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    Who is an assessee ?

    Extract of sec 2(7)(a)

    Assessee means a person by whom any tax or any other sum of money is payable under this Act, and includes

    • every person in respect of whom any proceeding under this Act has been taken for the assessment of HIS income or
    • of the Income of any other person in respect of which he is assessable
    • or of the loss sustained by him or by such other person or of the amount of refund due to him or to such other person

    Synopsis

    • Introduction and Applicability
    • Objective
    • Important Definitions
    • Prohibition to accept foreign contribution
    • Non-applicability
    • Registration
    • Grant of certificate, suspension, cancellation and renewal of certificate
    • Maintenance of accounts and Audit of accounts
    • Offences and Penalties
    • Miscellaneous Provisions
    • Reporting in various forms under the Act

     

    Introduction and Applicability

    Name of the Act:

    • This act may be called as “The Foreign Contribution (Regulation) Act, 2010.” It is often referred as “FCRA”.

    Applicability of the Act:

    It is applicable to whole of India and

    It shall also apply to

    • Citizen of India outside India and
    • Foreign associate branches or subsidiaries of companies or bodies corporate registered or incorporated in India.

    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 

    Insight

     

    Root Causes

     

    Takeaways for Audit Firms

    SA

    Quality  Control

    1.

    Audit firm did not have comprehensive SQC

    1.

    Improve implementation and documentation

    SQC-1

    Framework

     

    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.

    2.

    Maintain  policy  &  procedure  to  notify

     

     

    2.

    CEO and Managing Partner did not fully

     

    breaches of independence requirements

     

     

     

    recognize  how  audit  environment  had

    3.

    Provide eligibility and maintain objectivity of

     

     

     

    changed, and did not understand required

     

    engagement quality control reviewer (EQCR)

     

     

     

    quality control system to be implemented.

    4.

    Maintain Staff appraisal policy

     

     

    3.

    CEO and Managing Partner did not take action

    5.

    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.

    6.

    Improve  monitoring  mechanism  and  take

     

     

    4.

    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.

     

     

    5.

    Failure to implement policies and procedures

     

     

     

     

     

    for  acceptance  and  continuance  of

     

     

     

     

     

    engagements.

     

     

     

     

    6.

    Failure to test independence on engagements

     

     

     

     

     

    ensuring independence at all times.

     

     

     

     

    7.

    Failure to have learning calendar and ensuring

     

     

     

     

     

    that  firm’s  partners  and  employees  are

     

     

     

     

     

    complying ICAI CPE rules.

     

     

     

     

    8.

    Failure to implement elements of monitoring

     

     

     

     

     

    activity.

     

     

     

     

    Agreeing Terms of

     

     

    1.

    Agree on terms of audit engagement with

    Para 3 of SA 210

    Audit Engagement

     

     

     

    management

     

     

     

     

    2.

    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

     

     

     

     

    4.

    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

    1.

    Audit firm’s personnel did not fully recognise

    1.

    Prepare audit documentation on a timely basis

    Para 5 of SA 230

    Documentation

     

    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.

     

    review

     

     

    3.  Engagement Partner did not review audit

    2.

    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

     

     

    requirements

     

     

     

    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

     

     

    5.

    Engagement  Partner  did  not  conduct

    3.

    Document decisions of significant matters

     

     

     

    sufficient review of audit documentation.

     

    with management and those charged with

     

     

    6.  Engagement Partner did not have proper

     

    governance

     

     

     

    EQCR in place.

    4.

    Put  in  place  EQCR  system  and  ensure

     

     

     

     

     

    compliance

     

     

     

    7.

    Audit firm did not have in place education

    5.

    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

     

     

     

     

    6.

    Comply with policies and procedures for

     

     

     

     

     

    assembly and archival of work papers within

     

     

     

     

     

    stipulated time.

     

    A u d i t o r ’ s

     

     

    1.

    Maintain professional scepticism through out

    Para 10 of SA-240

    Responsibilities

     

     

     

    the audit period

     

    relating to fraud in

     

     

    2.

    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

     

     

     

     

     

    basis

     

     

     

     

    3.

    Identify and sufficiently respond to significant

     

     

     

     

     

    risks such as revenue recognition, journal

     

     

     

     

     

    entries and related parties by adequately

     

     

     

     

     

    performing  sufficient  work  in  the  areas

     

     

     

     

     

    identified

     

     

     

     

    4.

    Review of accounting estimates for biases and

     

     

     

     

     

    performing adequate work

     

     

     

     

    5.

    Review policies frequently to determine if the

     

     

     

     

     

    materiality policies are still appropriate in

     

     

     

     

     

    terms of requirement of SAs

     

     

    Risk  Assessment

    1.

    Audit firm failed to establish overall audit

    and Responses to

     

    strategy

    Assessed Risk

    2.

    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.

     

    3.

    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.

     

    4.

    Audit firm failed to test IT related controls,

     

     

    testing IT generated reports, changes to IT

     

     

    systems and have adequate IT personnel on

     

     

    engagement.

     

    5.

    Lack of appropriate audit tools, training and

     

     

    experienced staff as well as review.

     

    6.

    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

    1.

    Engagement team identifies significant risks

     

     

    but  completes  audit  procedures  only  by

     

     

    inquiry  without  obtaining  sufficient

     

     

    appropriate audit evidence.

     

    2.

    Engagement team identifies inconsistencies

     

     

    and irregularities with other audit evidence

     

     

    but does not determine the necessity of

     

     

    additional audit procedures.

     

    3.

    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.

     

    4.

    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

     

    5.

    Engagement team did not perform audit

     

     

    procedures to comprehensively understand

     

     

    the related parties.

     

    6.

    Engagement team did not perform procedures

     

     

    on the management’s methods and data used

     

     

    for accounting estimates.

     

    7.

    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

    1.

    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.

     

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