Standards on Auditing - Practical Approach

1. SA - 200 (Overall Objectives of an Independent Auditor and the Conduct of an Audit in Accordance with International Standards on Auditing) - We should see to it that all the relevant laws, standards and regulations relating to that company are getting complied while preparation of financial statements. The audit evidence for the same are to be collected and documented. None of the audit procedures applied should hamper the independence of the auditor. 

2. SA - 210 (Agreeing the Terms of Audit Engagements) - The auditor before the start of the audit should collect engagement letter from the management which specify the scope of audit and describe the auditor's and management responsibility.

3. SA - 220 (Quality Control for an Audit of Financial Statements) - The engagement leader should keep control on the overall performance of the audit. The engagement leader should see that professional ethics and standards are taken care of while performing the audit.

4. SA - 230 (Audit Documentation) - Documentation of each audit procedure conducted and the audit working papers provided by the clients should be maintained either in hard or soft form.

5. SA - 240 (The Auditor's Responsibilities Relating to Fraud in an Audit of Financial Statements) - It is expected that the auditor should use professional skepticism (questioning mind) in conduct of audit. This means he should not blindly accept whatever information is provided by management. The auditor for assurance should obtain management representation letter (MRL). If any kind of fraud is identified during the audit it should be reported. 

6. SA - 250 (Consideration of Laws & Regulations in an Audit of Financial Statements) - The auditor should verify the measures that are being taken by the staff of the entity under review for complying with relevant laws and regulations. The internal controls of the entity can also be verified so as to ensure the check points relating to such applicable laws.

7. SA - 260 (Communication with Those Charged with Governance) - The auditor should see to it that all audit observations which required attention of the top management should be communicated to them.

8. SA - 265 (Communicating Deficiencies in Internal Control to Those Charged with Governance) - The deficiencies noted in Internal Financial Control (IFC) testing should be informed to higher authorities of the entity as well as to those who are actually involved in carrying out that particular process.

9. SA - 299 (Responsibility of Joint Auditors) - In case of joint audit we need to properly communicate about the scope of work of each joint auditor. There should be proper communication and reliance on each of the auditor's work. Joint responsibility should be signed and confirmed by each of the joint auditor.

10. SA - 300 (Planning an Audit of Financial Statements) - All the details relating to the business under audit should be taken into consideration and the audit plan should be developed accordingly. The audit plan should be documented.

11. SA - 315 (Identifying and Assessing the Risks of Material Misstatements through Understanding the Entity and its Environment) - The auditor should after gaining the knowledge about the business and having a discussion with the management of the organisation under review should set the materiality level for the purpose of the audit assignment. This involves assessing the probable areas where there are chances of occurrence of errors.

12. SA - 320 (Materiality in Planning & Performing an Audit) - The auditor should for the purpose of audit assignment decide what can be material transaction for the entity. This may include deciding the value and volume of vouchers that are to be worked. 

13. SA - 330 (The Auditor's Responses to Assessed Risks) - On the basis of risks identified in SA - 315, the auditor should decide in what way it should be presented in the report and the course of action to be taken on it.

14. SA - 402 (Audit Considerations Relating to an Entity Using a Service Organisation) - This SA is applicable where the organisation under review is using the services of other organisations for such items those are having an impact on the financial statements of the entity.

15. SA - 450 (Evaluation of Misstatements Identified during the Audit) - If any kind of errors are identified in the financial statements during audit then proper call should be taken regarding the same on the basis of the materiality of the amount which is misstated.

16. SA - 500 (Audit Evidence) - The audit evidence obtained should form the basis of the points reported in the financial statements and the audit report.

17. SA - 501 (Audit Evidence - Specific Considerations for Selected Items) - This SA is applicable on specific items like inventory, litigation and claims and presentation and disclosure of segment information.

18. SA - 505 (External Confirmation) - This SA is to be considered when the auditor is to obtain external confirmations as audit evidence. The design and performance is mentioned in the standard.

19. SA - 510 (Initial Audit Engagements - Opening Balances) - As per this SA when we are doing the audit for the first time, we need to verify whether the financials and the accounting policies mentioned are not contradicting with each other. While starting the audit of a new financial year we are supposed to verify the opening balances.          

20. SA - 520 (Analytical Procedures) - Financial analytical procedures include use of ratios, analysing prior period items, checking relevance of budgets and forecasts etc.

21. SA - 530 (Audit Sampling) - Audit sampling is dependent on the materiality level set while doing the audit of a particular organisation. Sampling refers to the selecting data for the purpose of vouching and verification.

22. SA - 540 (Auditing Accounting Estimates, Including Fair Value Accounting Estimates, and Related Disclosures) - This SA is to be referred when there is use of accounting estimates in the preparation of financial statements. The auditors responsibilities relating to the same are stated in this SA.

23. SA - 550 (Related Parties) - Firstly the related parties of the entity are to be identified. Then the transactions pertaining to them are to be identified and reported as per the accounting standard.

24. SA - 560 (Subsequent Events) - The events occurring after the balance sheet date are to be identified and appropriate actions and reporting is to be done accordingly.

25. SA - 570 (Going Concern) - We need to identify if there are any items which have occurred that affect the continuity of the business. If so the same have to be reported.

26. SA - 580 (Written Representations) - The written representation is a kind of confirmation obtained from the management regarding the overall transactions of the entity. This SA is to be considered for the preparation of written representation.

27. SA - 600 (Using the Work of Another Auditor) - This SA is regarding the approach of the engagement leader as well as engagement partner when he is using and relying on the work done by his subordinate or another auditor.

28. SA - 610 (Using the Work of Internal Auditors) - This SA is applicable when the statutory auditor is using the work of internal auditor for the purpose of audit.

29. SA - 620 (Using the Work of an Auditor's Expert) - This SA becomes relevant when the expertise of other party is to be used and obtained for the purpose of obtaining audit evidence.

30. SA - 700 (Forming an Opinion and Reporting on Financial Statements) - The auditor can give the following types of opinion:
a) Unqualified Opinion
b) Qualified Opinion
c) Modified Opinion
d) Disclaimer of Opinion
This SA is to be referred while giving any of th opinion mentioned above.

31. SA - 701 (Communicating Key Audit matters in the Independent Auditor's Report) - The points that are mentioned in the audit report are to be discussed with the auditee's top management and their respective staff.   

32. SA - 705 (Modifications to the Opinion in the Independent Auditor's Report) - When the auditor feels that modification of the opinion given in the previous report is required, then this SA becomes relevant and is to be referred.

33. SA - 706 (Emphasis of Matter Paragraphs and Other Matter Paragraphs in the Independent Auditor's Report) - When there are circumstances when qualified or disclaimer of opinion is not required but emphasis is to be given on certain items then emphasis on matter paragraph is used while reporting. This SA then becomes relevant in such circumstances.

34. SA - 710 (Comparative Information - Corresponding Figures and Comparative Financial Statements) - When conducting the audit of current financial year we are supposed to report the figures of the previous financial year as well so we need to check those figures as well whether those are true and correct.

35. SA - 720 (The Auditor's Responsibilities Relating to Other Information in Documents Containing Audited Financial Statements) - This SA becomes applicable when there is any other information disclosed in the financial statements.

36. SA - 800 (Special Considerations - Audit of Financial Statements Prepared in Accordance with Special Purpose Frameworks) - The special frameworks applicable to the entity are to be identified if any and the care is to be taken if those are correctly followed.

37. SA - 805 (Special Considerations - Audit of Single Financial Statements and specific elements, Accounts or Items of a Financial Statements) - This SA is relevant only when there are any such specific assignments as mentioned in this SA. The approach of the auditor pertaining to the same is mentioned in the SA.

38. SA - 810 (Engagements to report on Summary Financial Statements) - This SA is relevant when the auditor is conducting the audit of summary financial statements which are less detailed than the normal financials. 

39. SRE - 2400 (Engagements To Review Financial Statements) - The purpose of this SRE is to provide guidance on practitioners professional responsibilities when a practitioner, who is not the auditor of an entity, undertakes an engagement to review financial statements and on the form and content of the report that the practitioner issues in connection with such review. The objective of review of financial statements is to enable the practitioner to state whether on the basis of procedures anything has come to practitioner's attention that causes the practitioner to believe that the financial statements are not prepared, in all material respects, in accordance with the applicable financial reporting framework.

40. SRE - 2410 (Review of Interim Financial Information Performed by the Independent Auditor of the Entity) - The purpose of this SRE is to provide guidance on the auditor's professional responsibilities when the auditor undertakes an engagement to review interim financial information of an audit client.

41. SAE - 3400 (The Examination of Prospective Financial Information) - The term prospective financial information means statements prepared on the basis of future assumptions and best judgment estimates of the management. The auditor has to verify whether the management has made reasonable and consistent assumptions with the purpose of information required.

42. SAE - 3402 (Assurance Reports On Controls At A Service Organisation) - This standard deals with assurance engagements undertaken by a professional accountant in public practice to provide a report for use by user entities and their auditors on the control at a service organisation that provides service to user entities that is likely to be relevant to user entities internal control as it relates to financial reporting.

43. SAE - 3420 (Assurance Engagements to Report on the Compilation of Pro Forma Financial Information included in a Prospectus) - The objective of the practitioner are to obtain reasonable assurance about whether the pro forma financial information has been compiled in all material respects by the responsible party on the basis of applicable criteria and to report in accordance with the practitioner's findings.

44. SRS - 4400 (Engagements to Perform Agreed Upon Procedures Regarding Financial Information) - The objective is for the auditor to carry out procedures of an audit nature to which the auditor and the entity and any appropriate third parties have agreed and to report on factual findings.

45. SRS - 4410 (Engagements to Compile Financial Information) - This deals with practitioners responsibilities when engaged to assist the management with the preparation and presentation of historical financial information without obtaining any assurance on that information, and to report on the engagement.  

Source - The Chartered Accountant Journal

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Best Investment Opportunities in 2019

There are numerous opportunities available for investment in 2019 to make your money grow by using the tools of compounding and time value of money.

Why Investment in Necessary?
Everyone in today's world want to earn more and save more to secure the future of their families and to make the best use of time to make more money with less span of time. 
Investment is necessary because it helps to earn more by investing the idle money kept in your home in the form of cash or the money kept in your saving bank account in which the interest rates are 4-6%.

Where to Invest?
Following are the ways to invest the idle money kept by you and to earn more income :-

a) National Pension Scheme (NPS) - NPS is a Government Scheme aimed to help individuals with a steady income after retirement. It was initially launched for only Central Government employees, but later was opened up for all individuals.
There are 2 kinds of accounts under NPS, these are – Tier 1 account and Tier 2 account.

Tier 1 account is an account wherein the money in the account cannot be withdrawn till the person reaches the age of 60.

However, partial withdrawal is allowed (even before 60 years) from this account in specific cases. Such cases include critical illness, children’s education, wedding expenses, buying or constructing a house.

This account is compulsory for all central government employees. Under this account, they are required to contribute 10% of their basic monthly salary along with DA and DP.

The minimum amount that is required to be invested in this account is Rs 6000 in a year.

An investor who invests in the NPS Tier 1 account has tax benefits of up to Rs 2 lakh per annum under Chapter VI-A of Income Tax Act..

Deduction amounting to Rs 1.5 lakh under the NPS is covered under the overall ceiling of section 80C of the Income-tax Act, 1961.

Moreover, the investor is also eligible to get an additional tax deduction of Rs 50,000 under section 80CCD(1B).

On the other hand, the Tier II NPS account is more like a savings account and there is no restriction on withdrawal of money, at any point in time whatsoever.

The subscribers of this account are free to withdraw their money as and when they require.

In this, the minimum amount to open the account is Rs 1000 and the minimum balance required at the end of the year is Rs 2000.

However, there are no tax benefits for Tier II. Be it at the time of contribution or at the time of withdrawal.

You can register and contribute through the below mentioned link.

https://enps.nsdl.com/eNPS/NationalPensionSystem.html

b) Mutual Funds - Mutual Funds refers to a pool of money collected from investors who aim at saving and making money through investment. The money so collected is invested in various asset classes like debt funds, equity oriented funds, tax saving funds, money market funds etc.

Types of Mutual Funds based on Asset Class
i) Equity Oriented Funds (EOF) - refers to the fund under the scheme of mutual fund and
a) in case where the fund invested in the units of another fund which is traded on a recognised stock exchange - 
- a minimum of 90% of the total proceeds of such fund is invested in the units of such other fund and
- such other fund also invests a minimum of 90% of its total proceeds in the equity shares of domestic companies listed on a recognised stock exchange.
b) in any other case a minimum of 65% of total proceeds collected from investors are invested in equity shares of a domestic company. EOF are more risker than other funds and provide higher returns if compared to other category of funds. 

ii) Debt Oriented Funds (DOF) - refers to the funds where the proceeds collected are invested in a fixed interest bearing instruments like debentures, fixed income assets, government securities etc. DOF are less risker than EOF and provide lower return as compared to EOF but it provides better return than fixed deposit in a bank.

iii) Money Market Funds - These funds are invested in liquid instruments like commercial paper, treasury bills etc. They are considered quite safe investment option as you get immediate yet moderate return on your investment. 

iv) Hybrid or Balanced Funds - These type of funds are invested in different asset classes. These are time when the proportion of debt is lower than equity. These funds typically invest in mix of stocks and bonds.

v) Index Funds - Indexed funds track the indexes like Nifty 50 on NSE, Sensex on BSE and it has same stocks in its portfolio and in same proportion. As stocks come in and out of the indexes, similarly the fund managers changes the portfolio of index funds and in same proportion.

vi) Tax Saving Funds -  Tax Saving funds are mutual funds that has the benefit of tax saving under sec 80 C of Income Tax Act. Most of the tax saving funds are Equity Linked Saving Scheme (ELSS) and make investment in equity markets.

Taxation of Mutual Funds
i) As per sec 111A of Income Tax Act, tax on short term capital gains (STCG) on sale of equity oriented fund (EOF) on which STT is chargeable is at the rate of 15%. In the case of Individual and HUF, the short term capital gain shall be reduced by the unexhausted basic exemption limit and the balance shall be taxed at 15%. For STCG, period of holding of EOF is 12 months or less and debt oriented fund is 36 months or less.

ii) As per sec 112A of Income Tax Act, tax on long term capital gains (LTCG) on transfer of units of equity oriented fund shall be liable to tax at the rate of 10% on such capital gain, if STT has been paid on acquisition of such units. In the case of Individual and HUF, the short term capital gain shall be reduced by the unexhausted basic exemption limit and the balance shall be taxed at 10%. For LTCG, period of holding of EOF is more than 12 months and debt oriented fund is  more than 36 months.

c) National Saving Certificate (NSC) 
- NSC is a type of investment which can be made in a post office in india and it gives rate of interest higher than fixed deposit in a bank and it is a fixed income investment.
- Currently NSC VIII issue is open for investment. 
- Any person can invest upto Rs 1.5 lakhs to claim the benefit of deduction under section 80C of Income Tax Act. 
- Maturity period of NSC is 5 years and 6 years. 
- Interest on NSC is taxable under income from other sources. 
- Banks and NBFC's accept NSC as a collateral for secured loans.
- NSC are currently issued in the denominations of Rs 100, Rs 500, Rs 1,000, Rs 5,000, Rs 10,000.
- Premature withdrawal of NSC is permitted in following cases only:-
i) On the death of NSC holder.
ii) On forfeiture by pledgee who is a Gazetted Government Officer.  
iii) On the order of court for premature withdrawal of NSC.


d) Public Provident Fund (PPF) - If you go by its name it is a provident fund just like employee provident fund (EPF), recognised provident fund (RPF), government provident fund (GPF) but the only difference is that it is for general public. If you are doing business then you can also open the PPF account and start investing unlike the other provident funds which are only open when you are employee of an organisation whether government or private.
- PPF account can be open with any bank or post office.
- PPF account has a minimum tenure of 15 years and if the account holder wants to withdraw the funds before 15 years, then he/she can do so after completion of 6 years from the date of opening of PPF account.    
- Amount deposited in PPF account can be claimed as a deduction under section 80C of Income Tax Act and the interest received on PPF is also exempt.
- Maximum amount deposited in a PPF account is Rs 1.5 lakhs.

e) Share Market - Anyone can invest in share market through mutual funds or directly in share market by opening a DEMAT account with any of the stock brokers registered with SEBI.
- Share market is basically you are investing in the companies listed on National Stock Exchange (NSE) or Bombay Stock Exchange (BSE).
- Investment in companies depend upon various factors like management of the company, whether you are able to understand the business of the company, return on equity, return on capital employed, how much company is dependent on long term debt for the operations of the company?, what is the future of business the company is currently doing?   

f) Bonds - The main difference between the bondholders and shareholders are that bondholders are lenders of the company whereas shareholders are owners of the company. Following are the type of bonds that you can invest in India:-

i) Government Bonds - These type of bonds are issued by Reserve Bank of India (RBI) on behalf of Government of India (GOI) to raise money for the development of the country and to meet fiscal deficit and offer fixed rate of interest on them. Government bonds are considered as a viable investment by corporates, banks as well as financial institutions, however now it is suitable for individual investors also. Various types of government bonds are treasury bills, cash management bills, dated government securities, 

ii) Corporate Bonds - These types of bonds are basically issued by companies in india to raise money for daily operation or future expansion. Companies can either raise money through equity or debt. Bonds are quite economical than bank loans for companies as they have to lower rate of interest on bonds as compared to bank loans. Corporate bonds are basically risker than government bonds, so the rate of interest is higher than government bonds. 

iii) Zero Coupon Bonds - These bonds are basically issued by the companies in india. These are different from corporate bonds because in this no interest is paid at the time of maturity as bonds are issued at discount, so the investor earns the difference between the issue price and maturity value over the period of bond.

iv) Gold Bonds - In 2018 Sovereign Gold Bond (SGB) Scheme was introduced by RBI. Their value is denominated in multiples of gold grams. They are more basically more beneficial than physical gold because in this there is no risk to store the gold and the RBI also provides fixed rate of interest on the value bonds as in case of physical gold, there is no assurance of getting fixed return as the value of gold is keep fluctuating based on different scenarios in the world. 
- Person resident in India as defined under Foreign Exchange Management Act (FEMA), 1999 are eligible to invest in SGB.
- Eligible investors include individuals, HUFs, trusts, universities and charitable institutions.
- Minimum investment is 1 gram and maximum investment is 4 kg for individuals, HUFs and 20 kg for trusts, universities and charitable institutions.
- The bonds bear the rate of interest of 2.50% per annum on the amount of initial investment.


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