Page 112 - DCOM204_AUDITING_THEORY

Auditing Theory

Notes 6.5.2 To the Users of the Auditor’s Report on the Financial Statements

1. If the auditor concludes that the non-compliance has a material effect on the financial
statements, the auditor should express a qualified or an adverse opinion.
2. If the auditor is precluded by the entity from obtaining sufficient appropriate audit evidence
to evaluate whether non-compliance that may be material to the financial statements, has,
or is likely to have, occurred, the auditor should express a qualified opinion or a disclaimer
of opinion on the financial statements on the basis of a limitation on the scope of the audit.
3. If the auditor is unable to determine whether non-compliance has occurred because of
limitations imposed by the circumstances rather than by the entity, the auditor should
consider the effect on the auditor’s report.

6.5.3 To Regulatory and Enforcement Authorities

The auditor’s duty of confidentiality would ordinarily preclude reporting non-compliance to a
third party. However, in certain circumstances, that duty of confidentiality is overridden by
statute, law or by courts of law.

Notes The auditor is required to report certain matters of non-compliance to the Reserve
Bank of India as per the requirements of Non-banking Financial companies Auditor’s
Report (Reserve Bank) Directions, 1988, issued by the Reserve Bank of India.

6.6 Withdrawal from the Engagement

The auditor may conclude that withdrawal from the engagement is necessary when the entity
does not take the remedial action that the auditor considers necessary in the circumstances, even
when the non-compliance is not material to the financial statements. Factors that would affect
the auditor’s conclusion include within the implications of the involvement of the highest
authority within the entity which may affect the reliability of management representations, and
the effects on the auditor of continuing association with the entity. In appropriate circumstances,
the auditor may consider seeking legal advice.
An outgoing auditor, on receiving communication from the incoming auditor, should send a
reply to him as soon as possible, setting out in detail the reasons, which according to him had
given rise to the attendant circumstances but without disclosing any information as regards the
affairs of the client which he is not competent to do. However, with the permission of the client
he may disclose information regarding affairs of the client to the incoming auditor.

Did u know? Effective Date: This Statement on Standard Auditing Practices becomes
operative for all audits commencing on or after 1st July, 2001.

6.7 Indications that Non-compliance may have occurred

Examples of the type of information that may come to the auditor’s attention that may indicate
that non-compliance with laws and regulations has occurred are listed below:
1. Investigation by government departments or payment of fines, additional taxes or
penalties.

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