CA Intermediate · Auditing and Ethics

Audit Report: formula sheet

Full chapter guide

Key formulas

Order of elements in an unmodified report: Title → Addressee → Opinion → Basis for Opinion → Going Concern (if relevant) → KAM → Other Information → Management's responsibilities → Auditor's responsibilities → Other reporting → Signature, date, place; Opinion comes first after the addressee. Use this sequence in written answers.
Opinion section content: Entity identified + statements audited named + notes with accounting policy information + opinion on true and fair view / fair presentation; The opinion wording depends on the framework. A compliance framework uses "prepared, in all material respects, in accordance with".
Basis for Opinion content: Audit per SAs + reference to auditor's responsibilities + independence (Code of Ethics) + sufficient appropriate evidence; Without these four points the answer is incomplete.
Auditor's responsibilities paragraph: Reasonable assurance + misstatement from fraud or error + professional judgment and skepticism + risk assessment + internal controls relevance + evaluate policies and estimates + going concern conclusion + overall presentation + communicate with those charged with governance; Reasonable assurance is high but not absolute, so it does not guarantee detection of every misstatement.
Signature and date: Auditor's signature (name and membership number for a firm, plus firm registration number) + date + place; The date must not be earlier than the date of sufficient appropriate evidence.
Qualified opinion: misstatement: Material misstatement + not pervasive → Qualified ('except for'); Wording: 'except for the effects of the matter described in the Basis for Qualified Opinion section'.
Adverse opinion: Material misstatement + pervasive → Adverse; States that the financial statements do not give a true and fair view.
Qualified opinion: inability to get evidence: Cannot get evidence + possible effects material but not pervasive → Qualified ('except for'); Wording: 'except for the possible effects of'.
Disclaimer of opinion: Cannot get evidence + possible effects material and pervasive → Disclaimer; Auditor says: 'we do not express an opinion'. A disclaimer is also required in extremely rare circumstances involving multiple uncertainties, where, despite sufficient appropriate evidence on each uncertainty, it is not possible to form an opinion because of their potential interaction and possible cumulative effect.
Decision matrix: Cause (misstatement / no evidence) × Extent (material / pervasive); Misstatement: qualified or adverse. No evidence: qualified or disclaimer. Adverse is never used for lack of evidence.
Basis for Opinion heading: Qualified / Adverse: 'Basis for Qualified (Adverse) Opinion'. Disclaimer: 'Basis for Disclaimer of Opinion'; The basis paragraph comes after the opinion paragraph and explains the reason and, where practicable, quantifies the effect.
EOM condition: EOM = matter appropriately presented or disclosed in FS + fundamental to users' understanding; Both parts must be met. If disclosure is inadequate, the opinion is modified instead.
OM condition: OM = matter NOT presented or disclosed in FS + relevant to users' understanding of the audit, auditor's responsibilities or the report; The auditor uses judgment. Law or regulation must not prohibit the communication.
Placement of EOM: EOM paragraph is included in a separate section of the report with the heading "Emphasis of Matter" or another suitable heading; Its position depends on the auditor's judgment about the nature of the matter and its relative importance. It is commonly placed immediately after the Basis for Opinion section. Refer to the matter and to where the disclosure is in the FS.
Placement of OM: OM paragraph is placed in a separate section titled "Other Matter" or another suitable heading; Its position is a matter of the auditor's judgment and depends on what is being communicated. If it relates to other reporting responsibilities, it may go under the section on other legal and regulatory requirements.
Wording of EOM: EOM must state that the opinion is not modified in respect of the matter emphasised; Include a clear reference to the matter and to the note in the FS that describes it.
Communication with those charged with governance: If the auditor expects to include an EOM or OM paragraph, communicate this and the proposed wording to those charged with governance; This is a procedural point examiners like to test.
Applicability of SA 701: KAM required = audit of general purpose financial statements of a listed entity, or where law or regulation requires it. Voluntary for others if the auditor decides.; Do not say KAM applies to every audit. For unlisted entities it is not mandatory.
Determination funnel: Matters communicated with those charged with governance → matters requiring significant auditor attention → matters of most significance = KAM; Write the three stages in order. Each stage narrows the list.
Factors for significant auditor attention: (1) Higher assessed risk or significant risks; (2) significant auditor judgment in areas of significant management judgment, including high estimation uncertainty; (3) effect of significant events or transactions in the period; Name all three factors in a descriptive answer.
Content of each KAM description: Why it was a KAM + how it was addressed in the audit + reference to the related financial statement disclosure; These are the elements to list when asked what the KAM section should contain.
Matters that are not reported as KAM: A matter giving rise to a modified opinion, or a material uncertainty on going concern, is not a KAM; They are reported in their own sections: Basis for Qualified (Adverse) Opinion, Basis for Disclaimer of Opinion, or Material Uncertainty Related to Going Concern. If these are the only matters, the KAM section states that there are no key audit matters to communicate.
Order of sections in the report: Opinion → Basis for Opinion → Material Uncertainty Related to Going Concern (if any) → Key Audit Matters → Emphasis of Matter and Other Matter paragraphs (SA 706); The going concern section comes before KAM, not after it. EOM and Other Matter paragraphs follow KAM. Where the opinion is modified, the Basis for Opinion section is titled Basis for Qualified (Adverse) Opinion. Other report sections are not shown here.
Omitting a KAM: Do not communicate a KAM only if law or regulation precludes public disclosure, or in extremely rare cases where adverse consequences outweigh public interest benefits; The second exception does not apply if the entity has publicly disclosed the matter.
Section 143(3) checklist: (a) information; (b) proper books and returns from branches not visited; (c) receipt of the branch auditor's report (Sec 143(8)) and how you dealt with it; (d) agreement of balance sheet, statement of profit and loss, cash flow statement and statement of changes in equity (where applicable) with books and returns; (e) accounting standards under Section 133 (AS or Ind AS as applicable); (f) adverse financial matters; (g) director disqualification, Sec 164(2); (h) qualifications, reservations or adverse remarks on maintenance of accounts and connected matters; (i) IFC; (j) Rule 11 matters (audit trail is Rule 11(g)); Learn the ten items in this order. In clause (c), the audit of the branch is done by the branch auditor, not by you. Questions often ask you to list or pick the one that does not belong.
IFC reporting: Opinion: adequate IFC system in place AND operating effectively; Both parts are needed. Directors establish IFC; the auditor only opines on it. The IFC report is conventionally given as an Annexure as per the ICAI Guidance Note. Section 143(3)(i) itself does not require an Annexure.
IFC exemption for private companies: Turnover < ₹50 crore (last audited financial statements) AND aggregate borrowings from banks, financial institutions or any body corporate < ₹25 crore at any time during the financial year; Both conditions must be met. Claim it only for a private company that is not a holding or subsidiary of a public company; confirm that status first. One person companies and small companies are also exempt.
CARO 2020 exemption for private companies: Paid-up capital + reserves ≤ ₹1 crore AND borrowings from banks and financial institutions ≤ ₹1 crore at any time in the year AND total revenue ≤ ₹10 crore; Applies only to a private company that is not a holding or subsidiary of a public company. Revenue is as disclosed in Schedule III, including discontinued operations. If any one limit is crossed, CARO applies.
CARO 2020 scope: Paragraph 3: 21 clauses, (i) to (xxi); Banking, insurance, section 8, one person and small companies are excluded.
CARO inventory discrepancy threshold: Report if discrepancy ≥ 10% in aggregate for each class of inventory; Clause (ii)(a). Compare physical count with book records, class by class.

Quick revision

The report has a title and an addressee (as required by the engagement terms), then the Opinion section, followed by Basis for Opinion.
Unmodified opinion means the financial statements are prepared, in all material respects, in accordance with the applicable framework.
Modified opinions are qualified, adverse and disclaimer.
Material but not pervasive misstatement leads to a qualified opinion (except for).
Material and pervasive misstatement leads to an adverse opinion.
Inability to get sufficient appropriate evidence: material but not pervasive gives qualified; material and pervasive gives disclaimer.
Emphasis of Matter refers to a matter already properly disclosed that is fundamental to users' understanding; it does not modify the opinion.
Other Matter paragraph refers to a matter other than those presented or disclosed in the financial statements that, in the auditor's judgement, is relevant to users' understanding of the audit, the auditor's responsibilities or the auditor's report.
Key Audit Matters are those of most significance in the audit. SA 701 applies to audits of listed entities, and to other cases where the auditor decides, or law or regulation requires, KAMs to be communicated. They are not a substitute for a modified opinion.
Under SA 570 (Revised), if use of the going concern basis is appropriate but a material uncertainty exists and is adequately disclosed, the opinion is unmodified with a separate section headed 'Material Uncertainty Related to Going Concern'.
If a material uncertainty is not adequately disclosed, the auditor gives a qualified or adverse opinion.
Section 143 and CARO 2020 add statutory reporting for companies. CARO 2020 applies to all companies, including foreign companies, except banking companies, insurance companies, One Person Companies and small companies. These exemptions for OPCs and small companies are separate from the private company test below. Section 8 companies get no blanket exemption: like private companies, they are exempt only if they stay within the limits below, and must report if they exceed them. A private company is exempt only if ALL these conditions are met together: it is not a holding or subsidiary company of a public company, its paid-up capital and reserves are not above ₹1 crore, its borrowings from banks or financial institutions are not above ₹1 crore at any time in the year, and its total revenue as disclosed in Schedule III (including other income) is not above ₹10 crore. If any one condition fails, CARO 2020 applies.

Common mistakes

Placing Basis for Opinion before the Opinion Fix: Remember that SA 700 (Revised) places the Opinion first, then the Basis for Opinion.
Saying the auditor gives absolute assurance Fix: Write "reasonable assurance", which is high but not absolute, because of the inherent limitations of an audit.
Giving an adverse opinion for a scope limitation. Fix: Adverse is only for material and pervasive misstatement. For pervasive lack of evidence, the answer is a disclaimer.
Giving a disclaimer when the auditor simply disagrees with an accounting treatment. Fix: If the auditor has evidence and finds the statements wrong, it is a misstatement. Choose qualified or adverse.
Saying EOM modifies the audit opinion. Fix: Remember that EOM and OM appear with an unmodified opinion. A modified opinion comes only under SA 705.
Using EOM when the matter is not disclosed in the financial statements. Fix: First check for a note. No disclosure means OM at best, or a modified opinion if disclosure was required.
Saying KAM is required in every audit. Fix: Link KAM to listed entities, or to law or regulation, or to voluntary choice. Say it is not mandatory for other entities.
Treating KAM as a separate opinion or a way to avoid qualifying. Fix: State that KAM is not a substitute for a modified opinion and that no separate opinion is given on each matter.
Treating CARO 2020 as applicable to every company. Fix: Start every CARO question with the exclusions: banking, insurance, section 8, one person, small and the private company limits.
Saying a private company is exempt from CARO because its borrowings and capital are low, ignoring revenue. Fix: Test capital plus reserves, borrowings and total revenue every time. All three must be within limits for the exemption.

Exam tips

Learn the element order as a sequence. Many MCQs test only which element comes first or after another.
In descriptive answers, give a heading for each element and two or three key words of content. This earns step marks quickly.
Use exact terms: reasonable assurance, those charged with governance, sufficient appropriate audit evidence, professional skepticism.
When a case study gives dates or a signature problem, state the SA 700 rule, apply it to the facts and give a clear conclusion.
Do not drift into modified opinion detail unless asked. Mention SA 705 only when the facts show a qualification.
In case studies, underline the cause words: 'refused to provide', 'wrongly capitalised' point to misstatement; 'could not verify', 'records not available' point to scope limitation.
Write the type of opinion in the first line of your answer, then justify it. Examiners award marks for the correct conclusion and for the reasoning.
Quote the key phrase: 'except for', 'do not give a true and fair view', or 'we do not express an opinion'. These are often tested in MCQs.