APPENDIX
APPENDIX
EVALUATION AND RESPONSE TO RISK OF FRAUD
UNDERSTANDING INTERNAL CONTROLS
CORE CONCEPTS
18
AUDIT EVIDENCE
19
OPENING BALANCES
20
AUDIT SAMPLING
1 :
2 :
APPENDIX 1 :
APPENDIX 2A :
APPENDIX 2B :
APPENDIX 3 :
APPENDIX 4 :
AUDIT OF TRADE RECEIVABLES
APPENDIX 1 :
APPENDIX 2 :
APPENDIX 3 :
AUDIT OF OTHER EXPENSES
APPENDIX 1 :
APPENDIX 2 :
APPENDIX 3 :
APPENDIX 3 :
OTHER AUDIT PROCEDURES
43
ASSESSMENT OF SUBSEQUENT EVENTS
OVERVIEW OF ACCOUNTING STANDARDS
WRITTEN REPRESENTATIONS
AUDIT QUALITY ASSURANCE, AUDIT COMPLETION AND EVALUATION OF RESULTS OF TESTS PERFORMED
COMMUNICATION WITH THOSE CHARGED WITH GOVERNANCE
APPENDIX 1 : 888
APPENDIX 2 : 891
FORMING AN OPINION - AUDIT REPORT ON THE FINANCIAL STATEMENTS
49.1 894
49.2 895
49.3 901
APPENDIX 1 : 911
APPENDIX 2 : 918
APPENDIX 3 : 921
APPENDIX 4 : 929
OVERVIEW OF REGULATORY MECHANISM IN INDIA
50.1 983
50.2 984
50.3 992
APPENDIX 1 : 994
CHAPTER C HAPTER
25.1 INTRODUCTION
Para 25.2
25.2 AUDIT OF PROVISIONS & CONTINGENT LIABILITIES
i Existence
ii Completeness
iii Valuation
iv Presentation & Disclosure
25.2.1 Potential Risks of Material Misstatement
i
ii
For example, where the management may be motivated to understate profits, or these are in fact ‘hidden reserves’
for example, even though a company is liable to provide warranty on goods sold, no provision for warranty has been recorded
iiiFor example, discounting rates used for actuarial valuation of provision for gratuity are not appropriate
iv
For example, the entity has not disclosed the movement of provisions as required by paragraph 66 of AS 29].
v vice versa
vi ad hoc. For example, an provision is recorded for warranty without any basis as to how the amount was estimated].
vii
viii
To present a rosy picture of financial statements by not recording liabilities, for example when the company has lost a legal case and is required to record outflow for the claim
Many stakeholders such as investors, lenders also consider the possible impact of contingent liabilities crystallising probable future cash outflows in making decisions. Omission of disclosures of contingent liabilities will influence the decision of such stakeholders. For example, a pending lawsuit could result in a large damage pay out in the future. Non-disclosure of this contingent liability in the financial statements will be misrepresentation of financial statements
Some common issues noted related to provisions
a bc
Hidden reserves
for example, by writing back excess provisions recorded in earlier years for example, recording provision for a litigated matter where in fact the same is only a contingent liability
Note: The above is not a comprehensive list of all possible risks of material misstatement. This is only a list of most common risks. The auditor should evaluate the potential risks of material misstatement based on the facts and circumstances of the entity being audited.
25.2.2 Audit Procedures: Provisions
For example, the company had in the previous year recorded a provision for a
dispute with a vendor which was settled during the year. In such case the balance of unutilized provision should be written back -
of SA 540 “Auditing Accounting Estimates, Including Fair Value Accounting Estimates, and Related Disclosures
i ii iii iv vfor example, discount rate a. i. ii.This is to ensure completeness- that all employees have been considered by the actuary
This is to ensure accuracy- that the correct data has been considered by the actuary
This is to ensure relevance- in case of sick leaves that are carried forward and can only be availed it is the total salary which is relevant and not the basic salary
Appendix 1
Illustration of Warranty Expense Provision Calculation
25.2.3 Audit Procedures: Contingent Liabilities (and commitments)
Appendix 3for example, the decision of lawsuit is in company’s favour and hence the contingency no longer exists. The auditor verifies this with the relevant documentation. Another case could be that the company may have recorded liability during the year based on the facts and circumstances
Para 25.2
493
Example:
Case 1: Case 2: 25.3 REPORTING REQUIREMENTS
Para 25.3
Para 25.4
25.4 DISCLOSURE REQUIREMENTS AS PER SCHEDULE III (DIVISION 1) OF THE COMPANIES ACT, 2013 AND AS 29 “PROVISIONS, CONTINGENT LIABILITIES AND CONTINGENT ASSETS”
Schedule III
Long-term provisions
Short-term provisions
Contingent liabilities and commitments (to the extent not provided for)
Rs. 2395/-