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    SBS DIGEST E Journal Jan 2018

    Key Topics Covered:

    • AUDIT


    • FEMA
    • COMPANIES ACT, 2013

    This article is contributed by Partners of SBS and Company LLP – Chartered Accountant Company You can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it.

    SBS WIKI E Journal JAN 2018

    Key Topics Covered:

    3. GST

    This article is contributed by Partners of SBS and Company LLP - Chartered Accountant Company. You can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it.

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    Government of India has, in exercise of the powers conferred under section 28A of the Chartered Accountant Act 1949, constituted Quality Review Board to make recommendations to the Council with regard to the quality of services ( including audit services) provided by the member of the Institute and to guide member of the institute to improve the quality of services and adherence to the various statutory and other regulatory requirements. 

    Quality Review Board(QRB) was established by Parliament of India with the mandate to review the quality of audit services provided by the members of the ICAI and to guide its members to improve the quality of audit services. QRB also notes failure to adhere to the various statutory and other regulatory requirements. 

    From the inception, it is continued endeavour of the QRB to oversee the Audit firm’s audit quality services and to ensure that the audit firms deficiencies in statutory audit services for listed and other public interest entities, in particular , are being appropriately and suitably addressed. 

    Keeping in view the experience gained during the process of reviews being carried out by the QRB as well as international practices and requirements for audit oversight , the Board has formed study groups for the following areas : 

    ?Toundertake holistic examination of the “ Procedure for Quality Review of Audit review, criteria used for the selection of the firms, review team composition, reporting, confidentiality and other aspects make recommendations to the Board for suggesting appropriate amendments. 

    ?Tosuggest measure to raise audit quality bar in line with the stakeholders perceptions towards high quality financial reporting, effective audits and good corporate governance. 

    ?Tosuggest framework for undertaking Root cause analysis of review findings. 

    Root causes and Takeaways for Key findings 



    Root Causes


    Takeaways for Audit Firms


    Quality  Control


    Audit firm did not have comprehensive SQC


    Improve implementation and documentation




    document on various elements of quality


    for various elements of the systems of quality




    control  or  was  not  backed  by  evidence


    control as per SQC-1




    supporting implementation.


    Maintain  policy  &  procedure  to  notify




    CEO and Managing Partner did not fully


    breaches of independence requirements




    recognize  how  audit  environment  had


    Provide eligibility and maintain objectivity of




    changed, and did not understand required


    engagement quality control reviewer (EQCR)




    quality control system to be implemented.


    Maintain Staff appraisal policy




    CEO and Managing Partner did not take action


    Maintain policies and procedures with regard




    to enhance Partners awareness, capabilities


    to engagement performance, engagement




    and competence to improve audit quality and


    documentation and archival process




    perform audit engagements.


    Improve  monitoring  mechanism  and  take




    Failure  to  allocate  sufficient  resources,


    corrective actions for any of the deficiency




    enough time and experienced, competent


    identified  during  inspection  process  and




    engagement team including EQCR.


    communicate to its partner.




    Failure to implement policies and procedures






    for  acceptance  and  continuance  of












    Failure to test independence on engagements






    ensuring independence at all times.






    Failure to have learning calendar and ensuring






    that  firm’s  partners  and  employees  are






    complying ICAI CPE rules.






    Failure to implement elements of monitoring











    Agreeing Terms of




    Agree on terms of audit engagement with

    Para 3 of SA 210

    Audit Engagement










    Cover all aspects of the objective and scope of






    audit, responsibilities of the management and






    auditors in the EL





    3.  Identify the applicable financial reporting






    framework in EL






    Make reference to expected form and content






    of any reports to be issued





    5.  EL

    should be signed and dated within a






    reasonable time from date of appointment




    Audit firm’s personnel did not fully recognise


    Prepare audit documentation on a timely basis

    Para 5 of SA 230



    the importance of audit documentation.


    duly recording who performed and reviewed



    2.  Engagement team did not fully verify whether


    audit work and the date/s of completion and




    audit documentation was prepared.





    3.  Engagement Partner did not review audit


    Prepare audit documentation to understand:




    documentation  nor  provided  sufficient


    Nature,  timing  and  extent  of  audit




    attention because they placed too much



    procedures performed to comply with SAs




    confidence on sharing awareness of entity



    and  applicable  legal  and  regulatory




    issues and audit procedures to be performed







    among their engagement team.


    •  Results of audit procedures performed,



    4.  Engagement Partner did not provide sufficient



    and audit evidence obtained




    direction and supervision to less experienced


    •  Significant matters arising during audit,




    audit  practitioners  despite  they  were  in



    conclusions  reached,  and  significant




    majority due to frequent turnover.



    professional judgments made




    Engagement  Partner  did  not  conduct


    Document decisions of significant matters




    sufficient review of audit documentation.


    with management and those charged with



    6.  Engagement Partner did not have proper






    EQCR in place.


    Put  in  place  EQCR  system  and  ensure











    Audit firm did not have in place education


    Put in place education/training system with




    system with due consideration of experience


    due consideration of experience of audit




    of audit practitioners, scope of their audit


    practitioners,  scope  of  their  audit




    engagements, newly adopted audit standards


    engagements, newly adopted audit standards




    and other relevant factors.


    and other relevant factors






    Comply with policies and procedures for






    assembly and archival of work papers within






    stipulated time.


    A u d i t o r ’ s




    Maintain professional scepticism through out

    Para 10 of SA-240





    the audit period


    relating to fraud in




    Make inquires of management and other


    audit of FS




    within the entity and not merely with MD and






    CFO.  Inquiry  should  also  be  made  with






    Chairman, Audit Committee, Board Members,






    Internal Audit Team, KMP and others not






    generally associated with audit on regular












    Identify and sufficiently respond to significant






    risks such as revenue recognition, journal






    entries and related parties by adequately






    performing  sufficient  work  in  the  areas












    Review of accounting estimates for biases and






    performing adequate work






    Review policies frequently to determine if the






    materiality policies are still appropriate in






    terms of requirement of SAs



    Risk  Assessment


    Audit firm failed to establish overall audit

    and Responses to



    Assessed Risk


    Audit firm failed to include in the audit plan



    about the planned audit procedures including



    identification  and  assessment  of  risk  of



    material misstatements that are required to



    be  carried  out  so  that  the  engagement



    complies with SAs.



    Audit firm failed to implement a suitable



    sampling methodology and document on file



    any calculations as proof thereof and that the



    extent of testing is an adequate response to



    the assessed risk levels.



    Audit firm failed to test IT related controls,



    testing IT generated reports, changes to IT



    systems and have adequate IT personnel on






    Lack of appropriate audit tools, training and



    experienced staff as well as review.



    Audit firm failed to document design and



    effectiveness  of  controls  and  performing



    appropriate test of controls.


    1. Perform risk assessment procedure to provide SA 300, 315, 320,330 a basis for identification and assessment of

    risks of material misstatement at the financial statement and assertion levels. 

    1. Obtain understanding of nature of entity, its operations, its ownership and governance structures, type of investments that the entity is making and plans to make, including investments in SPEs. 
    1. Obtain understanding internal control relevant to the audit 
    1. Design and perform further audit procedures whose nature, timing and extent are based on and are responsive to assessed risk of material misstatement at the assertion level. 
    1. Include in the audit plan about the planned audit procedures including identification and assessment of risk of material misstatements and appropriate audit responses that are required to be carried out so that engagement complies with SAs. 
    1. Test IT related controls, IT generated reports and have appropriate planned procedures including changes to IT systems and have appropriate IT personnel on engagement. 
    1. Document the design and effectiveness of controls and performing appropriate test of controls to obtain sufficient appropriate audit evidence.


    Audit Evidence


    Engagement team identifies significant risks



    but  completes  audit  procedures  only  by



    inquiry  without  obtaining  sufficient



    appropriate audit evidence.



    Engagement team identifies inconsistencies



    and irregularities with other audit evidence



    but does not determine the necessity of



    additional audit procedures.



    Even though the assessed risk of material



    misstatement is high, the engagement team



    performs the tests of details only by obtaining



    the entity's internal vouchers and other less



    reliable audit evidence without assessing the



    quality of the obtained auditevidence.



    During sampling among the audit procedures



    in  response  to  the  assessed  risk,  the



    engagement team does not select samples



    from the appropriate selection range to reach



    a conclusion for the entire population



    Engagement team did not perform audit



    procedures to comprehensively understand



    the related parties.



    Engagement team did not perform procedures



    on the management’s methods and data used



    for accounting estimates.



    Engagement  team  did  not  assess  the



    management’s bias.





    1. Design and perform audit procedures that are appropriate in circumstances for obtaining sufficient appropriate audit evidence.
    2. Maintain control over external confirmation requests while using external confirmation procedures. 
    1. Select items for the sample in such a way that each sampling unit in the population has a chance of selection. 
    1. Perform audit procedures to comprehensively understand related parties 
    1. Appropriately identify and assess risks of material misstatement in accounting estimates, and perform appropriate audit procedures to address such risks 
    1. Perform analytical procedures during planning stage, audit performance and when forming overall conclusion as to whether financial statements are consistent with auditor’s understanding ofentity. 
    1. Maintain documentation for work performed. 

    SA – 500, 505, 510, 520, 530, 540, 550, 570 and 580


    Audit Conclusions


    Audit firm does not conclude the audit opinion

    and Reporting


    at the end of the audit, based on audit



    evidence obtained and sometimes they have



    pressure to complete the audit ontime





    1. Form an opinion on FS based on evaluation of Para 6 of SA 700 conclusions drawn from audit evidence

    obtained and express clearly that opinion through written report that also describes the basis for opinion. 

    1. Obtain reasonable assurance about whether FS as a whole are free from material misstatements, whether due to fraud or error. 
    1. Modify opinion in auditor’s report and conclude, based on audit evidence obtained, that the financial statements as a whole are not free from material misstatement. Have appropriate consultations within the Firm for any modifications to the audit report and document such consultations as part of work papers. 
    1. Include an Emphasis of Matter paragraph in auditor’s report to draw users’ attention to matter presented or disclosed in financial statements that, in the auditor’s judgment, is of such importance that it is fundamental to users’ understanding. 
    1. Obtain management representation letter before audit report is issued.



    It is the policy of Indian Government that export of goods or services should not be burdened with taxes to remain competitive in the global market. Though this policy remained intact even under GST regime, the manner of its implementation is affecting the exporters. In case of exporters undertaking exports by paying GST, the undue delay in sanctioning there fund of such GST, has badly affected their working capital requirements. It is estimated that around 65,000 crores of exporters money were stuck up during July to September period. In case of exporters exporting under Letter of Undertaking without paying any GST, Government has recently introduced manual process to claim refunds as against the promised electronic filing and processing through GST portal. This is more likely to cripplet he prompt sanctioning of refund claims which may cause severe dent in exporters margin and working capital requirements. In this context, this article aims to highlight several issues of exporters that requires immediate action from Government. 


    In the month of September, 2017, the Ministry of Corporate Affairs, had released (03) Three separate lists containing the details of 3,09,614 Directors, associated with the Companies, which had not filed Annual Returns/Financial Statements with the respective ROCs/MCA Portal, for a continuous period of 03 (Three) years i.e., 2013 – 2014, 2014- 2015 & 2015 – 2016, thereby disqualifying them from acting as Directors pursuant to the provisions of Section 164 (2) r/w Section 167 (1) (a) of the Companies Act, 2013. 

    As a result of the disqualification, the DINs of the respective Directors were de-activated, thereby the Directors cannot use their DIN/DSC for filing of any returns with the MCA Portal. 

    With the above happening, the Companies in which such disqualified Directors, were associated, had also come to a stand still, as they cannot file any pending returns with the ROC/MCA Portal. 

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