issued by ICAI58.
· Based on the audit evidence obtained, the auditor has
concluded that a material uncertainty does not exist
related to events or conditions that may cast significant
doubt on the entity's ability to continue as a going
concern in accordance with SA 570 (Revised).
· The auditor is not required, and has otherwise not
decided, to communicate key audit matters in
accordance with SA 701.
· Those responsible for oversight of the financial
statements differ from those responsible for the
preparation of the financial statements.
· The auditor has no other reporting responsibilities
required under local law.
58 Specify any applicable ethical requirements under the relevant laws or
regulations applicable to the entity.
110
Appendices
· The auditor elects to refer to the description of the
auditor's responsibility included on a website of an
appropriate authority.
INDEPENDENT AUDITOR'S REPORT
To the Partners of ABC & Associates [or Other Appropriate
Addressee]
Opinion
We have audited the financial statements of ABC &
Associates (the entity), which comprise the balance sheet at
March 31st 20XX, and the profit and loss account, (and
statement of cash flows)59 for the year then ended, and
notes to the financial statements, including a summary of
significant accounting policies.
In our opinion, the accompanying financial statements give a
true and fair view of the financial position of the entity as at
March 31, 20XX, and of its financial performance (and its
cash flows)60 for the year then ended in accordance with the
Accounting Standards issued by the Institute of Chartered
Accountants of India (ICAI).
Basis for Opinion
We conducted our audit in accordance with the Standards
on Auditing (SAs) issued by ICAI. Our responsibilities under
those standards are further described in the Auditor's
Responsibilities for the Audit of the Financial Statements
section of our report. We are independent of the entity in
accordance with the ethical requirements that are relevant to
our audit of the financial statements in [jurisdiction], and we
have fulfilled our other ethical responsibilities in accordance
with these requirements. We believe that the audit evidence
we have obtained is sufficient and appropriate to provide a
basis for our opinion.
59 Where applicable.
60
Where applicable
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Responsibilities of Management and Those Charged with
Governance for the Financial Statements61
Management is responsible for the preparation and fair
presentation of the financial statements in accordance with
the aforesaid Accounting Standards, and for such internal
control as management determines is necessary to enable
the preparation of financial statements that are free from
material misstatement, whether due to fraud or error.
In preparing the financial statements, management is
responsible for assessing the entity's ability to continue as a
going concern, disclosing, as applicable, matters related to
going concern and using the going concern basis of
accounting unless management either intends to liquidate
the entity or to cease operations, or has no realistic
alternative but to do so.
Those charged with governance are responsible for
overseeing the entity's financial reporting process.
Auditor's Responsibilities for the Audit of the Financial
Statements
Our objectives are to obtain reasonable assurance about
whether the financial statements as a whole are free from
material misstatement, whether due to fraud or error, and to
issue an auditor's report that includes our opinion.
Reasonable assurance is a high level of assurance, but is
not a guarantee that an audit conducted in accordance with
SAs will always detect a material misstatement when it
exists. Misstatements can arise from fraud or error and are
considered material if, individually or in the aggregate, they
could reasonably be expected to influence the economic
decisions of users taken on the basis of these financial
statements.
A further description of the auditor's responsibilities for the
61Or other terms that are appropriate in the context of the legal framework of the
particular entity.
112
Appendices
audit of the financial statements is located at [Organization's]
website at: [website link].This description forms part of our
auditor's report.
For XYZ & Co
Chartered Accountants
(Firm's Registration No.)
Signature
(Name of the Member Signing the Audit Report)
(Designation62)
(Membership No. XXXXX)
Place of Signature:
Date:
62
Partner or Proprietor, as the case may be
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Illustration 5: Auditor's Report on Financial Statements
of Non-Corporate Entity Prepared in Accordance with a
General Purpose Compliance Framework
For purposes of this illustrative auditor's report, the following
circumstances are assumed:
· Audit of a complete set of financial statements of an
entity, other than a listed company under the Companies
Act 2013, required by law or regulation. The audit is not a
group audit (i.e., SA 600 does not apply).
· The financial statements are prepared by management of
the entity in accordance with the Financial Reporting
Framework (XYZ Laws) of Jurisdiction X (that is, a
financial reporting framework, encompassing law or
regulation, designed to meet the common financial
information needs of a wide range of users, but which is
not a fair presentation framework).
· The terms of the audit engagement reflect the description
of management's responsibility for the financial
statements in SA 210.
· The auditor has concluded an unmodified (i.e., "clean")
opinion is appropriate based on the audit evidence
obtained.
· The relevant ethical requirements that apply to the audit
are those of the jurisdiction.
· Based on the audit evidence obtained, the auditor has
concluded that a material uncertainty does not exist
related to events or conditions that may cast significant
doubt on the entity's ability to continue as a going
concern in accordance with SA 570 (Revised).
· The auditor is not required, and has otherwise not
decided, to communicate key audit matters in
accordance with SA 701.
· Those responsible for oversight of the financial
statements differ from those responsible for the
114
Appendices
preparation of the financial statements.
· The auditor has no other reporting responsibilities
required under local law.
INDEPENDENT AUDITOR'S REPORT
[Appropriate Addressee]
Opinion
We have audited the financial statements of ABC &
Associates (the entity), which comprise the balance sheet as
at March 31, 20X1, and the Profit and Loss Account (and the
cash flow statement)63 for the year then ended, and notes to
the financial statements, including a summary of significant
accounting policies.
In our opinion, the accompanying financial statements of the
entity are prepared, in all material respects, in accordance
with XYZ Laws.
Basis for Opinion
We conducted our audit in accordance with Standards on
Auditing (SAs). Our responsibilities under those Standards
are further described in the Auditor's Responsibilities for the
Audit of the Financial Statements section of our report. We
are independent of the entity in accordance with the ethical
requirements that are relevant to our audit of the financial
statements, and we have fulfilled our other responsibilities in
accordance with these requirements. We believe that the
audit evidence we have obtained is sufficient and
appropriate to provide a basis for our opinion.
Responsibilities of Management and Those Charged
with Governance for the Financial Statements64
Management is responsible for the preparation of the
financial statements in accordance with XYZ Law and for
such internal control as management determines is
63Where applicable.
64Or other terms that are appropriate in the context of the legal framework of the
particular entity.
115
IG on Reporting Standards (Revised 2018)
necessary to enable the preparation of financial statements
that are free from material misstatement, whether due to
fraud or error.
In preparing the financial statements, management is
responsible for assessing the entity's ability to continue as a
going concern, disclosing, as applicable, matters related to
going concern and using the going concern basis of
accounting unless management either intends to liquidate
the entity or to cease operations, or has no realistic
alternative but to do so.
Those charged with governance are responsible for
overseeing the entity's financial reporting process.
Auditor's Responsibilities for the Audit of the Financial
Statements
Our objectives are to obtain reasonable assurance about
whether the financial statements as a whole are free from
material misstatement, whether due to fraud or error, and to
issue an auditor's report that includes our opinion.
Reasonable assurance is a high level of assurance, but is
not a guarantee that an audit conducted in accordance with
SAs will always detect a material misstatement when it
exists. Misstatements can arise from fraud or error and are
considered material if, individually or in the aggregate, they
could reasonably be expected to influence the economic
decisions of users taken on the basis of these financial
statements.
Paragraph 40(b) of this SA explains that the shaded material
below can be located in an Appendix to the auditor's report.
Paragraph 40(c) explains that when law, regulation or
national auditing standards expressly permit, reference can
be made to a website of an appropriate authority that
contains the description of the auditor's responsibilities,
rather than including this material in the auditor's report,
provided that the description on the website addresses, and
is not inconsistent with, the description of the auditor's
responsibilities below.
As part of an audit in accordance with SAs, we exercise
116
Appendices
professional judgment and maintain professional skepticism
throughout the audit. We also:
· Identify and assess the risks of material misstatement of
the financial statements, whether due to fraud or error,
design and perform audit procedures responsive to those
risks, and obtain audit evidence that is sufficient and
appropriate to provide a basis for our opinion. The risk of
not detecting a material misstatement resulting from fraud
is higher than for one resulting from error, as fraud may
involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal control.
· Obtain an understanding of internal control relevant to the
audit in order to design audit procedures that are
appropriate in the circumstances, but not for the purpose
of expressing an opinion on the effectiveness of the
entity's internal control.65
· Evaluate the appropriateness of accounting policies used
and the reasonableness of accounting estimates and
related disclosures made by management.
· Conclude on the appropriateness of management's use of
the going concern basis of accounting and, based on the
audit evidence obtained, whether a material uncertainty
exists related to events or conditions that may cast
significant doubt on the entity's ability to continue as a
going concern. If we conclude that a material uncertainty
exists, we are required to draw attention in our auditor's
report to the related disclosures in the financial
statements or, if such disclosures are inadequate, to
modify our opinion. Our conclusions are based on the
audit evidence obtained up to the date of our auditor's
report. However, future events or conditions may cause
the entity to cease to continue as a going concern.
We communicate with those charged with governance
65This sentence would be modified, as appropriate, in circumstances when the
auditor also has responsibility to issue an opinion on the effectiveness of internal
control in conjunction with the audit of the financial statements.
117
IG on Reporting Standards (Revised 2018)
regarding, among other matters, the planned scope and
timing of the audit and significant audit findings, including
any significant deficiencies in internal control that we identify
during our audit.
For XYZ & Co
Chartered Accountants
(Firm's Registration No.)
Signature
(Name of the Member Signing the Audit Report)
(Designation66)
(Membership No. XXXXX)
Place of Signature:
Date:
66
Partner or Proprietor, as the case may be
118
Appendix II
Illustrations of Auditor's Reports with
Modifications to the Opinion
· Illustration 1: An auditor's report containing a qualified
opinion due to a material misstatement of the financial
statements.
· Illustration 2: An auditor's report containing an adverse
opinion due to a material misstatement of the
consolidated financial statements.
· Illustration 3: An auditor's report containing a qualified
opinion due to the auditor's inability to obtain sufficient
appropriate audit evidence regarding a foreign
associate.
· Illustration 4: An auditor's report containing a disclaimer
of opinion due to the auditor's inability to obtain
sufficient appropriate audit evidence about a single
element of the consolidated financial statements.
· Illustration 5: An auditor's report containing a disclaimer
of opinion due to the auditor's inability to obtain
sufficient appropriate audit evidence about multiple
elements of the financial statements.
IG on Reporting Standards (Revised 2018)
Illustration 1: Qualified Opinion due to a Material
Misstatement of the Financial Statements
For purposes of this illustrative auditor's report, the following
circumstances are assumed:
Audit of a complete set of financial statements of a listed
company (registered under the Companies Act, 2013)
using a fair presentation framework.
The financial statements are prepared by management of
the entity in accordance with the Accounting Standards
prescribed under section 133 of the Companies Act,
2013 (a general purpose framework).
The terms of the audit engagement reflect the description
of management's responsibility for the financial
statements in SA 210.67
Inventories are misstated. The misstatement is deemed
to be material but not pervasive to the financial
statements (i.e., a qualified opinion is appropriate).
The relevant ethical requirements that apply to the audit
are the ICAI's Code of Ethics and the provisions of the
Companies Act, 2013.
Based on the audit evidence obtained, the auditor has
concluded that a material uncertainty does not exist
related to events or conditions that may cast significant
doubt on the entity's ability to continue as a going
concern in accordance with SA 570 (Revised).
Key audit matters have been communicated in
accordance with SA 701.
Those responsible for oversight of the financial
statements differ from those responsible for the
preparation of the financial statements.
In addition to the audit of the financial statements, the
auditor has other reporting responsibilities required under
the Companies Act, 2013.
67 SA 210, Agreeing the Terms of Audit Engagements
120
Appendices
INDEPENDENT AUDITOR'S REPORT
To the Members of ABC Company Limited
Report on the Audit of the Standalone Financial
Statements68
Qualified Opinion
We have audited the standalone financial statements of ABC
Company Limited ("the Company"), which comprise the
balance sheet as at March 31, 20XX, and the statement of
Profit and Loss, (statement of changes in equity)69 and the
statement of cash flows for the year then ended, and notes
to the financial statements, including a summary of
significant accounting policies and other explanatory
information (in which are included the Returns for the year
ended on that date audited by the branch auditors of the
Company's branches located at (location of branches))70.
In our opinion and to the best of our information and
according to the explanations given to us, except for the
effects of the matter described in the Basis for Qualified
Opinion section of our report, the aforesaid financial
statements give a true and fair view in conformity with the
accounting principles generally accepted in India, of the
state of affairs of the Company as at March 31 st, 2XXX and
profit/loss, (changes in equity)71 and its cash flows for the
year ended on that date.
Basis for Qualified Opinion
The Company's inventories are carried in the Balance Sheet
at Rs. XXX. Management has not stated the inventories at
the lower of cost and net realizable value but has stated
them solely at cost, which constitutes a departure from the
Accounting Standards prescribed under section 133 of the
68 The sub-title "Report on the Audit of the Standalone Financial Statements" is
unnecessary in circumstances when the second sub-title "Report on Other Legal
and Regulatory Requirements" is not applicable.
69 Where applicable.
70 Where applicable.
71
Where applicable.
121
IG on Reporting Standards (Revised 2018)
Companies Act, 2013. The Company's records indicate that,
had management stated the inventories at the lower of cost
and net realizable value, an amount of Rs. xxx would have
been required to write the inventories down to their net
realizable value. Accordingly, cost of sales would have been
increased by Rs. xxx, and income tax, net income and
shareholders' funds would have been reduced by Rs. xxx,
Rs. xxx and Rs. xxx, respectively.
We conducted our audit in accordance with Standards on
Auditing (SAs) specified under section 143(10) of the
Companies Act, 2013. Our responsibilities under those
Standards are further described in the Auditor's
Responsibilities for the Audit of the Financial Statements
section of our report. We are independent of the Company in
accordance with the Code of Ethics issued by the Institute of
Chartered Accountants of India together with the ethical
requirements that are relevant to our audit of the financial
statements under the provisions of the Companies Act, 2013
and we have fulfilled our other ethical responsibilities in
accordance with these requirements and the ICAI's Code of
Ethics. We believe that the audit evidence we have obtained
is sufficient and appropriate to provide a basis for our
qualified opinion.
Key Audit Matters
Key audit matters are those matters that, in our professional
judgment, were of most significance in our audit of the
financial statements of the current period. These matters
were addressed in the context of our audit of the financial
statements as a whole, and in forming our opinion thereon,
and we do not provide a separate opinion on these matters.
In addition to the matter described in the Basis for Qualified
Opinion section we have determined the matters described
below to be the key audit matters to be communicated in our
report.
[Description of each key audit matter in accordance with SA
701.]
122
Appendices
Responsibilities of Management and Those Charged
with Governance for the Financial Statements
[Reporting in accordance with SA 700 (Revised) see
Illustration 1 in SA 700 (Revised).]
Auditor's Responsibilities for the Audit of the Financial
Statements
[Reporting in accordance with SA 700 (Revised) see
Illustration 1 in SA 700 (Revised).]
Other Matter72
We did not audit the financial statements/information of
________(number) branches included in the standalone
financial statements of the Company whose financial
statements / financial information reflect total assets of
Rs.______ as at 31st March, 20XX and total revenues of
Rs._______ for the year ended on that date, as considered
in the standalone financial statements. The financial
statements/information of these branches have been audited
by the branch auditors whose reports have been furnished to
us, and our opinion in so far as it relates to the amounts and
disclosures included in respect of these branches, is based
solely on the report of such branch auditors.
Our opinion is not modified in respect of this matter.
Report on Other Legal and Regulatory Requirements
[Reporting in accordance with SA 700 (Revised) see
Illustration 1 in SA 700 (Revised).]
For XYZ & Co
Chartered Accountants
(Firm's Registration No.)
Signature
72
Where applicable.
123
IG on Reporting Standards (Revised 2018)
(Name of the Member Signing the Audit Report)
(Designation73)
(Membership No. XXXXX)
Place of Signature:
Date:
73
Partner or Proprietor, as the case may be
124
Appendices
Illustration 2: Adverse Opinion due to a Material
Misstatement of the Consolidated Financial Statements
For purposes of this illustrative auditor's report, the following
circumstances are assumed:
Audit of a complete set of consolidated financial
statements of a listed company (incorporated under the
Companies Act, 2013) using a fair presentation
framework. The audit is a group audit of an entity with
subsidiaries (i.e., SA 600 applies).
The consolidated financial statements are prepared by
management of the entity in accordance with the
Accounting Standards prescribed under section 133 of
the Companies Act, 2013 (a general purpose framework).
The terms of the audit engagement reflect the description
of management's responsibility for the consolidated
financial statements in SA 210.
The consolidated financial statements are materially
misstated due to the non-consolidation of a subsidiary.
The material misstatement is deemed to be pervasive to
the consolidated financial statements. The effects of the
misstatement on the consolidated financial statements
have not been determined because it was not practicable
to do so (i.e., an adverse opinion is appropriate).
The relevant ethical requirements that apply to the audit
are the ICAI's Code of Ethics and the provisions of the
Companies Act, 2013.
Based on the audit evidence obtained, the auditor has
concluded that a material uncertainty does not exist
related to events or conditions that may cast significant
doubt on the entity's ability to continue as a going
concern in accordance with SA 570 (Revised).
SA 701 applies; however, the auditor has determined that
there are no key audit matters other than the matter
described in the Basis for Adverse Opinion section.
125
IG on Reporting Standards (Revised 2018)
Those responsible for oversight of the consolidated
financial statements differ from those responsible for the
preparation of the consolidated financial statements.
In addition to the audit of the consolidated financial
statements, the auditor has other reporting
responsibilities required under the Companies Act, 2013.
INDEPENDENT AUDITOR'S REPORT
To the Members of ABC Company Limited
Report on the Audit of the Consolidated Financial
Statements74
Adverse Opinion
We have audited the accompanying consolidated financial
statements of ABC Company Limited (hereinafter referred to
as the "Holding Company") and its subsidiaries (the Holding
Company and its subsidiaries together referred to as "the
Group"), its associates and jointly controlled entities, which
comprise the consolidated balance sheet as at March 31,
2XXX, the consolidated statement of profit and Loss,
(consolidated statement of changes in equity)75 and the
consolidated statement of cash flows for the year then
ended, and notes to the consolidated financial statements,
including a summary of significant accounting policies
(hereinafter referred to as the "consolidated financial
statements").
In our opinion and to the best of our information and
according to the explanations given to us, because of the
significance of the matter discussed in the Basis for Adverse
Opinion section of our report, the accompanying
consolidated financial statements do not give a true and fair
view in conformity with the accounting principles generally
accepted in India, of their consolidated state of affairs of the
74 The sub-title "Report on the Audit of the Consolidated Financial Statements" is
unnecessary in circumstances when the second sub-title "Report on Other Legal
and Regulatory Requirements" is not applicable.
75
Where applicable.
126
Appendices
Group, its associates and jointly controlled entities, as at
March 31, 20XX, of its consolidated profit/loss, (consolidated
position of changes in equity)76 and the consolidated cash
flows for the year then ended.
Basis for Adverse Opinion
As explained in Note X, the Group has not consolidated
subsidiary XYZ Company that the Group acquired during
20XX because it has not yet been able to determine the fair
values of certain of the subsidiary's material assets and
liabilities at the acquisition date. This investment is therefore
accounted for on a cost basis. Under the accounting
principles generally accepted in India, the Group should
have consolidated this subsidiary and accounted for the
acquisition based on provisional amounts. Had XYZ
Company been consolidated, many elements in the
accompanying consolidated financial statements would have
been materially affected. The effects on the consolidated
financial statements of the failure to consolidate have not
been determined.
We conducted our audit in accordance with Standards on
Auditing (SAs) specified under section 143(10) of the
Companies Act, 2013. Our responsibilities under those
Standards are further described in the Auditor's
Responsibilities for the Audit of the Consolidated Financial
Statements section of our report. We are independent of the
Group, its associates and jointly controlled entities, in
accordance with the Code of Ethics and provisions of the
Companies Act, 2013 that are relevant to our audit of the
consolidated financial statements in India under the
Companies Act, 2013, and we have fulfilled our other ethical
responsibilities in accordance with the Code of Ethics and
the requirements under the Companies act, 2013. We
believe that the audit evidence we have obtained is sufficient
and appropriate to provide a basis for our adverse opinion.
76
Where applicable.
127
IG on Reporting Standards (Revised 2018)
Key Audit Matters
Except for the matter described in the Basis for Adverse
Opinion section, we have determined that there are no other
key audit matters to communicate in our report.
Responsibilities of Management and Those Charged
with Governance for the Consolidated Financial
Statements77
[Reporting in accordance with SA 700 (Revised) see
Illustration 2 in SA 700 (Revised).]
Auditor's Responsibilities for the Audit of the
Consolidated Financial Statements
[Reporting in accordance with SA 700 (Revised) see
Illustration 2 in SA 700 (Revised).]
Report on Other Legal and Regulatory Requirements
[Reporting in accordance with SA 700 (Revised) see
Illustration 2 in SA 700 (Revised).]
For XYZ & Co
Chartered Accountants
(Firm's Registration No.)
Signature
(Name of the Member Signing the Audit Report)
(Designation78)
(Membership No. XXXXX)
Place of Signature:
Date:
77 Or other terms that are appropriate in the context of the legal framework in the
particular jurisdiction.
78
Partner or Proprietor, as the case may be
128
Appendices
Illustration 3: Qualified Opinion due to the Auditor's
Inability to Obtain Sufficient Audit Evidence Regarding a
Foreign Associate
For purposes of this illustrative auditor's report, the following
circumstances are assumed:
Audit of a complete set of consolidated financial
statements of a listed Company (incorporated under the
Companies Act, 2013) using a fair presentation
framework. The audit is a group audit of an entity with
subsidiaries, associates and jointly controlled entities
(i.e., SA 600 applies).
The consolidated financial statements are prepared by
management of the entity in accordance with the
Accounting Standards prescribed under section 133 of
the Companies Act, 2013.
The terms of the audit engagement reflect the description
of management's responsibility for the consolidated
financial statements in SA 210.
The auditor was unable to obtain sufficient appropriate
audit evidence regarding an investment in a foreign
associate. The possible effects of the inability to obtain
sufficient appropriate audit evidence are deemed to be
material but not pervasive to the consolidated financial
statements (i.e., a qualified opinion is appropriate).
The relevant ethical requirements that apply to the audit
are the ICAI's Code of Ethics and the relevant provisions
of the Companies Act, 2013.
Based on the audit evidence obtained, the auditor has
concluded that a material uncertainty does not exist
related to events or conditions that may cast significant
doubt on the entity's ability to continue as a going
concern in accordance with SA 570 (Revised).
Key audit matters have been communicated in
accordance with SA 701.
Those responsible for oversight of the consolidated
129
IG on Reporting Standards (Revised 2018)
financial statements differ from those responsible for the
preparation of the consolidated financial statements.
In addition to the audit of the consolidated financial
statements, the auditor has other reporting
responsibilities required under the Companies Act, 2013.
INDEPENDENT AUDITOR'S REPORT
To the Members of ABC Company Limited
Report on the Audit of the Consolidated Financial
Statements79
Qualified Opinion
We have audited the accompanying consolidated financial
statements of ABC Company Limited (hereinafter referred to
as the "Holding Company") and its subsidiaries (the Holding
Company and its subsidiaries together referred to as "the
Group"), its associates and jointly controlled entities, which
comprise the consolidated balance sheet as at March 31,
20XX, and the consolidated statement of Profit and Loss,
(consolidated statement of changes in equity)80 and
consolidated statement of cash flows for the year then
ended, and notes to the consolidated financial statements,
including a summary of significant accounting policies
(hereinafter referred to as "the consolidated financial
statements").
In our opinion and to the best of our information and
according to the explanations given to us, except for the
possible effects of the matter described in the Basis for
Qualified Opinion section of our report, the aforesaid
consolidated financial statements give a true and fair view in
conformity with the accounting principles generally accepted
in India, of their consolidated state of affairs as at March 31,
2XXX, consolidated profit/loss, (consolidated changes in
79 The sub-title "Report on the Audit of the Consolidated Financial Statements" is
unnecessary in circumstances when the second sub-title "Report on Other Legal
and Regulatory Requirements" is not applicable.
80
Where applicable.
130
Appendices
equity)81, consolidated cash flows for the year then ended.
Basis for Qualified Opinion
The Group's investment in XYZ Company, a foreign
associate acquired during the year and accounted for by the
equity method, is carried at Rs. xxx on the consolidated
balance sheet as at March 31, 20XX, and ABC's share of
XYZ's net income of xxx is included in ABC's income for the
year then ended. We were unable to obtain sufficient
appropriate audit evidence about the carrying amount of
ABC's investment in XYZ as at March 31, 2XXX and ABC's
share of XYZ's net income for the year because we were
denied access to the financial information, management,
and the auditors of XYZ. Consequently, we were unable to
determine whether any adjustments to these amounts were
necessary.
We conducted our audit in accordance with Standards on
Auditing (SAs) prescribed under section 143(10) of the
Companies Act, 2013. Our responsibilities under those
Standards are further described in the Auditor's
Responsibilities for the Audit of the Consolidated Financial
Statements section of our report. We are independent of the
Group and its associates and joint ventures in accordance
with the ethical requirements that are relevant to our audit of
the consolidated financial statements in India in terms of the
Code of Ethics issued by the Institute of Chartered
Accountants of India and the relevant provisions of the
Companies Act, 2013, and we have fulfilled our other ethical
responsibilities in accordance with these requirements. We
believe that the audit evidence we have obtained is sufficient
and appropriate to provide a basis for our qualified opinion.
Key Audit Matters
Key audit matters are those matters that, in our professional
judgment, were of most significance in our audit of the
consolidated financial statements of the current period.
These matters were addressed in the context of our audit of
81
Where applicable.
131
IG on Reporting Standards (Revised 2018)
the consolidated financial statements as a whole, and in
forming our opinion thereon, and we do not provide a
separate opinion on these matters. In addition to the matter
described in the Basis for Qualified Opinion section, we have
determined the matters described below to be the key audit
matters to be communicated in our report.
[Description of each key audit matter in accordance with SA
701.]
Responsibilities of Management and Those Charged
with Governance for the Consolidated Financial
Statements82
[Reporting in accordance with SA 700 (Revised) see
Illustration 2 in SA 700 (Revised).]
Auditor's Responsibilities for the Audit of the
Consolidated Financial Statements
[Reporting in accordance with SA 700 (Revised) see
Illustration 2 in SA 700 (Revised).]
Report on Other Legal and Regulatory Requirements
[Reporting in accordance with SA 700 (Revised) see
Illustration 2 in SA 700 (Revised).]
For XYZ & Co
Chartered Accountants
(Firm's Registration No.)
Signature
(Name of the Member signing the Audit Report)
(Designation83)
(Membership No. XXXXX)
Place of Signature:
Date:
82 Or other terms that are appropriate in the context of the legal framework in the
particular jurisdiction
83
Partner or Proprietor, as the case may be
132
Appendices
Illustration 4: Disclaimer of Opinion due to the Auditor's
Inability to Obtain Sufficient Appropriate Audit Evidence
about a Single Element of the Consolidated Financial
Statements
For purposes of this illustrative auditor's report, the following
circumstances are assumed:
Audit of a complete set of consolidated financial
statements of an unlisted Company incorporated under
the Companies Act, 2013 using a fair presentation
framework. The audit is a group audit of an entity with
subsidiaries (i.e., SA 600 applies).
The consolidated financial statements are prepared by
management of the entity in accordance with the
Accounting Standards prescribed under section 133 of
the Companies Act, 2013(a general purpose framework).
The terms of the audit engagement reflect the description
of management's responsibility for the consolidated
financial statements in SA 210.
The auditor was unable to obtain sufficient appropriate
audit evidence about a single element of the consolidated
financial statements. That is, the auditor was also unable
to obtain audit evidence about the financial information of
a joint venture investment that represents over 90% of
the entity's net assets. The possible effects of this
inability to obtain sufficient appropriate audit evidence are
deemed to be both material and pervasive to the
consolidated financial statements (i.e., a disclaimer of
opinion is appropriate).
The relevant ethical requirements that apply to the audit
are the ICAI's Code of Ethics and provisions of the
Companies Act, 2013.
Those responsible for oversight of the consolidated
financial statements differ from those responsible for the
preparation of the consolidated financial statements.
A more limited description of the auditor's responsibilities
133
IG on Reporting Standards (Revised 2018)
section is required.
In addition to the audit of the consolidated financial
statements, the auditor has other reporting
responsibilities required under the Companies Act, 2013
INDEPENDENT AUDITOR'S REPORT
To the Members of ABC Company Limited
Report on the Audit of the Consolidated Financial
Statements84
Disclaimer of Opinion
We were engaged to audit the accompanying consolidated
financial statements of ABC Company Limited (hereinafter
referred to as the "Holding Company") and its subsidiaries
(the Holding Company and its subsidiaries together referred
to as "the Group), which comprise the consolidated balance
sheet as at March 31, 20XX, the consolidated statement of
Profit and Loss, (consolidated statement of changes in
equity)85 and consolidated statement of cash flows for the
year then ended, and notes to the consolidated financial
statements, including a summary of significant accounting
policies (hereinafter referred to as the "Consolidated
Financial Statements").
We do not express an opinion on the accompanying
consolidated financial statements of the Group. Because of
the significance of the matter described in the Basis for
Disclaimer of Opinion section of our report, we have not
been able to obtain sufficient appropriate audit evidence to
provide a basis for an audit opinion on these consolidated
financial statements.
Basis for Disclaimer of Opinion
The Group's investment in its joint venture XYZ Company is
84 The sub-title "Report on the Audit of the Consolidated Financial Statements" is
unnecessary in circumstances when the second sub-title "Report on Other Legal
and Regulatory Requirements" is not applicable.
85
Where applicable.
134
Appendices
carried at Rs. xxx on the Group's consolidated balance
sheet, which represents over 90% of the Group's net assets
as at March 31, 20XX. We were not allowed access to the
management and the auditors of XYZ Company, including
XYZ Company's auditors' audit documentation. As a result,
we were unable to determine whether any adjustments were
necessary in respect of the Group's proportional share of
XYZ Company's assets that it controls jointly, its proportional
share of XYZ Company's liabilities for which it is jointly
responsible, its proportional share of XYZ's income and
expenses for the year, (and the elements making up the
consolidated statement of changes in equity)86 and the
consolidated cash flow statement.
Responsibilities of Management and Those Charged
with Governance for the Consolidated Financial
Statements87
[Reporting in accordance with SA 700 (Revised) see
Illustration 2 in SA 700 (Revised).]
Auditor's Responsibilities for the Audit of the
Consolidated Financial Statements
Our responsibility is to conduct an audit of the Group's
consolidated financial statements in accordance with
Standards on Auditing and to issue an auditor's report.
However, because of the matter described in the Basis for
Disclaimer of Opinion section of our report, we were not able
to obtain sufficient appropriate audit evidence to provide a
basis for an audit opinion on these consolidated financial
statements.
We are independent of the Group in accordance with the
ethical requirements that are relevant to our audit of the
financial statements and we have fulfilled our other ethical
responsibilities in accordance with these requirements.
86Where applicable.
87Or other terms that are appropriate in the context of the legal framework of the
particular jurisdiction
135
IG on Reporting Standards (Revised 2018)
Report on Other Legal and Regulatory Requirements
[Reporting in accordance with SA 700 (Revised) see
Illustration 2 in SA 700 (Revised).]
For XYZ & Co
Chartered Accountants
(Firm's Registration No.)
Signature
(Name of the Member signing the Audit Report)
(Designation88)
(Membership No. XXXXX)
Place of Signature:
Date:
88
Partner or Proprietor, as the case may be
136
Appendices
Illustration 5: Disclaimer of Opinion due to the Auditor's
Inability to Obtain Sufficient Appropriate Audit Evidence
about Multiple Elements of the Financial Statements
For purposes of this illustrative auditor's report, the following
circumstances are assumed:
Audit of a complete set of financial statements of an
entity other than a company incorporated under the
Companies Act, 2013, using a fair presentation
framework. The audit is not a group audit (i.e., SA 600,
does not apply).
The financial statements are prepared by management of
the entity in accordance with the Accounting Standards
issued by the Institute of Chartered Accountants of India
(a general purpose framework).
The terms of the audit engagement reflect the description
of management's responsibility for the financial
statements in SA 210.
The auditor was unable to obtain sufficient appropriate
audit evidence about multiple elements of the financial
statements, that is, the auditor was also unable to obtain
audit evidence about the entity's inventories and
accounts receivable. The possible effects of this inability
to obtain sufficient appropriate audit evidence are
deemed to be both material and pervasive to the financial
statements.
The relevant ethical requirements that apply to the audit
are ICAI's Code of Ethics and applicable law/regulation
Those responsible for oversight of the financial
statements differ from those responsible for the
preparation of the financial statements.
A more limited description of the auditor's responsibilities
section is required.
In addition to the audit of the financial statements, the
auditor has other reporting responsibilities required under
relevant law/ regulation.
137
IG on Reporting Standards (Revised 2018)
INDEPENDENT AUDITOR'S REPORT
To the Partners of ABC & Associates
Report on the Audit of the Financial Statements89
Disclaimer of Opinion
We were engaged to audit the financial statements of ABC &
Associates ("the entity"), which comprise the balance sheet
as at March 31, 20XX, the statement of Profit and Loss, (the
statement of changes in equity)90 and statement of cash
flows for the year then ended, and notes to the financial
statements, including a summary of significant accounting
policies.
We do not express an opinion on the accompanying financial
statements of the entity. Because of the significance of the
matters described in the Basis for Disclaimer of Opinion
section of our report, we have not been able to obtain
sufficient appropriate audit evidence to provide a basis for an
audit opinion on these financial statements.
Basis for Disclaimer of Opinion
We were not appointed as auditors of the Company until
after March 31, 20X1 and thus did not observe the counting
of physical inventories at the beginning and end of the year.
We were unable to satisfy ourselves by alternative means
concerning the inventory quantities held at March 31, 20X0
and 20X1, which are stated in the Balance Sheets at Rs xxx
and Rs xxx, respectively. In addition, the introduction of a
new computerized accounts receivable system in September
20X1 resulted in numerous errors in accounts receivable. As
of the date of our report, management was still in the
process of rectifying the system deficiencies and correcting
the errors. We were unable to confirm or verify by alternative
means accounts receivable included in the Balance Sheet at
a total amount of Rs xxx as at March 31, 20X1. As a result of
89 The sub-title "Report on the Audit of the Financial Statements" is unnecessary
in circumstances when the second sub-title "Report on Other Legal and
Regulatory Requirements" is not applicable.
90
Where applicable.
138
Appendices
these matters, we were unable to determine whether any
adjustments might have been found necessary in respect of
recorded or unrecorded inventories and accounts receivable,
and the elements making up the statement of Profit and Loss
(and statement of cash flows)91.
Responsibilities of Management and Those Charged
with Governance for the Financial Statements92
[Reporting in accordance with SA 700 (Revised) see
Illustration 1 in SA 700 (Revised).]
Auditor's Responsibilities for the Audit of the Financial
Statements
Our responsibility is to conduct an audit of the entity's
financial statements in accordance with Standards on
Auditing and to issue an auditor's report. However, because
of the matters described in the Basis for Disclaimer of
Opinion section of our report, we were not able to obtain
sufficient appropriate audit evidence to provide a basis for an
audit opinion on these financial statements.
We are independent of the entity in accordance with the
ethical requirements in accordance with the requirements of
the Code of Ethics issued by ICAI and the ethical
requirements as prescribed under the laws and regulations
applicable to the entity.
Report on Other Legal and Regulatory Requirements
[Reporting in accordance with SA 700 (Revised) see
Illustration 1 in SA 700 (Revised).]
For XYZ & Co
Chartered Accountants
(Firm's Registration No.)
Signature
91Where applicable.
92Or other terms that are appropriate in the context of the legal framework of the
particular jurisdiction
139
IG on Reporting Standards (Revised 2018)
(Name of the Member signing the Audit Report)
(Designation93)
(Membership No. XXXXX)
Place of Signature:
Date:
93
Partner or Proprietor, as the case may be
140
Appendix III
Illustrations of an Auditor's Report that includes
an Emphasis of Matter Paragraph/Other Matter
Paragraph
· Illustration 1: An Auditor's Report that Includes a Key
Audit Matters Section, an Emphasis of Matter
Paragraph, and an Other Matter Paragraph
· Illustration 2: An Auditor's Report Containing a Qualified
Opinion Due to a Departure from the Applicable
Financial Reporting Framework and that Includes an
Emphasis of Matter Paragraph
IG on Reporting Standards (Revised 2018)
Illustration 1: An Auditor's Report that Includes a Key
Audit Matters Section, an Emphasis of Matter
Paragraph, and an Other Matter Paragraph
For purposes of this illustrative auditor's report, the following
circumstances are assumed:
Audit of a complete set of financial statements of a listed
company (registered under the companies Act, 2013)
using a fair presentation framework.
The financial statements are prepared by management of
the entity in accordance with the Accounting Standards
prescribed under section 133 of the Companies Act, 2013
(a general purpose framework).
The terms of the audit engagement reflect the description
of management's responsibility for the financial
statements in SA 210.
The auditor has concluded an unmodified (i.e., "clean")
opinion is appropriate based on the audit evidence
obtained.
The relevant ethical requirements that apply to the audit
are those of the ICAI's Code of Ethics and the provisions
of the Companies Act, 2013.
Based on the audit evidence obtained, the auditor has
concluded that a material uncertainty does not exist
related to events or conditions that may cast significant
doubt on the entity's ability to continue as a going concern
in accordance with SA 570 (Revised).
Between the date of the financial statements and the date
of the auditor's report, there was a fire in the entity's
production facilities, which was disclosed by the entity as
a subsequent event. In the auditor's judgment, the matter
is of such importance that it is fundamental to users'
understanding of the financial statements. The matter did
not require significant auditor attention in the audit of the
financial statements in the current period.
142
Appendices
Key audit matters have been communicated in
accordance with SA 701.
Corresponding figures are presented, and the prior
period's financial statements were audited by a
predecessor auditor. The auditor is not prohibited by law
or regulation from referring to the predecessor auditor's
report on the corresponding figures and has decided to
do so.
Those responsible for oversight of the financial
statements differ from those responsible for the
preparation of the financial statements.
In addition to the audit of the financial statements, the
auditor has other reporting responsibilities required under
the Companies Act, 2013.
INDEPENDENT AUDITOR'S REPORT
To the Members of ABC Company Limited
Report on the Audit of the Standalone Financial
Statements94
Opinion
We have audited the standalone financial statements of ABC
Company Limited ("the Company"), which comprise the
balance sheet as at March 31, 20X1, and the statement of
Profit & Loss, (statement of changes in equity) and the
statement of cash flows for the year then ended, and notes
to the financial statements, including a summary of
significant accounting policies and other explanatory
information (in which are included the Returns for the year
ended on that date audited by the branch auditors of the
Company's branches located at (location of branches))95.
94 The sub-title "Report on the Audit of the Standalone Financial Statements" is
unnecessary in circumstances when the second sub-title "Report on Other Legal
and Regulatory Requirements" is not applicable.
95
As may be applicable
143
IG on Reporting Standards (Revised 2018)
In our opinion, and to the best of our information and
according to the explanations given to us the aforesaid
financial statements, give a true and fair view, in conformity
with the accounting principles generally accepted in India, of
the state of affairs of the Company as at March 31st, 2XXX
and profit/loss, (changes in equity) and its cash flows for the
year ended on that date.
Basis for Opinion
We conducted our audit in accordance with Standards on
Auditing (SAs). Our responsibilities under those standards
are further described in the Auditor's Responsibilities for the
Audit of the Financial Statements section of our report. We
are independent of the Company in accordance with the
ethical requirements that are relevant to our audit of the
financial statements as per the ICAI's Code of Ethics and the
provisions of the Companies Act, 2013, and we have fulfilled
our other ethical responsibilities in accordance with these
requirements. We believe that the audit evidence we have
obtained is sufficient and appropriate to provide a basis for
our opinion.
Emphasis of Matter96
We draw attention to Note X of the financial statements,
which describes the effects of a fire in the Company's
production facilities. Our opinion is not modified in respect of
this matter.
Key Audit Matters
Key audit matters are those matters that, in our professional
judgment, were of most significance in our audit of the
financial statements of the current period. These matters
were addressed in the context of our audit of the financial
statements as a whole, and in forming our opinion thereon,
and we do not provide a separate opinion on these matters.
96 As noted in paragraph A16, an Emphasis of Matter paragraph may be
presented either directly before or after the Key Audit Matters section based on
the auditor's judgment as to the relative significance of the information included
in the Emphasis of Matter paragraph.
144
Appendices
[Description of each key audit matter in accordance with SA
701.]
Other Matter
The financial statements of ABC Company for the year
ended March 31, 20X0, were audited by another auditor who
expressed an unmodified opinion on those statements on
March 31, 20X1.
Responsibilities of Management and Those Charged
with Governance for the Financial Statements
[Reporting in accordance with SA 700 (Revised) see
Illustration 1 in SA 700 (Revised).]
Auditor's Responsibilities for the Audit of the Financial
Statements
[Reporting in accordance with SA 700 (Revised) see
Illustration 1 in SA 700 (Revised).]
Report on Other Legal and Regulatory Requirements
[Reporting in accordance with SA 700 (Revised) see
Illustration 1 in SA 700 (Revised).]
For XYZ & Co
Chartered Accountants
(Firm's Registration No.)
Signature
(Name of the Member signing the Audit Report)
(Designation97)
(Membership No. XXXXX)
Place of Signature:
Date:
97
Partner or Proprietor, as the case may be
145
IG on Reporting Standards (Revised 2018)
Illustration 2: An Auditor's Report Containing a Qualified
Opinion Due to a Departure from the Applicable
Financial Reporting Framework and that Includes an
Emphasis of Matter Paragraph
For purposes of this illustrative auditor's report, the following
circumstances are assumed:
Audit of a complete set of financial statements of an
company other than a listed company (registered under
the Companies Act, 2013) using a fair presentation
framework..
The financial statements are prepared by management of
the entity in accordance with the Accounting Standards
prescribed under section 133 of the Companies Act, 2013
(a general purpose framework).
The terms of the audit engagement reflect the description
of management's responsibility for the financial
statements in SA 210.
A departure from the applicable financial reporting
framework resulted in a qualified opinion.
The relevant ethical requirements that apply to the audit
are the ICAI's Code of Ethics and the provisions of the
Companies Act, 2013.
Based on the audit evidence obtained, the auditor has
concluded that a material uncertainty does not exist
related to events or conditions that may cast significant
doubt on the entity's ability to continue as a going concern
in accordance with SA 570 (Revised).
Between the date of the financial statements and the date
of the auditor's report, there was a fire in the entity's
production facilities, which was disclosed by the entity as
a subsequent event. In the auditor's judgment, the matter
is of such importance that it is fundamental to users'
understanding of the financial statements. The matter did
not require significant auditor attention in the audit of the
financial statements in the current period.
146
Appendices
The auditor is not required, and has otherwise not
decided, to communicate key audit matters in accordance
with SA 701.
Those responsible for oversight of the financial
statements differ from those responsible for the
preparation of the financial statements.
In addition to the audit of the financial statements, the
auditor has other reporting responsibilities required under
the Companies Act, 2013.
INDEPENDENT AUDITOR'S REPORT
To the Members of ABC Company Limited
Report on the Audit of the Standalone Financial
Statements98
Qualified Opinion
We have audited the standalone financial statements of ABC
Limited ("the Company"), which comprise the balance sheet
as at March 31, 20X1, and the statement of Profit and Loss,
(statement of changes in equity) and the statement of cash
flows for the year then ended, and notes to the financial
statements, including a summary of significant accounting
policies and other explanatory information (in which are
included the Returns for the year ended on that date audited
by the branch auditors of the Company's branches located at
(location of branches))2.
In our opinion and to the best of our information and
according to the explanations given to us, except for the
effects of the matter described in the Basis for Qualified
Opinion section of our report, the aforesaid financial
statements present fairly, in all material respects, or give a
true and fair view in conformity with the accounting principles
generally accepted in India of the state of affairs of the
Company as at March 31st, 2XXX and profit/loss, (changes
98The sub-title "Report on the Audit of the Standalone Financial Statements" is
unnecessary in circumstances when the second sub-title "Report on Other Legal
and Regulatory Requirements" is not applicable.
147
IG on Reporting Standards (Revised 2018)
in equity) and its cash flows for the year ended on that date.
Basis for Qualified Opinion
The Company's short-term marketable securities are carried
in the statement of financial position at xxx. Management
has not marked these securities to market but has instead
stated them at cost, which constitutes a departure from the
Accounting Standards prescribed in section 133 of the
Companies Act, 2013. The Company's records indicate that
had management marked the marketable securities to
market, the Company would have recognized an unrealized
loss of Rs.xxx in the statement of comprehensive income for
the year. The carrying amount of the securities in the
statement of financial position would have been reduced by
the same amount at March 31, 20X1, and income tax, net
income and shareholders' equity would have been reduced
by Rs.xxx, Rs.xxx and Rs.xxx, respectively.
We conducted our audit in accordance with Standards on
Auditing (SAs). Our responsibilities under those standards
are further described in the Auditor's Responsibilities for the
Audit of the Financial Statements section of our report. We
are independent of the Company in accordance with the
ethical requirements that are relevant to our audit of the
financial statements under the provisions of the Companies
Act, 2013, and we have fulfilled our other ethical
responsibilities in accordance with these requirements and
the ICAI's Code of Ethics. We believe that the audit evidence
we have obtained is sufficient and appropriate to provide a
basis for our qualified opinion.
Emphasis of Matter Effects of a Fire
We draw attention to Note X of the financial statements,
which describes the effects of a fire in the Company's
production facilities. Our opinion is not modified in respect of
this matter.
Responsibilities of Management and Those Charged
with Governance for the Financial Statements
[Reporting in accordance with SA 700(Revised)see
148
Appendices
Illustration 1 in SA 700(Revised).]
Auditor's Responsibilities for the Audit of the Financial
Statements
[Reporting in accordance with SA 700(Revised see
Illustration 1 in SA 700(Revised).]
Report on Other Legal and Regulatory Requirements
[Reporting in accordance with SA 700 (Revised) see
Illustration 1 in SA 700 (Revised).]
For XYZ & Co
Chartered Accountants
(Firm's Registration No.)
Signature
(Name of the Member signing the Audit Report)
(Designation99)
(Membership No. XXXXX)
Place of Signature:
Date:
99
Partner or Proprietor, as the case may be.
149
Appendix IV
Illustrations of Auditor's Reports Relating to
Going Concern
· Illustration 1: An auditor's report containing an
unmodified opinion when the auditor has concluded
that a material uncertainty exists and disclosure in the
financial statements is adequate.
· Illustration 2: An auditor's report containing a qualified
opinion when the auditor has concluded that a material
uncertainty exists and that the financial statements are
materially misstated due to inadequate disclosure.
· Illustration 3: An auditor's report containing an adverse
opinion when the auditor has concluded that a material
uncertainty exists and the financial statements omit the
required disclosures relating to a material uncertainty.
Appendices
Illustration 1: Unmodified Opinion When a Material
Uncertainty Exists and Disclosure in the Financial
Statements Is Adequate
For purposes of this illustrative auditor's report, the following
circumstances are assumed:
· Audit of a complete set of financial statements of a listed
company (registered under the Companies Act, 2013)
using a fair presentation framework. The audit is not a
group audit (i.e., SA 600 does not apply).
· The financial statements are prepared by management of
the entity in accordance with the accounting Standards
prescribed under section 133 of the Companies Act,
2013.
· The terms of the audit engagement reflect the description
of management's responsibility for the financial
statements in SA 210.100
· The auditor has concluded an unmodified (i.e., "clean")
opinion is appropriate based on the audit evidence
obtained.
· The relevant ethical requirements that apply to the audit
are those of the jurisdiction.
· Based on the audit evidence obtained, the auditor has
concluded that a material uncertainty exists related to
events or conditions that may cast significant doubt on
the entity's ability to continue as a going concern. The
disclosure of the material uncertainty in the financial
statements is adequate.
· Key audit matters have been communicated in
accordance with SA 701.
· Those responsible for oversight of the financial
statements differ from those responsible for the
preparation of the financial statements.
100 SA 210, Agreeing the Terms of Audit Engagements
151
IG on Reporting Standards (Revised 2018)
· In addition to the audit of the financial statements, the
auditor has other reporting responsibilities required under
the Companies Act, 2013.
INDEPENDENT AUDITOR'S REPORT
To the Members of ABC Company Limited
Report on the Audit of the Standalone Financial
Statements101
Opinion
We have audited the standalone financial statements of ABC
Company Limited ("the Company"), which comprise the
balance sheet as at 31st March 20XX, and the statement of
Profit and Loss, (statement of changes in equity)102 and
statement of cash flows for the year then ended, and notes
to the financial statements, including a summary of
significant accounting policies and other explanatory
information [in which are included the Returns for the year
ended on that date audited by the branch auditors of the
Company's branches located at (location of branches)]103.
In our opinion and to the best of our information and
according to the explanations given to us, the aforesaid
standalone financial statements give the information required
by the Act in the manner so required and give a true and fair
view in conformity with the accounting principles generally
accepted in India, of the state of affairs of the Company as at
March 31, 20XX, and profit/loss, (changes in equity)104 and
its cash flows for the year ended on that date.
Basis for Opinion
We conducted our audit in accordance with the Standards
101 The sub-title "Report on the Audit of the Standalone Financial Statements" is
unnecessary in circumstances when the second sub-title "Report on Other Legal
and Regulatory Requirements" is not applicable.
102 Where applicable.
103 Where applicable.
104
Where applicable
152
Appendices
on Auditing (SAs) specified under section 143(10) of the
Companies Act, 2013. Our responsibilities under those
Standards are further described in the Auditor's
Responsibilities for the Audit of the Financial Statements
section of our report. We are independent of the Company in
accordance with the Code of Ethics issued by the Institute of
Chartered Accountants of India together with the ethical
requirements that are relevant to our audit of the financial
statements under the provisions of the Companies Act, 2013
and the Rules thereunder, and we have fulfilled our other
ethical responsibilities in accordance with these
requirements and the Code of Ethics. We believe that the
audit evidence we have obtained is sufficient and
appropriate to provide a basis for our opinion.
Material Uncertainty Related to Going Concern
We draw attention to Note XX in the financial statements,
which indicates that the Company incurred a net loss of ZZZ
during the year ended December 31, 20X1 and, as of that
date, the Company's current liabilities exceeded its total
assets by YYY. As stated in Note 6, these events or
conditions, along with other matters as set forth in Note XX,
indicate that a material uncertainty exists that may cast
significant doubt on the Company's ability to continue as a
going concern. Our opinion is not modified in respect of this
matter.
Key Audit Matters
Key audit matters are those matters that, in our professional
judgment, were of most significance in our audit of the
financial statements of the current period. These matters
were addressed in the context of our audit of the financial
statements as a whole, and in forming our opinion thereon,
and we do not provide a separate opinion on these matters.
In addition to the matter described in the Material
Uncertainty Related to Going Concern section, we have
determined the matters described below to be the key audit
matters to be communicated in our report.
153
IG on Reporting Standards (Revised 2018)
[Description of each key audit matter in accordance with SA
701.]
Responsibilities of Management and Those Charged
with Governance for the Financial Statements
[Reporting in accordance with SA 700 (Revised)see
Illustration 1 in SA 700 (Revised).105]
Auditor's Responsibilities for the Audit of the Financial
Statements
[Reporting in accordance with SA 700 (Revised) see
Illustration 1 in SA 700 (Revised).]
Report on Other Legal and Regulatory Requirements
[Reporting in accordance with SA 700 (Revised) see
Illustration 1 in SA 700 (Revised).]
For XYZ & Co
Chartered Accountants
(Firm's Registration No.)
Signature
(Name of the Member signing the Audit Report)
(Designation106)
(Membership No. XXXXX)
Place of Signature:
Date:
105 Paragraphs 33 and 38 of SA 700 (Revised) require wording to be included in
the auditor's report for all entities in relation to going concern to describe the
respective responsibilities of those responsible for the financial statements and
the auditor in relation to going concern.
106
Partner or Proprietor, as the case may be
154
Appendices
Illustration 2: Qualified Opinion When a Material
Uncertainty Exists and the Financial Statements Are
Materially Misstated Due to Inadequate Disclosure
For purposes of this illustrative auditor's report, the following
circumstances are assumed:
· Audit of a complete set of financial statements of a listed
company using a fair presentation framework. The audit
is not a group audit (i.e., SA 600 does not apply).
· The financial statements are prepared by management of
the entity in accordance with the accounting Standards
prescribed under section 133 of the Companies Act,
2013.
· The terms of the audit engagement reflect the description
of management's responsibility for the financial
statements in SA 210.
· The relevant ethical requirements that apply to the audit
are those of the jurisdiction.
· Based on the audit evidence obtained, the auditor has
concluded that a material uncertainty exists related to
events or conditions that may cast significant doubt on
the entity's ability to continue as a going co ncern. Note
YY to the financial statements discusses the magnitude
of financing arrangements, the expiration and the total
financing arrangements; however the financial
statements do not include discussion on the impact or the
availability of refinancing or characterize this situation as
a material uncertainty.
· The financial statements are materially misstated due to
the inadequate disclosure of the material uncertainty. A
qualified opinion is being expressed because the auditor
concluded that the effects on the financial statements of
this inadequate disclosure are material but not pervasive
to the financial statements.
· Key audit matters have been communicated in
155
IG on Reporting Standards (Revised 2018)
accordance with SA 701.
· Those responsible for oversight of the financial
statements differ from those responsible for the
preparation of the financial statements.
· In addition to the audit of the financial statements, the
auditor has other reporting responsibilities required under
the Companies Act, 2013.
INDEPENDENT AUDITOR'S REPORT
To the Members of ABC Company Limited
Report on the Audit of the Standalone Financial
Statements107
Qualified Opinion
We have audited the standalone financial statements of ABC
Company Limited ("the Company"), which comprise the
balance sheet as at 31st March 20XX, and the statement of
Profit and Loss, (statement of changes in equity)108 and
statement of cash flows for the year then ended, and notes
to the financial statements, including a summary of
significant accounting policies and other explanatory
information [in which are included the Returns for the year
ended on that date audited by the branch auditors of the
Company's branches located at (location of branches)]109.
In our opinion and to the best of our information and
according to the explanations given to us, except for the
incomplete disclosure of the information referred to in the
Basis for Qualified Opinion section of our report, the
aforesaid standalone financial statements give the
information required by the Act in the manner so required
and give a true and fair view in conformity with the
accounting principles generally accepted in India, of the
107 The sub-title "Report on the Audit of the Standalone Financial Statements" is
unnecessary in circumstances when the second sub-title "Report on Other Legal
and Regulatory Requirements" is not applicable.
108 Where applicable.
109
Where applicable.
156
Appendices
state of affairs of the Company as at March 31, 20XX, and
profit/loss, (changes in equity)110 and its cash flows for the
year ended on that date.
Basis for Qualified Opinion
As discussed in Note YY, the Company's financing
arrangements expire and amounts outstanding are payable
on April 30, 20X2. The Company has been unable to
conclude re-negotiations or obtain replacement financing.
This situation indicates that a material uncertainty exists that
may cast significant doubt on the Company's ability to
continue as a going concern. The financial statements do not
adequately disclose this matter.
We conducted our audit in accordance with the Standards
on Auditing (SAs) specified under section 143(10) of the
Companies Act, 2013. Our responsibilities under those
Standards are further described in the Auditor's
Responsibilities for the Audit of the Financial Statements
section of our report. We are independent of the Company in
accordance with the Code of Ethics issued by the Institute of
Chartered Accountants of India together with the ethical
requirements that are relevant to our audit of the financial
statements under the provisions of the Companies Act, 2013
and the Rules thereunder, and we have fulfilled our other
ethical responsibilities in accordance with these
requirements and the Code of Ethics. We believe that the
audit evidence we have obtained is sufficient and
appropriate to provide a basis for our opinion.
Key Audit Matters
Key audit matters are those matters that, in our professional
judgment, were of most significance in our audit of the
financial statements of the current period. These matters
were addressed in the context of our audit of the financial
statements as a whole, and in forming our opinion thereon,
and we do not provide a separate opinion on these matters.
In addition to the matter described in the Basis for Qualified
110
Where applicable
157
IG on Reporting Standards (Revised 2018)
Opinion section, we have determined the matters described
below to be the key audit matters to be communicated in our
report.
[Descriptions of each key audit matter in accordance with SA
701.]
Responsibilities of Management and Those Charged
with Governance for the Financial Statements
[Reporting in accordance with SA 700 (Revised) see
Illustration 1 in SA 700 (Revised).111]
Auditor's Responsibilities for the Audit of the Financial
Statements
[Reporting in accordance with SA 700 (Revised) see
Illustration 1 in SA 700 (Revised).]
Report on Other Legal and Regulatory Requirements
[Reporting in accordance with SA 700 (Revised) see
Illustration 1 in SA 700 (Revised).]
For XYZ & Co
Chartered Accountants
(Firm's Registration No.)
Signature
(Name of the Member signing the Audit Report)
(Designation112)
(Membership No. XXXXX)
Place of Signature:
Date:
111 Paragraphs 33 and 38 of SA 700 (Revised) require wording to be included in
the auditor's report for all entities in relation to going concern to describe the
respective responsibilities of those responsible for the financial statements and
the auditor in relation to going concern.
112
Partner or Proprietor, as the case may be
158
Appendices
Illustration 3: Adverse Opinion When a Material
Uncertainty Exists and Is Not Disclosed in the Financial
Statements
For purposes of the illustrative auditor's report, the following
circumstances are assumed:
· Audit of a complete set of financial statements of a non
corporate entity using a fair presentation framework. The
audit is not a group audit (i.e., SA 600 does not apply).
· The financial statements are prepared by management of
the entity in accordance with the Accounting Standards
issued by the Institute of Chartered Accountants of India.
· The terms of the audit engagement reflect the description
of management's responsibility for the financial
statements in SA 210.
· The relevant ethical requirements that apply to the audit
are those of the jurisdiction.
· Based on the audit evidence obtained, the auditor has
concluded that a material uncertainty exists related to
events or conditions that may cast significant doubt on
the entity's ability to continue as a going concern, and the
entity is considering bankruptcy. The financial statements
omit the required disclosures relating to the material
uncertainty. An adverse opinion is being expressed
because the effects on the financial statements of such
omission are material and pervasive.
· The auditor is not required, and has otherwise not
decided, to communicate key audit matters in
accordance with SA 701.
· Those responsible for oversight of the financial
statements differ from those responsible for the
preparation of the financial statements.
· In addition to the audit of the financial statements, the
auditor has other reporting responsibilities required under
local law.
159
IG on Reporting Standards (Revised 2018)
INDEPENDENT AUDITOR'S REPORT
To the Partners of ABC & Associates [or Other Appropriate
Addressee]
Report on the Audit of the Financial Statements113
Adverse Opinion
We have audited the financial statements of ABC &
Associates (the entity), which comprise the balance sheet at
March 31st 20XX, and the profit and loss account, (and
statement of cash flows)114 for the year then ended, and
notes to the financial statements, including a summary of
significant accounting policies.
In our opinion, because of the omission of the information
mentioned in the Basis for Adverse Opinion section of our
report, the accompanying financial statements do not
present fairly (or do not give a true and fair view of), the
financial position of the entity as at March 31, 20X1, and of
its financial performance and its cash flows for the year then
ended in accordance with the Accounting Standards issued
by the Institute of Chartered Accountants of India.
Basis for Adverse Opinion
The entity's financing arrangements expired and the amount
outstanding was payable on March 31, 20X1. The entity has
been unable to conclude re-negotiations or obtain
replacement financing and is considering filing for
bankruptcy. This situation indicates that a material
uncertainty exists that may cast significant doubt on the
Company's ability to continue as a going concern. The
financial statements do not adequately disclose this fact.
We conducted our audit in accordance with the Standards
on Auditing (SAs) issued by ICAI. Our responsibilities under
those standards are further described in the Auditor's
Responsibilities for the Audit of the Financial Statements
113 The sub-title "Report on the Audit of the Financial Statements" is unnecessary
in circumstances when the second sub-title "Report on Other Legal and
Regulatory Requirements" is not applicable.
114
Where applicable.
160
Appendices
section of our report. We are independent of the entity in
accordance with the ethical requirements that are relevant to
our audit of the financial statements in [jurisdiction], and we
have fulfilled our other ethical responsibilities in accordance
with these requirements. We believe that the audit evidence
we have obtained is sufficient and appropriate to provide a
basis for our opinion.
Responsibilities of Management and Those Charged
with Governance for the Financial Statements115
[Reporting in accordance with SA 700 (Revised) see
Illustration 4 in SA 700 (Revised).116]
Auditor's Responsibilities for the Audit of the Financial
Statements
[Reporting in accordance with SA 700 (Revised) see
Illustration 4 in SA 700 (Revised).]
Report on Other Legal and Regulatory Requirements
[Reporting in accordance with SA 700 (Revised) see
Illustration 4 in SA 700 (Revised).]
For XYZ & Co
Chartered Accountants
(Firm's Registration No.)
Signature
(Name of the Member signing the Audit Report)
(Designation117)
(Membership No. XXXXX)
Place of Signature:
Date:
115 Or other terms that are appropriate in the context of the legal framework of the
particular jurisdiction.
116 Paragraphs 33 and 38 of SA 700 (Revised) require wording to be included in
the auditor's report for all entities in relation to going concern to describe the
respective responsibilities of those responsible for the financial statements and
the auditor in relation to going concern.
117
Partner or Proprietor, as the case may be
161
Appendix V
Illustrations of Auditor's Reports Relating to
Other Information
Illustration 1: An auditor's report of a company, whether
listed or unlisted, containing an unmodified opinion when
the auditor has obtained all of the other information prior
to the date of the auditor's report and has not identified a
material misstatement of the other information.
Illustration 2: An auditor's report of a listed company
containing an unmodified opinion when the auditor has
obtained part of the other information prior to the date of
the auditor's report, has not identified a material
misstatement of the other information, and expects to
obtain other information after the date of the auditor's
report.
Illustration 3: An auditor's report of an unlisted company
containing an unmodified opinion when the auditor has
obtained part of the other information prior to the date of
the auditor's report, has not identified a material
misstatement of the other information, and expects to
obtain other information after the date of the auditor's
report.
Illustration 4: An auditor's report of a listed com pany
containing an unmodified opinion when the auditor has
obtained no other information prior to the date of the
auditor's report but expects to obtain other information
after the date of the auditor's report.
Illustration 5: An auditor's report of a company, whether
listed or unlisted, containing an unmodified opinion when
the auditor has obtained all of the other information prior
to the date of the auditor's report and has concluded that
Appendices
a material misstatement of the other information exists.
Illustration 6: An auditor's report of a company, whether
listed or unlisted, containing a qualified opinion when the
auditor has obtained all of the other information prior to
the date of the auditor's report and there is a limitation of
scope with respect to a material item in the consolidated
financial statements which also affects the other
information.
Illustration 7: An auditor's report of a company, whether
listed or unlisted, containing an adverse opinion when the
auditor has obtained all of the other information prior to
the date of the auditor's report and the adverse opinion
on the consolidated financial statements also affects the
other information.
163
IG on Reporting Standards (Revised 2018)
Illustration 1: An auditor's report of a company, whether
listed or unlisted, containing an unmodified opinion
when the auditor has obtained all of the other
information prior to the date of the auditor's report and
has not identified a material misstatement of the other
information.
For purposes of this illustrative auditor's report, the following
circumstances are assumed:
Audit of a complete set of financial statements of a
company, whether listed or unlisted (registered under the
Companies Act, 2013) using a fair presentation
framework. The audit is not a group audit (i.e., SA 600118
does not apply).
The financial statements are prepared by management of
the company in accordance with the Accounting
Standards prescribed under Section 133 of the
Companies Act, 2013.
The terms of the audit engagement reflect the description
of management's responsibility for the financial
statements in SA 210.
The auditor has concluded an unmodified (i.e., "clean")
opinion is appropriate based on the audit evidence
obtained.
The relevant ethical requirements that apply to the audit
comprise the Code of Ethics issued by ICAI together with
the other relevant ethical requirements relating to the
audit and the auditor refers to both.
Based on the audit evidence obtained, the auditor has
concluded that a material uncertainty does not exist
related to events or conditions that may cast significant
doubt on the entity's ability to continue as a going
concern in accordance with SA 570 (Revised).119
118 SA 600, Using the Work of Another Auditor.
119
SA 570 (Revised), Going Concern
164
Appendices
Key audit matters have been communicated in
accordance with SA 701.120
The auditor has obtained all of the other information prior
to the date of the auditor's report and has not identified a
material misstatement of the other information.
Those responsible for oversight of the financial
statements differ from those responsible for the
preparation of the financial statements.
In addition to the audit of the financial statements, the
auditor has other reporting responsibilities required under
the Companies Act, 2013.
INDEPENDENT AUDITOR'S REPORT
To the Members of ABC Company Limited
Report on the Audit of the Standalone Financial
Statements121
Opinion
We have audited the standalone financial statements of ABC
Company Limited ("the Company"), which comprise the
balance sheet as at 31st March 20XX, and the statement of
profit and loss, (statement of changes in equity)122 and
statement of cash flows for the year then ended, and notes
to the financial statements, including a summary of
significant accounting policies and other explanatory
information [in which are included the returns for the year
ended on that date audited by the branch auditors of the
company's branches located at (location of branches)]123.
In our opinion and to the best of our information and
according to the explanations given to us, the aforesaid
standalone financial statements give the information required
120 SA 701, Communicating Key Audit Matters in the Independent Auditor's
Report. The Key Audit Matters section is required for listed entities only.
121 The sub-title "Report on the Audit of the Standalone Financial Statements" is
unnecessary in circumstances when the second sub-title "Report on Other Legal
and Regulatory Requirements" is not applicable.
122 Where applicable.
123
Where applicable.
165
IG on Reporting Standards (Revised 2018)
by the Act in the manner so required and give a true and fair
view in conformity with the accounting principles generally
accepted in India, of the state of affairs of the Company as at
March 31, 20XX, and profit/loss, (changes in equity)124 and
its cash flows for the year ended on that date.
Basis for Opinion
We conducted our audit in accordance with the Standards
on Auditing (SAs) specified under section 143(10) of the
Companies Act, 2013. Our responsibilities under those
Standards are further described in the Auditor's
Responsibilities for the Audit of the Financial Statements
section of our report. We are independent of the Company in
accordance with the Code of Ethics issued by the Institute of
Chartered Accountants of India together with the ethical
requirements that are relevant to our audit of the financial
statements under the provisions of the Companies Act, 2013
and the Rules thereunder, and we have fulfilled our other
ethical responsibilities in accordance with these
requirements and the Code of Ethics. We believe that the
audit evidence we have obtained is sufficient and
appropriate to provide a basis for our opinion.
Key Audit Matters125
Key audit matters are those matters that, in our professional
judgment, were of most significance in our audit of the
financial statements of the current period. These matters
were addressed in the context of our audit of the financial
statements as a whole, and in forming our opinion thereon,
and we do not provide a separate opinion on these matters.
[Description of each key audit matter in accordance with SA
701.]
Other Information [or another title if appropriate, such
as "Information Other than the Financial Statements and
Auditor's Report Thereon"]
124 Where applicable.
125
The Key Audit Matters section is required for listed entities only.
166
Appendices
The Company's Board of Directors is responsible for the
other information. The other information comprises the
[information included in the X report,126 but does not include
the financial statements and our auditor's report thereon.]
Our opinion on the financial statements does not cover the
other information and we do not express any form of
assurance conclusion thereon.
In connection with our audit of the financial statements, our
responsibility is to read the other information and, in doing
so, consider whether the other information is materially
inconsistent with the financial statements or our knowledge
obtained in the audit or otherwise appears to be materially
misstated. If, based on the work we have performed, we
conclude that there is a material misstatement of this other
information, we are required to report that fact. We have
nothing to report in this regard.
Responsibilities of Management and Those Charged
with Governance for the Financial Statements
[Reporting in accordance with SA 700 (Revised)127 see
Illustration 1 in SA 700 (Revised).]
Auditor's Responsibilities for the Audit of the Financial
Statements
[Reporting in accordance with SA 700 (Revised) see
Illustration 1 in SA 700 (Revised).]
Other Matter128
We did not audit the financial statements/information of
________(number) branches included in the standalone
financial statements of the Company whose financial
126 A more specific description of the other information, such as "the
management report and chairman's statement," may be used to identify the other
information.
127 SA 700 (Revised), Forming an Opinion and Reporting on Financial
Statements.
128
Where applicable.
167
IG on Reporting Standards (Revised 2018)
statements / financial information reflect total assets of
Rs.______ as at 31st March, 20XX and total revenues of
Rs._______ for the year ended on that date, as considered
in the standalone financial statements. The financial
statements/information of these branches have been audited
by the branch auditors whose reports have been furnished to
us, and our opinion in so far as it relates to the amounts and
disclosures included in respect of these branches, is based
solely on the report of such branch auditors.
Our opinion is not modified in respect of this matter.
Report on Other Legal and Regulatory Requirements
Reporting in accordance with SA 700 (Revised) see
Illustration 1 in SA 700 (Revised).]
For XYZ & Co
Chartered
Accountants
(Firm's Registration
No.)
Signature
(Name of the Member Signing the Audit Report)
(Designation129)
(Membership No. XXXXX)
Place of Signature:
Date:
129
Partner or Proprietor, as the case may be.
168
Appendices
Illustration 2 An auditor's report of a listed company
containing an unmodified opinion when the auditor has
obtained part of the other information prior to the date of
the auditor's report, has not identified a material
misstatement of the other information, and expects to
obtain other information after the date of the auditor's
report.
For purposes of this illustrative auditor's report, the following
circumstances are assumed:
Audit of a complete set of financial statements of a listed
company (registered under the Companies Act, 2013)
using a fair presentation framework. The audit is not a
group audit (i.e., SA 600 does not apply).
The financial statements are prepared by management of
the company in accordance with the Accounting
Standards prescribed under Section 133 of the
Companies Act 2013.
The terms of the audit engagement reflect the description
of management's responsibility for the financial
statements in SA 210.
The auditor has concluded an unmodified (i.e., "clean")
opinion is appropriate based on the audit evidence
obtained.
The relevant ethical requirements that apply to the audit
comprise the Code of Ethics issued by ICAI together with
the other relevant ethical requirements relating to the
audit and the auditor refers to both.
Based on the audit evidence obtained, the auditor has
concluded that a material uncertainty does not exist
related to events or conditions that may cast significant
doubt on the entity's ability to continue as a going
concern in accordance with SA 570 (Revised).
Key audit matters have been communicated in
accordance with SA 701.
169
IG on Reporting Standards (Revised 2018)
The auditor has obtained part of the other information
prior to the date of the auditor's report, has not identified
a material misstatement of the other information, and
expects to obtain other information after the date of the
auditor's report.
Those responsible for oversight of the financial
statements differ from those responsible for the
preparation of the financial statements.
In addition to the audit of the financial statements, the
auditor has other reporting responsibilities required under
the Companies Act, 2013.
INDEPENDENT AUDITOR'S REPORT
To the Members of ABC Company Limited
Report on the Audit of the Standalone Financial
Statements
Opinion
We have audited the standalone financial statements of ABC
Company Limited ("the Company"), which comprise the
balance sheet as at 31st March 20XX, and the statement of
profit and loss, (statement of changes in equity)130 and
statement of cash flows for the year then ended, and notes
to the financial statements, including a summary of
significant accounting policies and other explanatory
information [in which are included the returns for the year
ended on that date audited by the branch auditors of the
company's branches located at (location of branches)]131.
In our opinion and to the best of our information and
according to the explanations given to us, the aforesaid
standalone financial statements give the information required
by the Act in the manner so required and give a true and fair
view in conformity with the accounting principles generally
130 Where applicable.
131
Where applicable.
170
Appendices
accepted in India, of the state of affairs of the Company as at
March 31, 20XX, and profit/loss, (changes in equity)132 and
its cash flows for the year ended on that date.
Basis for Opinion
We conducted our audit in accordance with the Standards
on Auditing (SAs) specified under section 143(10) of the
Companies Act, 2013. Our responsibilities under those
Standards are further described in the Auditor's
Responsibilities for the Audit of the Financial Statements
section of our report. We are independent of the Company in
accordance with the Code of Ethics issued by the Institute of
Chartered Accountants of India together with the ethical
requirements that are relevant to our audit of the financial
statements under the provisions of the Companies Act, 2013
and the Rules thereunder, and we have fulfilled our other
ethical responsibilities in accordance with these
requirements and the Code of Ethics. We believe that the
audit evidence we have obtained is sufficient and
appropriate to provide a basis for our opinion.
Key Audit Matters
Key audit matters are those matters that, in our professional
judgment, were of most significance in our audit of the
financial statements of the current period. These matters
were addressed in the context of our audit of the financial
statements as a whole, and in forming our opinion thereon,
and we do not provide a separate opinion on these matters.
[Description of each key audit matter in accordance with SA
701.]
Other Information [or another title if appropriate, such
as "Information Other than the Financial Statements and
Auditor's Report Thereon"]
The Company's Board of Directors is responsible for the
other information. The other information comprises the X
132
Where applicable
171
IG on Reporting Standards (Revised 2018)
report133 (but does not include the financial statements and
our auditor's report thereon), which we obtained prior to the
date of this auditor's report, and the Y report, which is
expected to be made available to us after that date.
Our opinion on the financial statements does not cover the
other information and we do not and will not express any
form of assurance conclusion thereon.
In connection with our audit of the financial statements, our
responsibility is to read the other information identified above
and, in doing so, consider whether the other information is
materially inconsistent with the financial statements or our
knowledge obtained in the audit, or otherwise appears to be
materially misstated.
If, based on the work we have performed on the other
information that we obtained prior to the date of this auditor's
report, we conclude that there is a material misstatement of
this other information, we are required to report that fact. We
have nothing to report in this regard.
[When we read the Y report, if we conclude that there is a
material misstatement therein, we are required to
communicate the matter to those charged with governance
and [describe actions applicable under the applicable laws
and regulations]]134
Responsibilities of Management and Those Charged
with Governance for the Financial Statements
[Reporting in accordance with SA 700 (Revised) see
Illustration 1 in SA 700 (Revised).]
Auditor's Responsibilities for the Audit of the Financial
Statements
[Reporting in accordance with SA 700 (Revised) see
133 A more specific description of the other information, such as "the
management report and chairman's statement," may be used to identify the other
information
134 This additional paragraph may be useful when the auditor has identified an
uncorrected material misstatement of the other information obtained after the
date of the auditor's report and has a legal obligation to take specific action in
response.
172
Appendices
Illustration 1 in SA 700 (Revised).]
Other Matter135
We did not audit the financial statements/information of
________(number) branches included in the standalone
financial statements of the Company whose financial
statements / financial information reflect total assets of
Rs.______ as at 31st March, 20XX and total revenues of
Rs._______ for the year ended on that date, as considered
in the standalone financial statements. The financial
statements/information of these branches have been audited
by the branch auditors whose reports have been furnished to
us, and our opinion in so far as it relates to the amounts and
disclosures included in respect of these branches, is based
solely on the report of such branch auditors.
Our opinion is not modified in respect of this matter.
Report on Other Legal and Regulatory Requirements
[Reporting in accordance with SA 700 (Revised) see
Illustration 1 in SA 700 (Revised).]
For XYZ & Co
Chartered
Accountants
(Firm's Registration
No.)
Signature
(Name of the Member Signing the Audit Report)
(Designation136)
(Membership No. XXXXX)
Place of Signature:
Date:
135 Where applicable.
136
Partner or Proprietor, as the case may be.
173
IG on Reporting Standards (Revised 2018)
Illustration 3 An auditor's report of an unlisted
company containing an unmodified opinion when the
auditor has obtained part of the other information prior
to the date of the auditor's report, has not identified a
material misstatement of the other information, and
expects to obtain other information after the date of the
auditor's report.
For purposes of this illustrative auditor's report, the following
circumstances are assumed:
Audit of a complete set of financial statements of an
unlisted company (registered under the Companies Act,
2013) using a fair presentation framework. The audit is
not a group audit (i.e., SA 600 does not apply).
The financial statements are prepared by management of
the company in accordance with the Accounting
Standards prescribed under Section 133 of the
Companies Act 2013.
The terms of the audit engagement reflect the description
of management's responsibility for the financial
statements in SA 210.
The auditor has concluded an unmodified (i.e., "clean")
opinion is appropriate based on the audit evidence
obtained.
The relevant ethical requirements that apply to the audit
comprise the Code of Ethics issued by ICAI together with
the other relevant ethical requirements relating to the
audit and the auditor refers to both.
Based on the audit evidence obtained, the auditor has
concluded that a material uncertainty does not exist
related to events or conditions that may cast significant
doubt on the entity's ability to continue as a going
concern in accordance with SA 570 (Revised).
The auditor is not required, and has otherwise not
decided, to communicate key audit matters in
accordance with SA 701.
The auditor has obtained part of the other information
174
Appendices
prior to the date of the auditor's report, has not identified
a material misstatement of the other information, and
expects to obtain other information after the date of the
auditor's report.
Those responsible for oversight of the financial
statements differ from those responsible for the
preparation of the financial statements.
In addition to the audit of the financial statements, the
auditor has other reporting responsibilities required under
the Companies Act, 2013.
INDEPENDENT AUDITOR'S REPORT
To the Members of ABC Company Limited
Report on the Audit of the Standalone Financial
Statements
Opinion
We have audited the standalone financial statements of ABC
Company Limited ("the Company"), which comprise the
balance sheet as at 31st March 20XX, and the statement of
profit and loss, (statement of changes in equity)137 and
statement of cash flows for the year then ended, and notes
to the financial statements, including a summary of
significant accounting policies and other explanatory
information [in which are included the returns for the year
ended on that date audited by the branch auditors of the
company's branches located at (location of branches)]138.
In our opinion and to the best of our information and
according to the explanations given to us, the aforesaid
standalone financial statements give the information required
by the Act in the manner so required and give a true and fair
view in conformity with the accounting principles generally
accepted in India, of the state of affairs of the Company as at
137 Where applicable.
138
Where applicable.
175
IG on Reporting Standards (Revised 2018)
March 31, 20XX, and profit/loss, (changes in equity)139 and
its cash flows for the year ended on that date.
Basis for Opinion
We conducted our audit in accordance with the Standards
on Auditing (SAs) specified under section 143(10) of the
Companies Act, 2013. Our responsibilities under those
Standards are further described in the Auditor's
Responsibilities for the Audit of the Financial Statements
section of our report. We are independent of the Company in
accordance with the Code of Ethics issued by the Institute of
Chartered Accountants of India together with the ethical
requirements that are relevant to our audit of the financial
statements under the provisions of the Companies Act, 2013
and the Rules thereunder, and we have fulfilled our other
ethical responsibilities in accordance with these
requirements and the Code of Ethics. We believe that the
audit evidence we have obtained is sufficient and
appropriate to provide a basis for our opinion.
Other Information [or another title if appropriate, such
as "Information Other than the Financial Statements and
Auditor's Report Thereon"]
The Company's Board of Directors is responsible for the
other information. The other information obtained at the date
of this auditor's report is [information included in the X
report,140 but does not include the financial statements and
our auditor's report thereon]
Our opinion on the financial statements does not cover the
other information and we do not express any form of
assurance conclusion thereon.
In connection with our audit of the financial statements, our
responsibility is to read the other information and, in doing
so, consider whether the other information is materially
139 Where applicable
140 A more specific description of the other information, such as "the
management report and chairman's statement," may be used to identify the other
information.
176
Appendices
inconsistent with the financial statements or our knowledge
obtained in the audit, or otherwise appears to be materially
misstated.
If, based on the work we have performed on the other
information obtained prior to the date of this auditor's report,
we conclude that there is a material misstatement of this
other information, we are required to report that fact. We
have nothing to report in this regard.
Responsibilities of Management and Those Charged
with Governance for the Financial Statements
[Reporting in accordance with SA 700 (Revised) see
Illustration 1 in SA 700 (Revised).]
Auditor's Responsibilities for the Audit of the Financial
Statements
[Reporting in accordance with SA 700 (Revised) see
Illustration 1 in SA 700 (Revised).]
Other Matter141
We did not audit the financial statements/information of
________(number) branches included in the standalone
financial statements of the Company whose financial
statements / financial information reflect total assets of
Rs.______ as at 31st March, 20XX and total revenues of
Rs._______ for the year ended on that date, as considered
in the standalone financial statements. The financial
statements/information of these branches have been audited
by the branch auditors whose reports have been furnished to
us, and our opinion in so far as it relates to the amounts and
disclosures included in respect of these branches, is based
solely on the report of such branch auditors.
Our opinion is not modified in respect of this matter.
Report on Other Legal and Regulatory Requirements
[Reporting in accordance with SA 700 (Revised) see
141
Where applicable.
177
IG on Reporting Standards (Revised 2018)
Illustration 1 in SA 700 (Revised).]
For XYZ & Co
Chartered
Accountants
(Firm's Registration
No.)
Signature
(Name of the Member Signing the Audit Report)
(Designation142)
(Membership No. XXXXX)
Place of Signature:
Date:
142
Partner or Proprietor, as the case may be.
178
Appendices
Illustration 4 An auditor's report of a listed company
containing an unmodified opinion when the auditor has
obtained no other information prior to the date of the
auditor's report but expects to obtain other information
after the date of the auditor's report.
For purposes of this illustrative auditor's report, the following
circumstances are assumed:
· Audit of a complete set of financial statements of a listed
company (registered under the Companies Act, 2013)
using a fair presentation framework. The audit is not a
group audit (i.e., SA 600 does not apply).
· The financial statements are prepared by management of
the company in accordance with the Accounting
Standards prescribed under Section 133 of the
Companies Act, 2013.
· The terms of the audit engagement reflect the description
of management's responsibility for the financial
statements in SA 210.
· The auditor has concluded an unmodified (i.e., "clean")
opinion is appropriate based on the audit evidence
obtained.
· The relevant ethical requirements that apply to the audit
comprise the Code of Ethics issued by ICAI together with
the other relevant ethical requirements relating to the
audit and the auditor refers to both.
· Based on the audit evidence obtained, the auditor has
concluded that a material uncertainty does not exist
related to events or conditions that may cast significant
doubt on the entity's ability to continue as a going
concern in accordance with SA 570 (Revised).
· Key audit matters have been communicated in
accordance with SA 701.
· The auditor has obtained no other information prior to the
date of the auditor's report but expects to obtain other
179
IG on Reporting Standards (Revised 2018)
information after the date of the auditor's report.
· Those responsible for oversight of the financial
statements differ from those responsible for the
preparation of the financial statements.
· In addition to the audit of the financial statements, the
auditor has other reporting responsibilities required under
the Companies Act, 2013.
INDEPENDENT AUDITOR'S REPORT
To the Members of ABC Company Limited
Report on the Audit of the Standalone Financial
Statements
Opinion
We have audited the standalone financial statements of ABC
Company Limited ("the Company"), which comprise the
balance sheet as at 31st March 20XX, and the statement of
profit and loss, (statement of changes in equity)143 and
statement of cash flows for the year then ended, and notes
to the financial statements, including a summary of
significant accounting policies and other explanatory
information [in which are included the returns for the year
ended on that date audited by the branch auditors of the
Company's branches located at (location of branches)]144.
In our opinion and to the best of our information and
according to the explanations given to us, the aforesaid
standalone financial statements give the information required
by the Act in the manner so required and give a true and fair
view in conformity with the accounting principles generally
accepted in India, of the state of affairs of the Company as at
March 31, 20XX, and profit/loss, (changes in equity)145 and
its cash flows for the year ended on that date.
143 Where applicable.
144 Where applicable.
145
Where applicable
180
Appendices
Basis for Opinion
We conducted our audit in accordance with the Standards
on Auditing (SAs) specified under section 143(10) of the
Companies Act, 2013. Our responsibilities under those
Standards are further described in the Auditor's
Responsibilities for the Audit of the Financial Statements
section of our report. We are independent of the Company in
accordance with the Code of Ethics issued by the Institute of
Chartered Accountants of India together with the ethical
requirements that are relevant to our audit of the financial
statements under the provisions of the Companies Act, 2013
and the Rules thereunder, and we have fulfilled our other
ethical responsibilities in accordance with these
requirements and the Code of Ethics. We believe that the
audit evidence we have obtained is sufficient and
appropriate to provide a basis for our opinion.
Key Audit Matters
Key audit matters are those matters that, in our professional
judgment, were of most significance in our audit of the
financial statements of the current period. These matters
were addressed in the context of our audit of the financial
statements as a whole, and in forming our opinion thereon,
and we do not provide a separate opinion on these matters.
[Description of each key audit matter in accordance with SA
701.]
Other Information [or another title if appropriate, such
as "Information Other than the Financial Statements and
Auditor's Report Thereon"]
The Company's Board of Directors is responsible for the
other information. The other information comprises the
[information included in the X report146, but does not include
the financial statements and our auditor's report thereon].
146 A more specific description of the other information, such as "the
management report and chairman's statement," may be used to identify the other
information
181
IG on Reporting Standards (Revised 2018)
The X report is expected to be made available to us after the
date of this auditor's report.
Our opinion on the financial statements does not cover the
other information and we will not express any form of
assurance conclusion thereon.
In connection with our audit of the financial statements, our
responsibility is to read the other information identified above
when it becomes available and, in doing so, consider
whether the other information is materially inconsistent with
the financial statements or our knowledge obtained in the
audit, or otherwise appears to be materially misstated.
[When we read the X report, if we conclude that there is a
material misstatement therein, we are required to
communicate the matter to those charged with governance
and (describe actions applicable in the applicable laws and
regulations).]147
Responsibilities of Management and Those Charged
with Governance for the Financial Statements
[Reporting in accordance with SA 700 (Revised) see
Illustration 1 in SA 700 (Revised).]
Auditor's Responsibilities for the Audit of the Financial
Statements
[Reporting in accordance with SA 700 (Revised) see
Illustration 1 in SA 700 (Revised).]
Other Matter148
We did not audit the financial statements/information of
________(number) branches included in the standalone
financial statements of the Company whose financial
147 This additional paragraph may be useful when the auditor has identified an
uncorrected material misstatement of the other information obtained after the
date of the auditor's report and has a legal obligation to take specific action in
response.
148
Where applicable.
182
Appendices
statements / financial information reflect total assets of
Rs.______ as at 31st March, 20XX and total revenues of
Rs._______ for the year ended on that date, as considered
in the standalone financial statements. The financial
statements/information of these branches have been audited
by the branch auditors whose reports have been furnished to
us, and our opinion in so far as it relates to the amounts and
disclosures included in respect of these branches, is based
solely on the report of such branch auditors.
Our opinion is not modified in respect of this matter.
Report on Other Legal and Regulatory Requirements
[Reporting in accordance with SA 700 (Revised) see
Illustration 1 in SA 700 (Revised).]
For XYZ & Co
Chartered
Accountants
(Firm's Registration
No.)
Signature
(Name of the Member Signing the Audit Report)
(Designation149)
(Membership No. XXXXX)
Place of Signature:
Date:
149
Partner or Proprietor, as the case may be.
183
IG on Reporting Standards (Revised 2018)
Illustration 5: An auditor's report of a company, whether
listed or unlisted, containing an unmodified opinion
when the auditor has obtained all of the other
information prior to the date of the auditor's report and
has concluded that a material misstatement of the other
information exists.
For purposes of this illustrative auditor's report, the following
circumstances are assumed:
Audit of a complete set of financial statements of a
company, whether listed or unlisted (registered under the
Companies Act, 2013) using a fair presentation
framework. The audit is not a group audit (i.e., SA 600
does not apply).
The financial statements are prepared by management of
the company in accordance with the Accounting
Standards prescribed under Section 133 of the
Companies Act, 2013.
The terms of the audit engagement reflect the description
of management's responsibility for the financial
statements in SA 210.
The auditor has concluded an unmodified (i.e., "clean")
opinion is appropriate based on the audit evidence
obtained.
The relevant ethical requirements that apply to the audit
comprise the Code of Ethics issued by ICAI together with
the other relevant ethical requirements relating to the
audit and the auditor refers to both.
Based on the audit evidence obtained, the auditor has
concluded that a material uncertainty does not exist
related to events or conditions that may cast significant
doubt on the entity's ability to continue as a going
concern in accordance with SA 570 (Revised).
Key audit matters have been communicated in
184
Appendices
accordance with SA 701.
The auditor has obtained all of the other information prior
to the date of the auditor's report and has concluded that
a material misstatement of the other information exists
Those responsible for oversight of the financial
statements differ from those responsible for the
preparation of the financial statements.
In addition to the audit of the financial statements, the
auditor has other reporting responsibilities required under
the Companies Act, 2013.
INDEPENDENT AUDITOR'S REPORT
To the Members of ABC Company Limited
Report on the Audit of the Standalone Financial
Statements
Opinion
We have audited the standalone financial statements of ABC
Company Limited ("the Company"), which comprise the
balance sheet as at 31st March 20XX, and the statement of
profit and loss, (statement of changes in equity)150 and
statement of cash flows for the year then ended, and notes
to the financial statements, including a summary of
significant accounting policies and other explanatory
information [in which are included the returns for the year
ended on that date audited by the branch auditors of the
Company's branches located at (location of branches)]151.
In our opinion and to the best of our information and
according to the explanations given to us, the aforesaid
standalone financial statements give the information required
by the Act in the manner so required and give a true and fair
view in conformity with the accounting principles generally
150 Where applicable.
151
Where applicable.
185
IG on Reporting Standards (Revised 2018)
accepted in India, of the state of affairs of the Company as at
March 31, 20XX, and profit/loss, (changes in equity)152 and
its cash flows for the year ended on that date.
Basis for Opinion
We conducted our audit in accordance with the Standards
on Auditing (SAs) specified under section 143(10) of the
Companies Act, 2013. Our responsibilities under those
Standards are further described in the Auditor's
Responsibilities for the Audit of the Financial Statements
section of our report. We are independent of the Company in
accordance with the Code of Ethics issued by the Institute of
Chartered Accountants of India together with the ethical
requirements that are relevant to our audit of the financial
statements under the provisions of the Companies Act, 2013
and the Rules thereunder, and we have fulfilled our other
ethical responsibilities in accordance with these
requirements and the Code of Ethics. We believe that the
audit evidence we have obtained is sufficient and
appropriate to provide a basis for our opinion.
Other Information [or another title if appropriate, such
as "Information Other than the Financial Statements and
Auditor's Report Thereon"]
The Company's Board of Directors is responsible for the
other information. The other information comprises the
[information included in the X report153, but does not include
the financial statements and our auditor's report thereon.]
Our opinion on the financial statements does not cover the
other information and we do not express any form of
assurance conclusion thereon.
In connection with our audit of the financial statements, our
responsibility is to read the other information and, in doing
so, consider whether the other information is materially
152 Where applicable
153 A more specific description of the other information, such as "the
management report and chairman's statement," may be used to identify the other
information.
186
Appendices
inconsistent with the financial statements or our knowledge
obtained in the audit or otherwise appears to be materially
misstated.
If, based on the work we have performed, we conclude that
there is a material misstatement of this other information, we
are required to report that fact. As described below, we have
concluded that such a material misstatement of the other
information exists.
[Description of material misstatement of the other
information]
Key Audit Matters154
Key audit matters are those matters that, in our professional
judgment, were of most significance in our audit of the
financial statements of the current period. These matters
were addressed in the context of our audit of the financial
statements as a whole, and in forming our opinion thereon,
and we do not provide a separate opinion on these matters.
[Description of each key audit matter in accordance with SA
701.]
Responsibilities of Management and Those Charged
with Governance for the Financial Statements
[Reporting in accordance with SA 700 (Revised) see
Illustration 1 in SA 700 (Revised).]
Auditor's Responsibilities for the Audit of the Financial
Statements
[Reporting in accordance with SA 700 (Revised) see
Illustration 1 in SA 700 (Revised).]
Other Matter155
We did not audit the financial statements/information of
________(number) branches included in the standalone
financial statements of the Company whose financial
statements / financial information reflect total assets of
154 The Key Audit Matters section is required for listed entities only.
155
Where applicable.
187
IG on Reporting Standards (Revised 2018)
Rs.______ as at 31st March, 20XX and total revenues of
Rs._______ for the year ended on that date, as considered
in the standalone financial statements. The financial
statements/information of these branches have been audited
by the branch auditors whose reports have been furnished to
us, and our opinion in so far as it relates to the amounts and
disclosures included in respect of these branches, is based
solely on the report of such branch auditors.
Our opinion is not modified in respect of this matter.
Report on Other Legal and Regulatory Requirements
[Reporting in accordance with SA 700 (Revised) see
Illustration 1 in SA 700 (Revised).]
For XYZ & Co
Chartered
Accountants
(Firm's Registration
No.)
Signature
(Name of the Member Signing the Audit Report)
(Designation156)
(Membership No. XXXXX)
Place of Signature:
Date:
156
Partner or Proprietor, as the case may be.
188
Appendices
Illustration 6 An auditor's report of a company,
whether listed or unlisted, containing a qualified opinion
when the auditor has obtained all of the other
information prior to the date of the auditor's report and
there is a limitation of scope with respect to a material
item in the consolidated financial statements which also
affects the other information.
For purposes of this illustrative auditor's report, the following
circumstances are assumed:
Audit of a complete set of consolidated financial
statements of a company, whether listed or unlisted
(registered under the Companies Act, 2013) using a fair
presentation framework. The audit is a group audit (i.e.,
SA 600 applies).
The consolidated financial statements are prepared by
management of the company in accordance with the
Accounting Standards prescribed under Section 133 of
the Companies Act, 2013.
The terms of the audit engagement reflect the description
of management's responsibility for the consolidated
financial statements in SA 210.
The auditor was unable to obtain sufficient appropriate
audit evidence regarding an investment in a foreign
associate. The possible effects of the inability to obtain
sufficient appropriate audit evidence are deemed to be
material but not pervasive to the consolidated financial
statements (i.e., a qualified opinion is appropriate).
The relevant ethical requirements that apply to the audit
are the Code of Ethics issued by ICAI and the relevant
provisions of the Companies Act, 2013.
Based on the audit evidence obtained, the auditor has
concluded that a material uncertainty does not exist
related to events or conditions that may cast significant
doubt on the entity's ability to continue as a going
concern in accordance with SA 570 (Revised).
189
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Key audit matters have been communicated in
accordance with SA 701.
The auditor has obtained all of the other information prior
to the date of the auditor's report and the matter giving
rise to the qualified opinion on the consolidated financial
statements also affects the other information.
Those responsible for oversight of the consolidated
financial statements differ from those responsible for the
preparation of the consolidated financial statements.
In addition to the audit of the consolidated financial
statements, the auditor has other reporting
responsibilities required under the Companies Act, 2013.
INDEPENDENT AUDITOR'S REPORT
To the Members of ABC Company Limited
Report on the Audit of the Consolidated Financial
Statements
Qualified Opinion
We have audited the accompanying consolidated financial
statements of ABC Company Limited (hereinafter referred to
as the "Holding Company") and its subsidiaries (the Holding
Company and its subsidiaries together referred to as "the
Group"), its associates and jointly controlled entities, which
comprise the consolidated balance sheet as at March 31,
20XX, and the consolidated statement of profit and loss,
(consolidated statement of changes in equity)157 and
consolidated statement of cash flows for the year then
ended, and notes to the consolidated financial statements,
including a summary of significant accounting policies
(hereinafter referred to as "the consolidated financial
statements").
In our opinion and to the best of our information and
according to the explanations given to us, except for the
157
Where applicable.
190
Appendices
possible effects of the matter described in the Basis for
Qualified Opinion section of our report, the aforesaid
consolidated financial statements give a true and fair view in
conformity with the accounting principles generally accepted
in India, of their consolidated state of affairs as at March 31,
2XXX, consolidated profit/loss, (consolidated changes in
equity)158, consolidated cash flows for the year then ended.
Basis for Qualified Opinion
The Group's investment in XYZ Company, a foreign
associate acquired during the year and accounted for by the
equity method, is carried at Rs. XXX on the consolidated
balance sheet as at March 31, 20XX, and ABC's share of
XYZ's net income of XXX is included in ABC's income for
the year then ended. We were unable to obtain sufficient
appropriate audit evidence about the carrying amount of
ABC's investment in XYZ as at March 31, 2XXX and ABC's
share of XYZ's net income for the year because we were
denied access to the financial information, management,
and the auditors of XYZ. Consequently, we were unable to
determine whether any adjustments to these amounts were
necessary.
We conducted our audit in accordance with Standards on
Auditing (SAs) prescribed under section 143(10) of the
Companies Act, 2013. Our responsibilities under those
Standards are further described in the Auditor's
Responsibilities for the Audit of the Consolidated Financial
Statements section of our report. We are independent of the
Group and its associates and jointly controlled entities in
accordance with the ethical requirements that are relevant to
our audit of the consolidated financial statements in India in
terms of the Code of Ethics issued by the Institute of
Chartered Accountants of India and the relevant provisions
of the Companies Act, 2013, and we have fulfilled our other
ethical responsibilities in accordance with these
requirements. We believe that the audit evidence we have
obtained is sufficient and appropriate to provide a basis for
158
Where applicable.
191
IG on Reporting Standards (Revised 2018)
our qualified opinion.
Other Information [or another title if appropriate, such
as "Information Other than the Financial Statements and
Auditor's Report Thereon"]
The company's Board of Directors is responsible for the
other information. The other information comprises the
[information included in the X report159, but does not include
the consolidated financial statements and our auditor's
report thereon.]
Our opinion on the consolidated financial statements does
not cover the other information and we do not express any
form of assurance conclusion thereon.
In connection with our audit of the consolidated financial
statements, our responsibility is to read the other information
and, in doing so, consider whether the other information is
materially inconsistent with the consolidated financial
statements or our knowledge obtained in the audit or
otherwise appears to be materially misstated.
If, based on the work we have performed, we conclude that
there is a material misstatement of this other information, we
are required to report that fact. As described in the Basis for
Qualified Opinion section above, we were unable to obtain
sufficient appropriate evidence about the carrying amount of
ABC's investment in XYZ as at March 31, 20XX and ABC's
share of XYZ's net income for the year. Accordingly, we are
unable to conclude whether or not the other information is
materially misstated with respect to this matter.
Key Audit Matters160
Key audit matters are those matters that, in our professional
judgment, were of most significance in our audit of the
consolidated financial statements of the current period.
159 A more specific description of the other information, such as "the
management report and chairman's statement," may be used to identify the other
information.
160
The Key Audit Matters section is required for listed entities only.
192
Appendices
These matters were addressed in the context of our audit of
the consolidated financial statements as a whole, and in
forming our opinion thereon, and we do not provide a
separate opinion on these matters. In addition to the matter
described in the Basis for Qualified Opinion section, we have
determined the matters described below to be the key audit
matters to be communicated in our report.
[Description of each key audit matter in accordance with SA
701.]
Responsibilities of Management and Those Charged
with Governance for the Financial Statements
[Reporting in accordance with SA 700 (Revised) see
Illustration 2 in SA 700 (Revised).]
Auditor's Responsibilities for the Audit of the Financial
Statements
[Reporting in accordance with SA 700 (Revised) see
Illustration 2 in SA 700 (Revised).]
Other Matters
(a) We did not audit the financial statements / financial
information of ______ subsidiaries, and ______ jointly
controlled entities, whose financial statements / financial
information reflect total assets of Rs.______ as at 31st
March, 20XX, total revenues of Rs._______ and net cash
flows amounting to Rs.______ for the year ended on that
date, as considered in the consolidated financial
statements. The consolidated financial statements also
include the Group's share of net profit/loss of Rs. _____
for the year ended 31st March, 20XX, as considered in
the consolidated financial statements, in respect of
____associates, whose financial statements / financial
information have not been audited by us. These financial
statements / financial information have been audited by
other auditors whose reports have been furnished to us
by the management and our opinion on the consolidated
financial statements, in so far as it relates to the amounts
193
IG on Reporting Standards (Revised 2018)
and disclosures included in respect of these subsidiaries,
jointly controlled entities and associates, and our report in
terms of sub-section (3) of Section 143 of the Act, in so
far as it relates to the aforesaid subsidiaries, jointly
controlled entities and associates, is based solely on the
reports of the other auditors.
(b) We did not audit the financial statements / financial
information of ______ subsidiaries and ______ jointly
controlled entities, whose financial statements / financial
information reflect total assets of Rs.______ as at 31st
March, 20XX, total revenues of Rs._______ and net cash
flows amounting to Rs.______ for the year ended on that
date, as considered in the consolidated financial
statements. The consolidated financial statements also
include the Group's share of net profit/loss of Rs. _____
for the year ended 31st March, 20XX, as considered in
the consolidated financial statements, in respect of
____associates, whose financial statements / financial
information have not been audited by us. These financial
statements / financial information are unaudited and have
been furnished to us by the management and our opinion
on the consolidated financial statements, in so far as it
relates to the amounts and disclosures included in
respect of these subsidiaries, jointly controlled entities
and associates, and our report in terms of sub-section (3)
of Section 143 of the Act in so far as it relates to the
aforesaid subsidiaries, jointly controlled entities and
associates, is based solely on such unaudited financial
statements / financial information. In our opinion and
according to the information and explanations given to us
by the management, these financial statements / financial
information are not material to the Group.
Our opinion on the consolidated financial statements, and
our report on Other Legal and Regulatory Requirements
below, is not modified in respect of the above matters with
respect to our reliance on the work done and the reports of
the other auditors and the financial statements / financial
information certified by the management.
194
Appendices
Report on Other Legal and Regulatory Requirements
[Reporting in accordance with SA 700 (Revised) see
Illustration 2 in SA 700 (Revised).]
For XYZ & Co
Chartered
Accountants
(Firm's Registration
No.)
Signature
(Name of the Member Signing the Audit Report)
(Designation161)
(Membership No. XXXXX)
Place of Signature:
Date:
161
Partner or Proprietor, as the case may be.
195
IG on Reporting Standards (Revised 2018)
Illustration 7: An auditor's report of a company, whether
listed or unlisted, containing an adverse opinion when
the auditor has obtained all of the other information
prior to the date of the auditor's report and the adverse
opinion on the consolidated financial statements also
affects the other information.
For purposes of this illustrative auditor's report, the following
circumstances are assumed:
Audit of a complete set of consolidated financial
statements of a company, whether listed or unlisted
(registered under the Companies Act, 2013) using a fair
presentation framework. The audit is a group audit (i.e.,
SA 600 applies).
The consolidated financial statements are prepared by
management of the company in accordance with the
Accounting Standards prescribed under Section 133 of
the Companies Act, 2013.
The terms of the audit engagement reflect the description
of management's responsibility for the consolidated
financial statements in SA 210.
The consolidated financial statements are materially
misstated due to the non-consolidation of a subsidiary.
The material misstatement is deemed to be pervasive to
the consolidated financial statements. The effects of the
misstatement on the consolidated financial statements
have not been determined because it was not practicable
to do so (i.e., an adverse opinion is appropriate).
The relevant ethical requirements that apply to the audit
are the Code of Ethics issued by ICAI and the provisions
of the Companies Act, 2013.
Based on the audit evidence obtained, the auditor has
concluded that a material uncertainty does not exist
related to events or conditions that may cast significant
doubt on the entity's ability to continue as a going
concern in accordance with SA 570 (Revised).
Key audit matters have been communicated in
196
Appendices
accordance with SA 701.
The auditor has obtained all of the other information prior
to the date of the auditor's report and the matter giving
rise to the adverse opinion on the consolidated financial
statements also affects the other information.
Those responsible for oversight of the consolidated
financial statements differ from those responsible for the
preparation of the consolidated financial statements.
In addition to the audit of the financial statements, the
auditor has other reporting responsibilities required under
the Companies Act, 2013.
INDEPENDENT AUDITOR'S REPORT
To the Members of ABC Company Limited
Report on the Audit of the Consolidated Financial
Statements
Adverse Opinion
We have audited the accompanying consolidated financial
statements of ABC Company Limited (hereinafter referred to
as the "Holding Company") and its subsidiaries (the Holding
Company and its subsidiaries together referred to as "the
Group"), its associates and jointly controlled entities, which
comprise the consolidated balance sheet as at March 31,
2XXX, the consolidated statement of profit and loss,
(consolidated statement of changes in equity)162 and the
consolidated statement of cash flows for the year then
ended, and notes to the consolidated financial statements,
including a summary of significant accounting policies
(hereinafter referred to as the "consolidated financial
statements").
In our opinion and to the best of our information and
according to the explanations given to us, because of the
significance of the matter discussed in the Basis for Adverse
Opinion section of our report, the accompanying
162
Where applicable.
197
IG on Reporting Standards (Revised 2018)
consolidated financial statements do not give a true and fair
view in conformity with the accounting principles generally
accepted in India, of the consolidated state of affairs of the
Group, its associates and jointly controlled entities, as at
March 31, 20XX, of its consolidated profit/loss, (consolidated
position of changes in equity)163 and the consolidated cash
flows for the year then ended.
Basis for Adverse Opinion
As explained in Note X, the Group has not consolidated
subsidiary XYZ Company that the Group acquired during
20XX because it has not yet been able to determine the fair
values of certain of the subsidiary's material assets and
liabilities at the acquisition date. This investment is therefore
accounted for on a cost basis. Under the accounting
principles generally accepted in India, the Group should
have consolidated this subsidiary and accounted for the
acquisition based on provisional amounts. Had XYZ
Company been consolidated, many elements in the
accompanying consolidated financial statements would have
been materially affected. The effects on the consolidated
financial statements of the failure to consolidate have not
been determined.
We conducted our audit in accordance with Standards on
Auditing (SAs) prescribed under section 143(10) of the
Companies Act, 2013. Our responsibilities under those
Standards are further described in the Auditor's
Responsibilities for the Audit of the Consolidated Financial
Statements section of our report. We are independent of the
Group and its associates and jointly controlled entities in
accordance with the ethical requirements that are relevant to
our audit of the consolidated financial statements in India in
terms of the Code of Ethics issued by the Institute of
Chartered Accountants of India and the relevant provisions
of the Companies Act, 2013, and we have fulfilled our other
ethical responsibilities in accordance with these
requirements. We believe that the audit evidence we have
163
Where applicable.
198
Appendices
obtained is sufficient and appropriate to provide a basis for
our qualified opinion.
Other Information [or another title if appropriate, such
as "Information Other than the Financial Statements and
Auditor's Report Thereon"]
The company's Board of Directors is responsible for the
other information. The other information comprises the
[information included in the X report164, but does not include
the consolidated financial statements and our auditor's
report thereon.]
Our opinion on the consolidated financial statements does
not cover the other information and we do not express any
form of assurance conclusion thereon.
In connection with our audit of the consolidated financial
statements, our responsibility is to read the other information
and, in doing so, consider whether the other information is
materially inconsistent with the consolidated financial
statements or our knowledge obtained in the audit or
otherwise appears to be materially misstated.
If, based on the work we have performed, we conclude that
there is a material misstatement of this other information, we
are required to report that fact. As described in the Basis for
Adverse Opinion section above, the Group should have
consolidated XYZ Company and accounted for the
acquisition based on provisional amounts. We have
concluded that the other information is materially misstated
for the same reason with respect to the amounts or other
items in the X report affected by the failure to consolidate
XYZ Company.
Key Audit Matters165
Key audit matters are those matters that, in our professional
164 A more specific description of the other information, such as "the
management report and chairman's statement," may be used to identify the other
information.
165
The Key Audit Matters section is required for listed entities only.
199
IG on Reporting Standards (Revised 2018)
judgment, were of most significance in our audit of the
consolidated financial statements of the current period.
These matters were addressed in the context of our audit of
the consolidated financial statements as a whole, and in
forming our opinion thereon, and we do not provide a
separate opinion on these matters. In addition to the matter
described in the Basis for Adverse Opinion section we have
determined the matters described below to be the key audit
matters to be communicated in our report.
[Description of each key audit matter in accordance with SA
701.]]
Responsibilities of Management and Those Charged
with Governance for the Financial Statements
[Reporting in accordance with SA 700 (Revised) see
Illustration 2 in SA 700 (Revised).]
Auditor's Responsibilities for the Audit of the Financial
Statements
[Reporting in accordance with SA 700 (Revised) see
Illustration 2 in SA 700 (Revised).]
Other Matters
(a) We did not audit the financial statements / financial
information of ______ subsidiaries, and ______ jointly
controlled entities, whose financial statements / financial
information reflect total assets of Rs.______ as at 31st
March, 20XX, total revenues of Rs._______ and net cash
flows amounting to Rs.______ for the year ended on that
date, as considered in the consolidated financial
statements. The consolidated financial statements also
include the Group's share of net profit/loss of Rs. _____
for the year ended 31st March, 20XX, as considered in
the consolidated financial statements, in respect of
____associates, whose financial statements / financial
information have not been audited by us. These financial
statements / financial information have been audited by
other auditors whose reports have been furnished to us
by the management and our opinion on the consolidated
200
Appendices
financial statements, in so far as it relates to the amounts
and disclosures included in respect of these subsidiaries,
jointly controlled entities and associates, and our report in
terms of sub-section (3) of Section 143 of the Act, in so
far as it relates to the aforesaid subsidiaries, jointly
controlled entities and associates, is based solely on the
reports of the other auditors.
(b) We did not audit the financial statements / financial
information of ______ subsidiaries and ______ jointly
controlled entities, whose financial statements / financial
information reflect total assets of Rs.______ as at 31st
March, 20XX, total revenues of Rs._______ and net cash
flows amounting to Rs.______ for the year ended on that
date, as considered in the consolidated financial
statements. The consolidated financial statements also
include the Group's share of net profit/loss of Rs. _____
for the year ended 31st March, 20XX, as considered in
the consolidated financial statements, in respect of
____associates, whose financial statements / financial
information have not been audited by us. These financial
statements / financial information are unaudited and have
been furnished to us by the management and our opinion
on the consolidated financial statements, in so far as it
relates to the amounts and disclosures included in
respect of these subsidiaries, jointly controlled entities
and associates, and our report in terms of sub-section (3)
of Section 143 of the Act in so far as it relates to the
aforesaid subsidiaries, jointly controlled entities and
associates, is based solely on such unaudited financial
statements/financial information. In our opinion and
according to the information and explanations given to us
by the Management, these financial statements / financial
information are not material to the Group.
Our opinion on the consolidated financial statements, and
our report on Other Legal and Regulatory Requirements
below, is not modified in respect of the above matters
with respect to our reliance on the work done and the
201
IG on Reporting Standards (Revised 2018)
reports of the other auditors and the financial statements
/ financial information certified by the Management.
Report on Other Legal and Regulatory Requirements
[Reporting in accordance with SA 700 (Revised) see
Illustration 2 in SA 700 (Revised).]
For XYZ & Co
Chartered
Accountants
(Firm's Registration
No.)
Signature
(Name of the Member Signing the Audit Report)
(Designation166)
(Membership No. XXXXX)
Place of Signature:
Date:
166
Partner or Proprietor, as the case may be.
202
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