Dcumentatin / Other imprtant Standards with SME perspective
SME -
Definitin f MSMEs in India (As Per Micr, Small & Medium Enterprises Develpment (MSMED) Act, 2006) Manufacturing Enterprises Investment in Plant & Machinery Descriptin INR USD($) Micr Enterprises Upt Rs. 25 Lakh Upt $ 62,500 Small Enterprises Abve Rs. 25 Lakh & upt Rs. 5 Crre Abve $ 62,500 & upt $ 1.25 millin Medium Enterprises Abve Rs. 5 Crre & upt Rs. 10 Crre Abve $ 1.25 millin & upt $ 2.5 millin Service Enterprises Investment in Equipment Descriptin INR USD($) Micr Enterprises Upt Rs. 10 Lakh Upt $ 25,000 Small Enterprises Abve Rs. 10 Lakh & upt Rs. 2 Crre Abve $ 25,000 & upt $ 0.5 millin Medium Enterprises Abve Rs. 2 Crre & upt Rs. 5 Crre Abve $ 0.5 millin & upt $ 1.5 millin
SA ensure & enhance quality f audit engagements Preface t the Statements n Standard Auditing Practices issued by ICAI states While discharging the attest functin, it is the duty f the members f ICAI t ensure that the Standards are fllwed in the audit f financial infrmatin cvered by the audit reprt. If fr any reasn a member has nt been able t perfrm an audit in accrdance with the same, his reprt shuld draw attentin t the material departures therefrm The same finds its relevance in The Chartered Accuntants Act, 1949 / Cde f Ethics Peer Review / Financial Reprting Review Bard (FRRB) Quality Review Bard (QRB) / Disciplinary Mechanism SA deals with respnsibilities f the auditr & it s applicatin t specific areas. SA cntains guidance & ther explanatry material.
Cnsideratins in Audits f SMEs Differences between SMEs and larger entities shuld be recgnized Scalability i.e. Audit apprach may vary with circumstances (simpler/mre cmplex) Requirements d nt usually specify audit prcedures Prfessinal judgment needs t applied Applicatin f SAs designed t be prprtinate Apply prprtinate t audit circumstances, level f cmplexity, nature f audit Prprtinality mdificatin f requirements
Hw d SAs demnstrate prprtinality? Thrugh the requirements: SA 260, where management = TCWG in case f SME, unlike larger enterprise. SA 315 & SA 330 (risk based), absence f frmal risk assessment prcess E.g. In case f SME, test f details wuld have mre preference rather than cntrl SA 540 (Estimates), Estimates enable in pting fr chice f respnses t assessed risks SA 550 (Related parties), inspectin f recrds r dcuments Auditr t rely mre n enquiry, inspectin & bservatin rather than mere scrutiny f financial transactins. Thrugh the applicatin material: Many cnsideratins specific t smaller entities Other guidance, e.g. frm and fcus f cmmunicatin with TCWG
Is cmpliance with all SAs required? Basic bligatin is t cmply with all SAs relevant t the audit Nt all SAs may be relevant. Fr example SA 402, if SME des nt use a service rganizatin SA 501, if SME des nt have any inventry SA 600, if SME audit is nt a grup audit SA 610, if SME has n internal audit functin Cnditinal requirements need nt be applied if cnditins d nt exist [SA 240]
SA 230: Dcumentatin - Nature & Purpse The skills f an accuntant can always be ascertained by an inspectin f his wrking papers - Rbert H Mntgmery, Mntgmery s Auditing, 1912
Dcumentatin Critical cmpnent f audit evidence Dcument is any material that prvides evidence f wrk perfrmed that enables the Auditr t satisfy himself Apprpriate dcumentatin need nt be burdensme Reinfrcing quality Be prprtinate, efficient and effective Experienced auditr test Cautin against checklist mentality Imprtance f exercising prfessinal judgment Illustratins f hw dcumentatin can be dne in efficient & effective manner Objective T prepare dcumentatin that prvides Sufficient & apprpriate recrd f the basis f the auditr s reprt. Evidence that audit was planned & perfrmed in accrdance with SAs & Applicable Legal & Regulatry requirements
Definitins Wrk papers signed agreements written representatins spreadsheets vides pictures transcripts crrespndences etc Audit dcumentatin Recrd f audit prcedures perfrmed, relevant audit evidence btained, & cnclusins the auditr reached (terms such as wrking papers r wrk-papers are als smetimes used). Audit file 1 r mre flders r ther strage media, in physical r electrnic frm, cntaining recrds that cmprise the audit dcumentatin fr a specific engagement. Experienced auditr An individual (whether internal r external t the firm) wh has practical audit experience, and a reasnable understanding f: Audit prcesses; / SAs & applicable legal - regulatry requirements; Business envirnment in which the entity perates; and Auditing & financial reprting issues relevant t the entity s industry
D we knw what we d nt knw Hw much t dcument? Enugh t Assist in planning and perfrming / Recrd matters f cntinuing significance Create accuntability / Assist external inspectin Assist supervisin and directin - Quality cntrl review When t dcument? Timely manner (dcuments prepared after audit are less accurate) Within 60 days f cmpletin f audit (SQC 1) - Retain fr 7 years frm date f audit reprt Implementatin Guide t SA 230 March 2013 16 Case studies Appendix cntaining Illustrative Wrking paper Frmat
Other Matters Departure frm a Relevant Requirement - If, in exceptinal circumstances, the auditr judges it necessary t depart frm a relevant requirement in a SA, the auditr shall dcument hw the alternative audit prcedures perfrmed achieve the aim f that requirement, and the reasns fr the departure Matters Arising after the Date f the Auditr s Reprt If, in exceptinal circumstances, the auditr perfrms new r additinal audit prcedures r draws new cnclusins after the date f the auditr s reprt, the auditr shall dcument: The circumstances encuntered; The new r additinal audit prcedures perfrmed, audit evidence btained, and Cnclusins reached, and their effect n the auditr s reprt; and When and by whm the resulting changes t audit dcumentatin were made and reviewed
Audit Dcumentatin is nt a substitute fr the entity s accunting recrds Extent f Dcumentatin depends n varius factrs such as Risk Assessment sampling Methds used & Materiality Permanent Audit File / Current audit File Cntains Relevant risks & cntrls applicable t an area assertins t be tested & satisfied Substantive & analytical prcedures perfrmed Physical r Electrnic Frm Hard r Sft cpy Audit Plan / Engagement Letter / Qualified pinin Dcuments relating t the use f prfessinal judgment Deleting / Discarding ld superseded infrmatin Retentin f Recrds 7 years as per SQC-1
Dcumentatins under ther SAs SA 200: Basic Principles Gverning an Audit Evidence that the audit was carried ut in accrdance with the basic principles SA 220: Quality Cntrl fr Audit Wrk Audit evidence btained frm substantive prcedures & the cnclusins drawn therefrm, including the results f cnsultatins SA 240: The Auditrs respnsibilities relating t fraud in an audit f FS Understanding f the entity & envirnment, assessment f the risks f material misstatement required by SA 315 Management s respnse & cmmunicatin t TCWG Regulatry requirements like Cmpanies Act, 2013, RBI etc. Reasns fr cnclusin & reprting SA 250: Cnsideratin f Laws and Regulatins in an audit f FS Varius checklists e.g. Cmpanies Act, IGAAP, RBI & NHB, Crprate Gvernance etc. SA 260: Cmmunicatin with thse charged with Gvernance Oral, email, frmal cmmunicatin, Audit cmmittee presentatins & management letters (retentin f cpy)
Dcumentatins under ther SAs (cntd.) SA 299: Respnsibility f Jint Auditrs Jint respnsibility statement SA 300: Planning an Audit f financial statements Pre audit meeting, verall audit strategy, plan & significant changes & reasns SA 315: Identifying and assessing the risk f material misstatement thrugh understanding the entity and Its Envirnment Discussin amng the engagement team and the significant decisins reached; Understanding f the entity s envirnment and internal cntrl (IC) cmpnents; Surces f infrmatin frm which the understanding was btained; Risk assessment prcedures perfrmed; Identified & assessed risks f material misstatement at the FS level and at the assertin level; Risks identified, and related cntrls abut which the auditr has btained an understanding Reprting n IFC ver FS u/s 143 (3) (i) f the Cmpanies Act, 2013
Dcumentatins under ther SAs (cntd.) SA 320: Materiality in Planning and Perfrming an Audit Audit dcs shall include the fllwing amunts & the factrs cnsidered in their determinatin: Materiality fr the FS as a whle (verall) If applicable, the materiality level r levels fr particular classes f transactins, accunt balances r disclsure; Perfrmance materiality; and Any revisin f materiality levels as the audit prgressed & reasns theref. SA 330: Auditr s Respnse t Assessed Risks The verall respnses t address the assessed risks f material misstatement at the FS level, and the nature, timing and extent f the further audit prcedures perfrmed; The linkage f thse prcedures with the assessed risks at the assertin level; and The results f the audit prcedures, including the cnclusins where these are nt therwise clear. Cnclusins reached abut the perating effectiveness f IC in case the auditr has relied upn such test carried ut in previus audit perids. The auditrs dcumentatin shall demnstrate that the financial statements agree r recncile with the underlying accunting recrds.
Dcumentatins under ther SAs (cntd.) SA 505: External Cnfirmatins If the auditr agrees t management's request nt t seek external cnfirmatin regarding a particular matter, the auditr shuld dcument the reasns fr acceding t the management s request. SA 540: Auditing Accunting Estimates The basis fr the auditr s cnclusins abut the reasnableness f accunting estimates and their disclsure that give rise t significant risks; and Indicatrs f pssible management bias, if any SA 550: Related Parties Auditr shall include the names f the identified related parties and the nature f the related party relatinships. SA 580: Written Representatins Auditr is required t dcument identificatin f significant issues relating t the cmpetence, integrity, ethical values r diligence f management r abut its cmmitment t r enfrcement f these. Matters where auditr has relied upn the management s explanatin and infrmatin.
Dcumentatins under ther SAs (cntd.) SA 600: Using the wrk f Anther Auditr Cmpnents whse financial infrmatin was audited by ther auditrs & their significance t financial infrmatin f the entity as a whle; names f ther auditrs; cnclusins reached that individual cmpnents are nt material. Prcedures perfrmed and cnclusins reached regarding cmpnents. Fr example, auditr wuld dcument the results f discussins with ther auditr and review f written summary f ther auditr s prcedures. Any limiting prcedures Cnclusins reached Manner f dealing with mdified reprt f OA while finalizing the PA s reprt SA 610: Using the Wrk Of Internal Auditr When the external auditr uses specific wrk f the internal auditrs, the external auditr shall dcument cnclusins regarding the evaluatin f the adequacy f the wrk f the internal auditrs, and the audit prcedures perfrmed by the external auditr n that wrk
Cntrl Activities Relevant t Audit (CARA) Imprtant: Relevance t Auditrs understanding assessing risk & subsequent respnse i.e. SME cnsideratins Same cncepts less frmal Sme may nt be relevant direct wner versight Relate mainly t transactin cycles