Standards on Auditing vis-a-vis Tax Audit

Transcription

1 Standards on Auditing vis-a-vis Tax Audit -Anand Banka Rule 6G (1) The report of audit of the accounts of a person required to be furnished under section 44AB shall, (a) in the case of a person who carries on business or profession and who is required by or under any other law to get his accounts audited, be in Form No. 3CA; (b) in the case of a person who carries on business or profession, but not being a person referred to in clause (a), be in Form No. 3CB. (2) The particulars which are required to be furnished under section 44AB shall be in Form No. 3CD.] 1

2 3CA We report that the statutory audit of XYZ LIMITED was conducted by us in pursuance of the provisions of the Companies Act In our opinion and to the best of our information and accordingtoexplanationsgiventous,theparticularsgivenin Form No. 3CD and the annexure thereto are true and correct 3CB We have examined the balance sheet as at 31st March, and the profit and loss account/income and expenditure account for the year ended d on that date We certify that the balance sheet and the profit and loss account/income and expenditure account are in agreement with the books of account maintained at the head office and branches In our opinion and to the best of our information and according to the explanations given to us, the said accounts, read with notes thereon, if any, give a true and fair view In our opinion and to the best of our information and according to explanations given to us, the particulars given in the said Form No. 3CD are true and correct 2

3 True and Fair Vs. True and Correct A "true and fair view" is the crux of an audit opinion as given by a Auditor It means that the financial statements under review (audit) are materially accurate and can be used by the user to make informed decisions It means that there are no misstatements or errors of such magnitude that they render the statements useless to a user or would cause a user to make an incorrect decision That is not the same as saying the statements are true and correct. Audit procedures are not designed to uncover EVERY error So a true and fair view in summary is saying that the accounts are "fairly accurate" Structure of Auditing Standards SQC 1-99 Historical financial statements e.g. Stat Audit Other assurance engagements e.g. Projections Related services e.g. Accounting Audit Review General Subject Specific

4 Standards on Quality Controls (SQC) QCPP (Quality Control Policy and Procedures) Manual Ever Firm must have a QCPP manual specifying all measures to ensure quality conduct of Audit LEADERSHIP Engagement Partner ( Partner/ Senior Officer) to ensure that quality control policies are followed. Leader is responsible to ensure quality conduct. ETHICAL REQUIREMENTS (IOISC) Integrity, Objectivity, Independence, Skill & Competence, Confidentiality Not only of audit partner but also full audit team i.e. each and every member of audit team Standards on Quality Controls (SQC) INDEPENDENCE Code of Ethics, Independence of all team members, Familiarity threat - Once in 7 yrs rotating the engagement partners ACCEPTANCE AND REVIEW OF CLIENTS Management Integrity Professional Competence Independence 4

5 Standards on Quality Controls (SQC) HUMAN RESOURCES HR Policy Recruitment, compensation, training, performance evaluation, motivation, Retrenchment t Audit Engagement partner, Team member selection Supervision REVIEW Progress Vs. Audit plan Coverage Significant findings including any misstatements Qualification/ Conclusion as per evidence CONSULTATION Taking the help of an expert SA 620 Auditor is responsible to review the work of an expert Application of Standards on Auditing Basic principles governing an audit (SA 200) Integrity, objectivity and independence, confidentiality, documentation, planning, audit evidence Terms of audit engagement (SA 210) document the terms based on which the engagement has been accepted. Must contain the responsibilities of the management and the scope of the auditor. Acceptance of the terms by both parties to the contract. Documentation (SA 230) audit plan, nature, timing and extent of procedures and the evidence obtained to draw conclusions. 5

6 Application of Standards on Auditing Responsibility of joint auditors (SA 299) Division of work, coordination, relationship for work undivided, disclosure requirements, audit report in compliance with statute, reporting when in agreement or not. Planning of audit of financial statements (SA 300) Overall audit strategy to be planned; plan on potential risk areas; documentation; changes in plan during the course of the audit; additional considerations for initial engagement. Identifying and assessing risks of material misstatement through understanding entity and its environment (SA 315) and responses to assessed risks (SA 330) The Industry, regulatory and other requirements, corporate structure, selection of accounting policies, objectives and strategies leading to business risks, understand the internal control framework Application of Standards on Auditing Materiality in planning and performing an audit (SA 320) Auditors response to assessed risks (SA 330) Controls, substantive approach Misstatements identified during audit (SA 450) Accumulation of identified misstatements, consideration, communication and correction of misstatements as the audit progresses, evaluate effect of uncorrected misstatements, written representations and documentation Audit evidence with specific considerations for selected items (SA 500 & 501) Relevance and reliability of information as audit evidence, use of work by a management expert. Physical inventory count for existence of inventory, identify litigation and claims, direct communication with legal counsel 6

7 Application of Standards on Auditing External confirmations (SA 505) Analytical procedures (SA 520) and Audit sampling (SA 530) Overall conclusion that the financials are consistent with the auditors understanding of the entity, substantive analytical procedures; sampling provides a reasonable basis for conclusion about the population Auditing accounting estimates (SA 540) Related parties (SA 550) Subsequent events (SA 560) Going concern (SA 570) Written Representations (SA 580) Application of Standards on Auditing Using work of another auditor (SA 600) Using the work of internal auditors (SA 610) Using the work of an auditors expert (SA 620) 7

8 Issues in Auditing Concept of materiality Representations Relying on the work of statutory auditor Related parties Can we consider the concept of materiality for Form 3CD? The auditor should consider materiality and its relationship with audit risk when conducting an audit. SA 320 deals with materiality in planning and performing an audit. Form No.3CA/3CB Vs. Form No.3CD 8

9 Is it permissible/allowable to include the representations/ views of the assessee in the body of the audit report itself, wherever it is necessary to protect assessee s interests? There is nothing wrong in recording the representations/ views of the assessee at the appropriate places in Form No.3CD. In fact, it would be advisable to record the views of the assessee as well. In this connection paragraph 16.3(b) states that if there is any difference in the opinion of the tax auditor and that of the assessee in respect of any information furnished in Form No.3CD, the tax auditor should state both the view points and also the relevant information in order to enable the tax authority to take a decision in the matter. Will it be advisable in all cases to obtain detailed management representations? The tax auditor must obtain detailed management representations on all matters which are required to be considered and reported upon by him, while giving his tax audit report. Paragraph 16.2 specifically requires the tax auditor to obtain from the assessee, the statement of particulars in Form No.3CD duly authenticated by him. Reference may also be made to SA 580 Written representations 9

10 A tax auditor does not agree with the treatment given in the audited financial statements in respect of: (i) personal expenses, (ii) valuation of stock-in-trade or any other matters covered in Form No.3 CD. If the statutory auditor has not qualified his audit report on these matters, can the tax auditor quality his report? The tax auditor is not required to comment upon the audit report given by the statutory auditor. He should first ascertain from the statutory auditor, the reasons for his giving such a treatment in his statement. Else, he can state both the views Also refer SA 600 Using the work of another auditor How can the auditor ascertain the details about the persons covered by section 40A(2) and how can he verify all the transactions with such persons? SA 550 related parties During the audit, the auditor shall remain alert, when inspecting records or documents, for arrangements or other information that may indicate the existence of related party relationships or transactions that management has not previously identified ifi d or disclosed d to the auditor. Example Minutes of meetings Sec 301 register 10

11 Anand Banka Partner, Talati &Talati Chartered Accountants Mob: