Audit of Financial Statements

This book thoroughly analyses the entire audit cycle for financial statements, from the initial ‘appointment of the auditor’ to the final’ issuance of the audit report’ and the archival of the audit file. It includes detailed guidance on ‘risk-based audit’ in accordance with the Standards on Auditing issued by the Institute of Chartered Accountants of India (ICAI).

It is designed to be a valuable resource for audit assistants, engagement partners, and small to medium practitioners; this book transitions from a ‘checklist’ based approach, which typically benefits more experienced auditors, to a comprehensive and easy-to-understand description of audit procedures.

The Present Publication is the 3rd Edition and has been amended until 31st July 2024. This book is authored by CA Pranav Jain with the following noteworthy features:

[Overview of Audit Trail] Detailed coverage of the mandatory audit trail requirements for companies effective from 1st April 2023
[Audit Quality Maturity Model] Inclusion of key requirements from the ICAI’s Audit Quality Maturity Model
[Comprehensive Explanation of Audit Procedures] Presented in an easy-to-understand language, tailored for junior staff or less experienced auditors
[Examples of Potential Risks of Material Misstatement] Provided for specific financial statement areas to illustrate common risks
[Interlinking of Audit Procedures and Risks of Material Misstatements] Detailed guidance on audit procedures required by standards, as well as statutory requirements, with a focus on linking procedures to potential risks
[Significant Findings from Regulatory Reviews] Incorporation of notable non-compliance findings from NFRA, QRB, and FRRB in various chapters
[Practical Examples] Detailed examples to explain audit procedures and concepts, including the identification and documentation of risks of material misstatements as per applicable standards
[Real Case Scenarios] Use of real-world scenarios to clarify concepts and enhance understanding
[Numerical Examples] Explanation of inventory valuation methods such as FIFO and weighted average through numerical examples
[Audit Team Examples] Specific examples designed to help audit teams understand audit procedures
[Templates and Checklists] Over 60 templates are included to assist auditors in meeting documentation requirements and gathering meaningful information
[Linkages to Legal Requirements] Detailed references to legal requirements, including:
Companies Act, 2013
Accounting Standards
Standards on Auditing cover reporting requirements such as CARO 2020 and disclosure requirements per the Companies Act, 2013, and Accounting Standards.
[Illustrative Disclosures] Examples of revised Schedule III disclosures and accounting standards requirements for each financial statement area, helping auditors ensure:
Adequate disclosures in financial statements
Compliance with reporting requirements
Clear understanding of concepts, even for junior team members
The book has 50 chapters divided into four divisions (covering each stage of the audit of financial statements), which are as follows:

Division 1 | Preliminary Activities
This division provides an in-depth analysis of preliminary activities, including:
Appointment
Rotation
Resignation
Removal of Auditors
Requirements and Procedures for Joint Audits
Division 2 | Planning of Audit
Divided into 13 chapters, this division provides a comprehensive analysis of audit planning and covers:
Understanding the Entity and its Environment
Identifying and Assessing Risks of Material Misstatement
Responding to Identified Risks
Determining Materiality
Detailed Discussions on Audit Logistics, Management, and Links to the ICAI’s Audit Quality Maturity Model
Division 3 | Audit of Each Line Item of the Financial Statement
This extensive division spans 25 chapters, each dedicated to a specific line item of the financial statements. It discusses core concepts such as:
Professional Skepticism
Documentation
External Confirmations
Each chapter outlines potential risks of material misstatement, audit procedures, legal requirements (including relevant accounting standards and the Companies Act, 2013), and reporting requirements under CARO 2020.
Illustrative disclosures per Schedule III and applicable accounting standards are also included
Division 4 | Concept of Going Concern & Subsequent Events
Comprising nine chapters, this division covers critical topics such as:
Going Concern
Subsequent Events
It provides detailed guidance on audit quality assurance, audit completion activities, and evaluating audit results
It also discusses written representations and communication with those charged with governance, forming an opinion on financial statements, modifications to auditor’s reports, and emphasis of matter
A dedicated chapter covers the regulation of the audit profession and audit quality by bodies such as NFRA, QRB, and ICAI