CA Final Audit Notes [Addendum]

Index
S No. Topic Pg No.
1 SA 540 2
2 Professional Ethics
PIE Disclosure 3
New ESB Decisions 4-5
3 Emerging Areas 6-7
4 SEBI provision 8

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CA Final Audit Notes [Addendum]
Standards on Auditing
SA 540

Recognition and Measurement Criteria: For a/c estimates giving rise to significant risks, auditor shall
obtain SAAE whether following are as per applicable FRF:
a) mgt’s decision to recognise, or to not recognise, a/c estimates in FS; and
b) selected measurement basis for a/c estimates.

Identifying and Assessing the Risks of Material Misstatements:

a) In identifying & assessing RoMM as per SA 315, auditor shall evaluate degree of estimation
uncertainty associated with a/c estimates.
b) Auditor shall determine whether, in auditor’s judgment, any of those a/c estimate that have been
identified as having high estimation uncertainty give rise to significant risk.

Auditor’s Response to Assessed RoMM

Based on the assessed RoMM, auditor shall determine: -
a) Whether mgt has appropriately applied requirements of applicable FRF to a/c estimate &
b) Whether methods for making a/c estimates are appropriate & have been applied consistently, &
whether changes in a/c estimates or method from prior period are appropriate.

In responding to assessed RoMM, as per SA 330, auditor shall undertake one or more of following,
taking account of nature of a/c estimate:
a) Determine whether events occurring up to date of auditor’s report provide audit evidence
regarding the a/c estimate.

b) Test how mgt made a/c estimate and data on which it is based.
In doing so, the auditor shall evaluate whether:
i. Method of measurement used is appropriate in circumstances &
ii. Assumptions used are reasonable in light of measurement objectives of applicable FRF.

c) Test operating effectiveness of controls over how mgt made a/c estimate, together with
substantive procedures.

d) Develop a point estimate or a range to evaluate mgt’s point estimate.

For this purpose:
i. When auditor uses assumptions or methods different from mgt’s, auditor shall obtain
understanding of mgt’s assumptions or methods to ensure auditor’s point estimate or range
considers relevant variables & evaluate any significant differences from mgt’s point estimate.
ii. When auditor concludes it’s appropriate to use a range, auditor shall narrow the range, based
on audit evidence available, until all outcomes within range are considered reasonable.

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CA Final Audit Notes [Addendum]

Professional Ethics
Public interest entity [PIE]
a) listed entity or
b) An entity:
i) Defined by regulation or legislation as PIE or
ii) For which audit is required by regulation or legislation to be conducted in compliance with same
independence requirements that apply to audit of listed entities.

Note: Banks and Insurance Companies are to be considered as Public Interest Entities.

Summary: Listed Entities/Banks/Insurance Cos.

PIE Disclosure to ICAI:

Where for 2 consecutive years, total fees from audit client represent more than
• 20% [PIE]
• 40% [other entities]
of total fees received by firm expressing opinion on F.S. Firm shall disclose this fact to ICAI.

Exemptions:
• Client fees upto ₹20 lakhs
• Audit of Govt Companies, public undertakings, nationalised banks, public financial institution,
regulators or where appointments of auditors are made by Govt

Example: Uday Majnu & Co. is Audit firm doing following Audits

Client Type of PIE/Not Audit Fees % of total Ceiling Disclosure

Entity (Rs in Cr) fees required?
ITC Listed PIE 4 26.67% 20% Yes
Bandhan Listed PIE 2 13.33% 20% No
Bank
XYZ Insurance PIE 1 6.67% 20% No
Insurance
Potato chips Unlisted No 2 13.33% 40% No
Ltd Public Co.
Orange Unlisted Pvt No 6 40.00% 40% No
Juice Pvt Co.
Ltd
Total Fees 15

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CA Final Audit Notes [Addendum]
Recent Decisions of Ethical Standards Board

1. Permissible for CAiP holding COP to become a member of Board of Mgt in Primary (Urban) Co-op
Banks.
Ethical Standards Board noted that a member of 'Board of Mgt' in Primary (Urban) Co-operative banks
(UCBs) and role attached to that position is similar to Director-Simiplicitor; where there is no
involvement of member in day-to-day functioning/operations and not signatory etc. & only sitting fees
provided.

2. CAiP cannot act as Trademark or Patent Attorney. However, Professional advice in relation to
Intellectual Property Rights (IPR) is a routine professional work for a CAIP and same is permissible
under CA Act, 1949.

3. CAIP can’t accept statutory audit of society wherein immediate family member i.e., spouse or
dependent, of member hold honorary position of one of the managing committee of institutes governed
by the society.

4. For purpose of Chapter X of Council General Guidelines, 2008, “auditor’ shall not include internal
auditor, concurrent auditor or auditor reporting to Management. In other words, provision relating to
criteria/limit of indebtedness shall apply only to statutory audits.

5. CA Firm may register itself on Udyog Aadhar, a web portal of Ministry Micro, Small and Medium
(MSME) Enterprises.

6. There is no prohibition for internal auditor of a Co. to acquire/purchase shares of said Co.

7. Not permissible for member to use Messaging Applications to send messages to make people aware
about his practice, and mention services provided therein.

8. CAiP being Director Simplicitor in a Co. cannot sign ROC Forms of Co. as it is a direct conflict of
role.

9. CAiP can act as Authorized Representative of a Foreign Co, provided he isn’t auditor of said Company.

10. Permissible for 2 or more CAiP collectively to have joint training session for their clients on GST,
& share fees collected from the clients thereof.

11. CAiP can provide services through kiosk only if services provided are professional activities of a
practicing CA, permitted under the Act.

12. CA in service is allowed to take e-return registration if it doesn’t conflict with employment
obligation. However, he cannot certify the return.
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CA Final Audit Notes [Addendum]

13. Where CAiP is a non-executive director in a Co., he or his Firm, should not accept the appointment
as a statutory auditor of a Co. which is a joint venture of original Company, as it would impact
independence.

14. Ethical Standards Board while noting requirement for a Director to reside in India for a minimum
period of 182 days in previous calendar year, such Director would be within scope of Director
Simplicitor (which is generally permitted as per ICAI norms) , if he is non –executive director,
required in Board Meetings only , & not paid any remuneration except for attending such Board
Meetings (sitting fees).

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CA Final Audit Notes [Addendum]
Ch-18 Emerging Areas
ESG Reporting:
ESG reporting is about disclosure of info, data, metrics that explain added value in these 3 areas.
o ESG reporting can be both quantitative & qualitative in nature.
o Qualitative reports describe a Co’s strategy or policy around relevant topics & Quantitative
approach includes metrics & KPIs of each area to measure progress against goals & report
achievements.
o Mixed approach that uses both qualitative & quantitative info adds to quality of disclosures.

Business Responsibility & Sustainability Report (BRSR) [Already in QB]

Top 1000 listed companies by market capitalization required to file BRSR.
Reporting questionnaire is divided into 3 sections:
i) Section A – General Disclosures
Contains details of listed cos., its products, services, operations, employee related details, its
holding, subsidiary, associate cos. etc.
ii) Section B – Management Process and disclosures
Contains questions related to policy & management processes, governance, leadership, and
oversight.
iii) Section C – Principle-wise performance disclosures
Cos. are required to report upon Key performance indicators (KPIs) in alignment with 9 principles
of NGRBC [National Guidelines on Responsible Business Conduct]

The section classifies KPIs into 2 categories that companies are required to report upon:
- Essential indicators (Mandatory disclosures)
Include data on training programs, environmental data on energy, emissions, water, waste mgt etc.
- Leadership indicators (Optional disclosures)
Include life cycle assessments, details of conflict mgt policy, additional data on biodiversity,
energy consumptions, supply chain mgt etc.

Assurance in BRSR
ICAI has recently issued Standard on Sustainability Assurance Engagements (SSAE) 3000
Assurance Engagements on Sustainability Information. Applicable to all assurance engg. on
Sustainability info.

Intended users of this Standard include:

• Assurance providers providing assurance on sustainability info.
• Entities seeking to engage a professional auditor.
• Regulators, investors, and other users of Sustainability Reporting data.
This Std. applies for assurance engg. providing reasonable or limited assurance on sustainability info.

Effective date of application of SSAE 3000:

• Voluntary basis for assurance reports covering periods ending on 31.03.23.

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CA Final Audit Notes [Addendum]
• Mandatory basis for assurance reports covering periods ending on or after 31.3.24.
ICAI has also issued SSAE 3410, Assurance Engg. on Greenhouse Gas Statements which deal
with assurance engg. on entity's sustainability info. including assurance of BRSR.

Sustainable Development Goals [Quick Read]

17 SDGs:
No Poverty | Zero Hunger | Good health & well being | Quality Education | Gender Equality | Clean
Water & Sanitization | Affordable & Clean Energy | Decent Work & Economic Growth | Industry
Innovation & Infrastructure | Reduced Inequalities | Sustainable Cities & Communities |
Responsible Consumption & Production | Climate Action | Life Below Water | Life on Land | Peace |
Justice & Strong Institutions | Partnership for the Goals

Global Trends in Sustainable Reporting [Already in QB]

Mandatory reporting mostly associated with public sector or govt run companies, large
corporations, MNCs, and listed cos. in stock ex.

Most widely used framework in world is Global Reporting Initiative (GRI) Sustainability Reporting
Standards having 93% of world’s largest 250 corporates doing sustainability reporting through
GRI. It is used in over 100 countries to report sustainability. This independent international org.
is based in Amsterdam, Netherlands, and has operational hubs in Brazil, China, Colombia, India,
South Africa, and US.

GRI Sustainability Reporting Standards are developed with true multi-stakeholder contributions
and rooted in the public interest.
1. Global Reporting Initiative (GRI) – helps org. to report on economic, environmental, and social
impacts. General disclosures required under this std are Economic, Environment and Social. Report
is addressed to all stakeholders of entity.

2. Carbon Disclosure Project (CDP) – captures environmental performance data related to GHG
emissions, water, forests, and supply chain. Major details reported are climate change, Forest, and
Water security. Addressed to all investors, buyers, and other stakeholders of entity.

3. International Integrated Reporting Framework (IIRC) – has established guiding principles &
content elements in order to allow companies to produce integrated reports. This report consists
of Organisational overview, Governance structure, Business model, risks and opportunities,
strategy, performance, outlook etc.

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CA Final Audit Notes [Addendum]
Ch-19 CARO 2020 & Company Audit

SEBI Provisions on Auditor Resignation (Listed entities)

If auditor propose to resign <45 If > 45 days from end of qtr If issued LR report for
days from end of qtr à before à before resignation issue 1st 3 qtrs à issue Audit
resignation issue Limited Audit/ LR Report for such qtr Report for full year
Review (LR) Report for such qtr & next one before resigning

Eg. If auditor resigns on 18.08.24, i.e. more than 45 days after end of Q1 à Issue LR Report for
Q1 & Q2. [LR à Limited Review]

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