Forming an Opinion and Reporting – Secretarial Audit Compliance Management and Due Diligence Important Questions
Question 1.
Is there a need to obtain a Management Representation Letter from the Auditee Company?
Answer:
- The auditor may obtain a management representation letter from the auditee company on matters which are not capable of direct verification by the Auditor.
- The letter may be signed by Managing Director/Company Secretary/ Senior Management who would normally have authority to issue the same.
- The format may be adopted with changes, depending on the circum stances and facts governing every audit.
- The Auditor can use this letter of representation as part of his audit r evidence. However, it is advised to exercise all possible care, reasonable skill & due diligence.
- Adequate enquiries should be made in respect of matters which are capable of direct verification. Mere getting certification or written representation from management may defeat the purpose of the audit.
- However, it is advised to exercise all possible care, reasonable skill & due diligence. Adequate enquiries should be made in respect of matters which are capable of direct verification. Mere getting certification from management may defeat the purpose of the audit.
Therefore, there is need to obtain a Management Representation Letter from the Auditee Company.
Question 2.
What do you mean by an unqualified/unmodified opinion by an auditor?
Answer:
The Auditor shall express an unmodified opinion when based on Audit Evidence, the Auditor concludes that:
- there is due compliance with the applicable laws in terms of timelines and process; and
- the records as relevant for the audit verified by him as a whole are free from misstatement and maintained in accordance with the applicable laws.
Question 3.
“The Auditor while performing audit shall consider materiality while forming his opinion and adhere few principles.” In light of the given statement discuss those principles?
Answer:
Information is considered as material if its omission or misstatement could influence the opinion of the Auditor. Materiality can also be construed in terms of net impact. The Auditor while performing audit shall consider materiality while forming his opinion and adhere few principles as discussed below:
- The principle of completeness that requires the Auditor to consider all relevant Audit Evidence before issuing a report;
- The principle of objectivity that requires the Auditor to apply professional judgment and professional skepticism in order to ensure that all reports are factually correct and that findings or conclusions are presented in a relevant and appropriate manner;
- The principle of timeliness that implies preparing the report in due time; and
- The principle of a contradictory process that implies checking the accuracy of facts and incorporating responses from concerned persons.
Question 4.
Give five examples of the matters which should be considered as Emphasis of matter?
Answer:
Following are five examples of the matters needed to be considered as Emphasis of Matter:
- An uncertainty relating to the future outcome of exceptional litigation or regulatory action;
- In case of uncertainty about exceptional future events, pending litigations
- Early adoption of new accounting standards
- Adoption of New Technology.
- Recent Changes in the Regulatory Environment.
Question 5.
“The third party reporting may be based on the assurance on factual information for which the auditor should adhere to few points while forming an opinion based on third party reports or opinion.” Discuss those points as referred in the given statement?
Answer:
The third party reporting may be based on the assurance on factual information for which the auditor should adhere to few points while forming an opinion based on third party reports or opinion. The Auditor should adhere to the following while forming an opinion based on third party reports or opinions:
- The Auditor should indicate the fact of use of third-party report or opinion and should also record the circumstances necessitating the use of third-party report or opinion.
- The Auditor should indicate the fact if third-party report or opinion is provided by the Auditee.
- The Auditor should consider the important findings/observation of third-party.
- When necessary and feasible, the auditor should carry out a supplemental test to check veracity of the third party report or opinion.
Question 6.
List out the procedures to be performed for the purposes of the audit where the information produced by company as Audit Evidence is sufficient and appropriate?
Answer:
On consideration of the information informed by the company as Audit Evidence, the auditor should evaluate whether the information is sufficient and appropriate for purposes of the audit by performing procedures to:
- Test the accuracy and completeness of the information, or test the controls over the accuracy and completeness of that information; and
- Evaluate whether the information is sufficiently precise and detailed for the purposes of the audit.
Question 7.
What are pre-requisite for the reporting?
Answer:
Pre-requisite for the Reporting: An Audit report should be:
- Accurate : Free from errors and distortions and faithful to the under-lying facts.
- Objective : Fair, impartial, and unbiased and is a result of a fair minded and balanced assessment of all significant and relevant information.
- Clear : Effortlessly understanding resulting in avoidance of unnecessary technical language and providing all significant and relevant information.
- Concise : To the point avoid unnecessary elaboration, superfluous detail, redundancy, repetitiveness and wordiness.
- Constructive : Helpful to the engagement client and the organization and leads to improvements where needed.
- Complete : Missing nothing that is essential to the target audience and includes all significant and relevant information and observations to support recommendations and conclusions.
- Timely : The reporting on timely basis give management time to take proper corrective actions.
Question 8.
Write short note on: “Auditors’ Responsibility”.
Answer:
1. The auditor’s report should include a section with the heading “Audi-tor’s Responsibility”.
2. The Auditor’s report shall state that the responsibility of the auditor is to express the opinion on the compliance with the applicable laws and maintenance of records based on audit.
3. If any, the auditor’s report shall also state that the audit was conducted in accordance with applicable standard.
4. The auditor’s report shall also explain that those standards require that the auditor should comply with statutory and regulatory requirements and plan and perform the audit to obtain reasonable assurance about compliance with applicable laws and maintenance of records.
5. Auditor’s Report should state that due to the inherent limitations of an audit including internal, financial and operating controls, there is an unavoidable risk that some material misstatements or material non-compliances may not be detected, even though the audit is properly planned and performed in accordance with the standards.
Question 9.
What are the different stages of communication and discussion in Audit Process?
Answer:
Different stages of communication and discussion discussed as under:
1. Preliminary Draft: At the conclusion of fieldwork, the auditor should draft the report and present it to the entity’s management for auditee’s comments.
2. Exit Meeting: The auditor should discuss with the management the findings, observations, recommendations, and text of draft and obtain their comment on the draft, achieve consensus and reach an agreement on the audit findings.
3. Formal Draft: The auditor should prepare a formal draft, in view of the outcome of the exit meeting and other discussions. Upon review of such changes by the auditor and the management, the final report should be issued.
4. Final Report: The report should be submitted to the appointing authority or such members of management, as directed.
Question 10.
Write short note on: “Signing of Audit Report”.
Answer:
1. The auditor’s signature is either in the name of the audit firm, the personal name of the auditor or both as appropriate for the particular jurisdiction.
2. In addition to the auditor’s signature in certain jurisdictions, the auditor may be required to declare in the auditor’s report the auditor’s professional accountancy designation or the fact that the auditor or firm as appropriate has been recognized by the appropriate licensing authority in that jurisdiction.
3. In case of PCS firm, the secretarial audit report may be signed by the partner who conducted or under whose supervision the secretarial audit was conducted indicating his FCS/ACS number along with his certificate of practice number.
4. Further, the secretarial audit report cannot be signed by an employee of the PCS firm even if he/she may be a member of the ICSI holding certificate of practice number.
Question 11.
Write detailed note on: “Reporting with qualification”.
Answer:
1. Explanation of Qualification in Reporting in Board Report: As per Section 134(3) of the Companies Act, 2013, the board of directors in its report prepared shall provide an explanation in full on any qualification or observation or other remarks made by the company secretary in practice in the Secretarial Audit Report.
2. Qualification remark in bold and italics: A qualification, reservation or adverse remarks, if any, should be stated by the auditor at the relevant places in his report in bold type or in italics.
3. In case auditor not able to express an opinion: If the auditor is unable ‘ to express an opinion on any matter, he should mention that he is unable to express an opinion on that matter and the reasons there for.
4. In case of Limitations: If the scope of work required to be performed is restricted on account of restrictions imposed by the company or on account of circumstantial limitations, the report should indicate such limitations.
If such limitations are so material that the Auditor is unable to express any opinion, the Auditor should state that in the absence of necessary information and records, he is unable to report on compliance(s) relating to such areas by the Company.
Question 12.
Write short note on following:
i. Qualified Opinion;
ii. Adverse Opinion;
iii. Disclaimer of Opinion:
Answer:
i. Qualified Opinion:
An Opinion can be considered as a qualified opinion when the auditor specifically provides the additional paragraph or points out the specific instances where the company has failed to do compliance as required or provides reasons for the not issuing the unqualified report on the affairs of the company.
ii. Adverse Opinion:
An Opinion can be considered as an adverse opinion which is considered as the out of track opinion wherein the auditor concluded that the affairs of the company are not in line with its objectives, government rules, and the company has neglected and grossly misstated its records. An adverse opinion may be an indicator of fraud that forces entities to receive an adverse opinion to take corrective measures.
iii. Disclaimer of Opinion:
Where the auditor is unable to access the records of the company on any grounds such as geographical reasons, regulatory, natural calamity or could not complete the audit due to absence of requisite records or insufficient cooperation from-management, the auditor issues a disclaimer of opinion.
Disclaimer of opinion is an indication that no opinion was formed by the auditors and the Auditor was not able to conclude that the affairs of the company are conducted in true and fair manner such disclaimer of opinion is not considered as an opinion itself.
Question 13.
List situations in which the auditor should express modified opinion.
Answer:
Following are List of Situations in which the auditor should, express modified opinion : The Auditor should express modified opinion in following situations as discussed below:
1. When the Auditor concludes that based on the Audit Evidence obtained, there is non-compliance with the applicable laws in terms of timelines and process; or
2. When the Auditor concludes that based on the Audit Evidence obtained, the records as a whole are not free from material misstatement; or are not maintained in accordance with applicable laws; or
3. When the Auditor concludes that he is unable to obtain sufficient and appropriate Audit Evidence to conclude that there is due compliance with the applicable laws in terms of timelines and process; or
4. When the Auditor concludes that he is unable to obtain sufficient and appropriate Audit Evidence to conclude that the records as a whole are free from material misstatement; or are maintained in accordance with applicable laws; or
5. When the auditor has reasons to believe that the affairs of the company are not free from material misstatement.
Question 14.
List situations in which the auditor should express an unmodified opinion when based on Audit Evidence.
Answer:
Following are List of Situations in which the auditor should express unmodified opinion : The Auditor should express unmodified opinion in following situations as discussed below:
1. Based on Audit Evidence when the Auditor concludes that there is due compliance with the applicable law in terms of timelines and process; and
2. Based on Audit Evidence when the Auditor concludes that the records as relevant for the audit verified by him as a whole are free from misstatement and maintained in accordance with applicable laws.
3. Based on Audit Evidence when the Auditor concludes that information on the affairs of the company in all material respects are in accordance with the applicable reporting framework.