Reporting Requirements as per Standards of Auditing

Comprehensive practice flashcards covering SA 700 series (700, 701, 705, 706, 710, 720), Section 143 of the Companies Act 2013, and CARO 2020 reporting requirements.

What are the two primary objectives of an auditor under SA 700 regarding the financial statements?

The objectives are (a) To form an opinion on the financial statements based on an evaluation of the conclusions drawn from the audit evidence obtained; and (b) To express clearly that opinion through a written report.

Which specific Standard on Auditing (SA) deals with communicating Key Audit Matters (KAM)?

SA 701, Communicating Key Audit Matters in the Independent Auditor’s Report.

Under what condition must an auditor express an adverse opinion regarding the 'Going Concern' basis of accounting?

If the financial statements have been prepared using the going concern basis of accounting but, in the auditor’s judgment, management’s use of this basis is inappropriate, the auditor shall express an adverse opinion.

What are the three types of modified opinions as per SA 705?

The three types are (i) Qualified Opinion, (ii) Adverse Opinion, and (iii) Disclaimer of Opinion.

An auditor expresses a qualified opinion when misstatements are material but not _________ to the financial statements.

$$\text{pervasive}$$

According to SA 705, when should an auditor express an adverse opinion?

When the auditor, having obtained sufficient appropriate audit evidence, concludes that misstatements, individually or in the aggregate, are both material and pervasive to the financial statements.

What is the definition of 'Key Audit Matters'?

Those matters that, in the auditor’s professional judgment, were of most significance in the audit of the financial statements of the current period, selected from matters communicated with those charged with governance.

Under SA 706, what is an 'Emphasis of Matter' paragraph?

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.

How does an 'Other Matter' paragraph differ from an 'Emphasis of Matter' paragraph?

An Other Matter paragraph refers to a matter other than those presented or disclosed in the financial statements that is relevant to users’ understanding of the audit, the auditor’s responsibilities, or the auditor’s report.

What is the monetary threshold for an auditor to report fraud to the Central Government under Section 143(12) of the Companies Act, 2013?

An amount of $\text{Rs. } 1\,crore$ or above, involved in an offence of fraud being or having been committed against the company by its officers or employees.

Within how many days must an auditor report a suspected fraud of $\text{Rs. } 1\,crore$ or more to the Board or Audit Committee?

Immediately but not later than $\text{2 days}$ of the auditor’s knowledge of the fraud.

What are the six classes of companies specifically exempted from the application of CARO, 2020?

The exempted classes are: (i) Banking company, (ii) Insurance company, (iii) Section 8 company, (iv) One Person Company (OPC), (v) Small company, and (vi) certain Private limited companies meeting specified financial criteria.

According to CARO 2020, at what threshold must discrepancies in inventory physical verification be reported?

Discrepancies of $\text{10\%}$ or more in the aggregate for each class of inventory.

What is the financial criterion for a private limited company to be exempt from CARO 2020 regarding paid-up capital and reserves?

Paid-up capital and reserves and surplus not more than $\text{Rs. } 1\,crore$ as on the balance sheet date.

What is the definition of 'Audit Trail' mentioned in Rule 11 of the Companies (Audit and Auditors) Rules, 2014?

A step-by-step sequential record which provides evidence of the documented history of financial transactions to its source.

What are the two approaches to reporting comparative information as per SA 710?

Corresponding figures and Comparative financial statements.

What is the auditor’s responsibility regarding 'Other Information' under SA 720?

The auditor is required to read and consider whether there is a material inconsistency between the other information and the financial statements, or between the other information and the auditor’s knowledge obtained in the audit.

When should an auditor disclaim an opinion?

When the auditor is unable to obtain sufficient appropriate audit evidence and concludes that the possible effects on the financial statements of undetected misstatements, if any, could be both material and pervasive.