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REVISED VERSION OF AUDIT REPORT w.e.f . 2012-13

REVISED VERSION OF AUDIT REPORT w.e.f . 2012-13. Presented By: CA K.L.Jhanwar Kalani & Company Chartered Accountants, Jaipur. WISDOM. If you are really smarter than others, show them with your action. -Napoleon Hill. ACTION ALWAYS SPEAKS LOUDER THAN WORDS.

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REVISED VERSION OF AUDIT REPORT w.e.f . 2012-13

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  1. REVISED VERSION OF AUDIT REPORTw.e.f. 2012-13 Presented By: CA K.L.Jhanwar Kalani & Company Chartered Accountants, Jaipur Kalani & Company

  2. WISDOM If you are really smarter than others, show them with your action. -Napoleon Hill ACTION ALWAYS SPEAKS LOUDER THAN WORDS Kalani & Company

  3. RELAVENT AUDITING STANDARDS • SA 700(Revised): Forming an opinion and Reporting on Financial Statements; • SA 705 : Modifications to the Opinion in Independent Auditor’s Report ; and • SA 706 : Emphasis of Matter Paragraphs and Other Matter Paragraphs in the Independent Auditor’s Report • SA 710(R) : Comparative information -Corresponding Figures and Comparative Financial Information. Kalani & Company

  4. APPLICABILITY OF REVISED STANDARDS • Revised Standards issued in Year 2010 • Initially applicable to audit of Financial Statements for the period beginning from April, 2011 • Postponed by one year • Now become effective for audit of Financial Statements for 2012-13 Kalani & Company

  5. OBJECTIVES • Assisting in forming opinion on true and fair • Uniformity in Auditor’s Reporting • Describes basis for opinion • Reporting with some modifications to include certain matters specified by the Law and Regulation • Laid down the Guidance for different situation: • Emphasis of matter • Qualified Opinion • Adverse Opinion, and • Disclaimer of Opinion Kalani & Company

  6. DEFINITIONS • General Purpose Financial Statements • Balance sheet • Statement of Profit & Loss • Cash Flow Statement • Explanatory Notes which form part theirof for use to various stakeholder • Unmodified Opinion When conclude in all material respect Financial Statement are prepared in accordance with Financial Reporting Framework Kalani & Company

  7. FINANCIAL REPORTING FRAMEWORK • Fair Presentation Framework – - Requires compliance with requirement of framework and acknowledges that necessary fair presentation of FS. - Management may need to provide disclosure beyond required by FRF. - Under this framework auditor gives true and fair report. • Compliance Framework – - FRF that requires compliance of requirement of framework but does not contain acknowledgement of fair presentation. Kalani & Company

  8. FINANCIAL REPORTING FRAMEWORK • Compliance framework - Under compliance framework, the auditor reports whether the FS comply with requirement of applicable laws or rules and regulations or a set of contractual terms and conditions. • Application to Audit Report in Form 3CB - Foot note 10to SA 800 – In India FS prepared for filing IT authorities are general purpose financial statements. SA 700(R), SA 705, SA 706 and SA 710 (R ) would apply to Form 3CB. Kalani & Company

  9. Elements of Audit Report (SA 700) • Title • Addressee • Introductory Para • Mgt Responsibility • Auditor’s Responsibility • Auditor’s Opinion • Other Reporting Responsibilities • Signature of the Auditor • Date of the Auditor’s Report • Place of Signature Kalani & Company

  10. TITLE INDEPENDENT AUDITOR’S REPORT ADDRESSEE To, The Members ABC Company Limited ………….. Kalani & Company

  11. INTRODUCTORY PARA Report on the Financial Statements We have audited the accompanying financial statements of ABC Company Limited (“The Company”), which comprise the Balance Sheet as at March 31, 2xxx, and the Statement of Profit & Loss and Cash Flow Statement for the year then ended, and a summary of significant accounting policies and other explanatory information. Kalani & Company

  12. MANAGEMENT RESPONSIBILITY Management’s Responsibility for the Financial Statements Management is responsible for the preparation of these financial statements that gives true & fair view of the financial position, financial performance and cash flows of the Company in accordance with Accounting Standards referred to in Sub-section (3C) of section 211 of The Companies Act, 1956 (“the Act”). This responsibility includes the design, implementation and maintenance of internal control relevant to the preparation of the financial statement that give a true and fair view and are free from material misstatement, whether due to fraud or error. Kalani & Company

  13. ELEMENT OF MANAGEMENT RESPONSIBILITY Management Responsible for :- • preparation of FS • FS that gives true & fair View • Compliance of AS • Design, implement and maintain internal control relevant to preparation and presentation of • FS gives true & fair view • FS free from material misstatement - Fraud, or - Error Kalani & Company

  14. AUDITOR’S RESPONSIBILITY Auditor’s Responsibility for the Financial Statements Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with the Standards on Auditing issued by The Institute of Chartered Accountants of India. Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statement are free from material misstatement. ……Contd Kalani & Company

  15. AUDITOR’S RESPONSIBILITY An audit involve performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The Procedure select depend upon auditor’s judgment, including the assessment of the risk of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers the internal control relevant to the Company’s preparation and fair presentation of financial statements in order to design audit procedure that are appropriate in the circumstances. An audit also includes evaluating the appropriateness of accounting policies used and reasonableness of the accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Kalani & Company

  16. ELEMENT OF AUDITOR’S RESPONSIBILITY • Expression of opinion on FS based on Audit • Audit conducted in accordance with SA 100-199 Introductory Matters 200-299 General Principles & Responsibilities 300-499 Risk Assessment and response to Assessed Risks 500-599 Audit Evidence 600-699 Using Work of others 700-799 Audit Conclusion an Reporting 800-899 Specialized Area • Comply with Ethical Requirement (SQC-1) a) Integrity b) Objectivity c) Professional competence and due care d) Confidentiality; and e) Professional behavior • Conceptual Approach to Independence and aspects of Threats ………Contd. Kalani & Company

  17. ELEMENT OF AUDITOR’S RESPONSIBILITY • Plan and perform to obtain reasonable assurance FS free from Material Misstatement - Reasonable Assurance Engagement - Limited Assurance Engagement • Performing procedure to obtain audit evidence - Amount and - Disclosures • Assessment of risk of Material Misstatement - Due to Fraud, or - Due to Error • Study of Internal Control for preparation and fair presentation of FS ……….Cond Kalani & Company

  18. ELEMENT OF AUDITOR’S RESPONSIBILITY • Plan & Perform to obtain reasonable assurance • Evaluating appropriatnace of accounting policies - Consideration of AS-1 and - Application of all other relevant ASs • Reasonableness of Accounting Estimate - professional Judgment • Evaluating overall presentation of FS • Audit Evidence the basis of audit opinion -Sufficient – Quantity - Appropriate - Quality Kalani & Company

  19. OPINION In our opinion and to the best of our information and according to the explanations given to us, the financial statements give the information required by the Act in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India: a) in the case of the Balance Sheet, of the state of affairs of the Company as at March 31, 2xxx b) in the case of the profit/loss for the year ended on that date; and c) in the case of cash flow statement, of the Cash Flows for the year ended on that date. Kalani & Company

  20. ELEMENTS OF OPINION • Best of the Information and Explanation - Power and duties given u/s 227 of The Companies Act, 1956 • Drawing of Audit Conclusion • FS give the information required by the Act in the manner so required. - Compliance of requirement of Schedule VI - Compliance of Other provisions • ……….Contd. Kalani & Company

  21. ELEMENTS OF OPINION • Give true & Fair View in conformity with Indian GAAP • - General Accounting Principles • - Accounting Standard applicable in India • - Guidance Notes pronounced by ICAI • - Opinions by Expert Advisory Committee • - Relevant Law & Legal Framework - Banking Regulation Act, 1949 - Reserve bank of India Act - MSME Act, 2006 - Insurance Act - IRDA Act - SEBI Act - Electricity Act, 2003 and so on Kalani & Company

  22. REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS 1. As required by the Companies (Auditor’s Report) Order, 2003 (“the Order”) issued by Central Government of India in terms of sub-section (4A) of section 227 of the Act, we give in the Annexure a statement on the matters specified in paragraph 4 and 5 of the Order. 2. As required by section 227(3) of the Act, we report that: a) we have obtained all the information and explanation to the best of our knowledge and belief were necessary for the purpose of our audit; b) in our opinion proper books of account as required by Law have been kept by the Company so far as appears from our examination of those books [and proper returns adequate for the purpose of our audit have been received from the branches not visited by us; ……..Contd Kalani & Company

  23. REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS c.) the Balance Sheet, Statement of Profit & Loss, and Cash Flow Statement dealt with by this report are in agreement with the books of account[and with the returns received by the branches not visited by us] d) In our opinion, the Balance Sheet, Statement of Profit & Loss, and Cash Flow Statement comply with the Accounting Standards referred to in sub-section (3C) of the section 211 of the Companies Act, 1956; e) On the basis of written representation received from the directors as on March 31, 2xxx and taken on record by the Board of Directors, none of the director is disqualified as on March 31, 2xxx, from being appointed as a director in terms of clause (g) of sub-section (1) of section 274 of the Companies Act, 1956. f) Since the Central Government has not issued any notification as to the rate at which the cess is to be paid under section 441A of the Companies Act, 1956 or has it issued any Rules under the said section, prescribing the manner in which such cess is to be paid, no cess is due or payable by the Company. Kalani & Company

  24. Signature of Auditor For Kalani & Company, Chartered Accountants FRN No. 000722C [____________] Partner M. No Kalani & Company

  25. Date of Auditor’s Report & Place of Signature • Place: • Dated: Kalani & Company

  26. SUGGESTED CHANGES IN THE FORM 3CB ON APPLICABILITY OF SA-700 FORM NO. 3CB [See rule 6G(1)(b)] Independent Audit-or’s report under section 44AB of the Income-tax Act, 1961 in the case of a person referred to in clause (b) of sub-rule (1) of rule 6G I/We have examined the balance sheet as at 31stMarch ……., and the profit and loss account/income and expenditure account for the year ended on that date, attached herewith, of …… [mention the name and address of the assessee with PAN] ….Contd Kalani & Company

  27. SUGGESTED CHANGES IN THE FORM 3CB ON APPLICABILITY OF SA-700 I/We have also examined the statement of particulars required to be furnished under section 44AB which is annexed herewith in Form No. 3CD. I. Assessee’s Responsibility for the Financial statements The assessee is responsible for the preparation of these financial statements that give a true and fair view of the financial position, financial performance and cash flows of the assessee in accordance with the applicable Accounting Standards issued by Institute of Chartered Accountants of India. This responsibility includes the design, implementation and maintenance of internal control relevant to the preparation and presentation of the financial statements that give a true and fair view and are free from material misstatement, whether due to fraud or error. The asseessee is also responsible for providing such information and explanations as may be sought by the auditor for the purposes of reporting in Form No.3CD Kalani & Company

  28. SUGGESTED CHANGES IN THE FORM 3CB ON APPLICABILITY OF SA-700 II. Auditors Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with the Standards on Auditing issued by the Institute of Chartered Accountants of India. Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the assessee’s preparation and presentation of the financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of the accounting estimates made by assessee, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Kalani & Company

  29. SUGGESTED CHANGES IN THE FORM 3CB ON APPLICABILITY OF SA-700 OBSERVATIONS/COMMENTS/DISCREPANCIES /INCONSISTENCIES 3.(a) I/We report the following observations/comments/discrepancies /inconsistencies; if any: OPINION (C) (A)In my/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:- (i) in the case of the balance sheet, the state of the affairs of the assessee as at 31st March, …….And (ii) in the case of the profit and loss account, the profit of the assessee for the year ended on that date. 5.(B)In my/ 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 and the Annexure thereto are true and correct. Kalani & Company

  30. SUGGESTED CHANGES IN THE FORM 3CB ON APPLICABILITY OF SA-700 REPORT ON OTHER LEGAL/ REGULATORY MATTERS 1.I/We certify that the balance sheet and the profit and loss account/ are in agreement with the books of account maintained at the head office at ….. and …………. branches. 2. I/We have obtained all the information and explanations which, to the best of our knowledge and belief, were necessary for the purposes of the audit. 3. In my/our opinion, proper books of account have been kept by the head office and branch of the assessee so far as appears from our examination of the books. Kalani & Company

  31. SUGGESTED CHANGES IN THE FORM 3CB ON APPLICABILITY OF SA-700 ** Signed Place ___________ Name : ________________________ ( Proprietor/ Partner signing the report on behalf of the firm with membership number) Date___________ Address _______________________ Kalani & Company

  32. MODIFICATION TO THE OPINION (SA-705) • Modification to Auditor’s Opinion is required: a) Conclude that based on Audit evidence FS are not free from material misstatement b) Auditor is unable to obtain sufficient and appropriate audit evidence to conclude FS are not free from material misstatement. • Communication with those charged with governance - When expects to modify Auditor shall communicate circumstances that led to expected modification and proposed wording of modification Kalani & Company

  33. TYPES OF MODIFIED OPINIONS Kalani & Company

  34. CHANGE IN CONTENTS FOR MODIFIED REPORT • Qualified Report Basis for Qualified Opinion Qualified Opinion in place of Opinion • Disclaimer Basis for Disclaimer of Opinion Disclaimer of Opinion in place of Opinion • Adverse Opinion Basis for Adverse Opinion Adverse Opinion in place of Opinion Kalani & Company

  35. EMPHASIS OF MATTER PARAGRAPHS AND OTHER MATTER PARAGRAPHS(SA 706) • Emphasis of Matter Paragraph A paragraph in audit report in relation to matter presented and disclosed have importance to user’s understanding of FS • Other Matter Paragraph A paragraph in Audit report other then presented and disclosed in FS and relevant to user’s understanding of auditor’s responsibility and Auditor’s report in relation to law & regulations or other standards like confidentiality, regulatory implement ……contd Kalani & Company

  36. EMPHASIS OF MATTER PARAGRAPHS AND OTHER MATTER PARAGRAPHS (SA-706) Examples – • An Uncertainty relating to the future outcome of an exceptional litigation or regulatory action • Early application (where permitted) of a new accounting standards that has a pervasive effect on the financial statements in advance of its effective date. • A major catastrophe that has had, or continue to have, a significant effect on the entity’s financial position. Kalani & Company

  37. Corresponding Figures and Comparative Financial Statements SA-710 (R) • Comparative information agrees with the mount and other disclosure presented in the prior period. • The accounting policies reflected in comparative information are consistent with current period if changed, properly accounted for and adequately presented and disclosed. • Unaudited prior period FS – Auditor has to obtain SAAE in respect of opening balances and has to state in other matter (OM)para. • Audited prior period FS – Type of opinion expressed by predecessor auditor with reason and date of report to be stated in other matter (OM) para. If the auditor opinion on prior period FS differ from opinion earlier stated then reason to be stated for different opinion in other matter (OM) para. Kalani & Company

  38. CONCLUSION • What’s new -Revised version of audit report are very specific formats. - Unmodified reports SA 700 (R) - Modified reports SA 705 - Emphasis of matter paragraph in audit report SA- 706 • Form 3CB - ICAI has recommended to CBDT for change in format. Auditor may continue to use form 3CB but principals laid down in SA 700(R ), SA 705, SA 706 and SA 710 (R) to be complied with by him. Kalani & Company

  39. We make a living by what we get, but we make a life by what we give”- Winston Churchill. THANK YOU

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