On November 3, 2025, the National Financial Reporting Authority (NFRA) released its Audit-Practice Toolkits: Audit Strategy Memorandum – Sample Document.
Just 1st para of Sample Engagement Letter is Sufficient to guess intention of NFRA and expectations from the Auditors.
"We, M/s Dharmraj & Co., Chartered Accountants, have been appointed as statutory auditors of ABC Limited (ABC) under Section 139 of the Companies Act, 2013 (CA 2013) by the members in the Annual General Meeting held on __."
*M/s Dharmraj & Co
(The Name Says It All: Dharmraj Knows Everything - the Past, Present, and Future - Not Just What Happened, But What Was Planned and Never Did.)
Importantly, it is not an official policy, standard, or recommendation from NFRA's Executive Body or the Government. Instead, it functions as a guiding toolkit for educational and training purposes, aimed at raising awareness of auditing and accounting standards while bolstering overall audit quality.
The content is hypothetical, focusing on the audit of ABC Limited (a fictional automobile company) for its standalone financial statements (SFS) and consolidated financial statements (CFS) for the year ended 31 March 20XY. It emphasizes a risk-based audit approach aligned with Standards on Auditing (SAs) and other applicable standards.
The memorandum outlines a detailed audit strategy and planning framework, tailored to ABC Limited's business, financials, and risks. Key highlights include:
1. Business and Industry Overview
2. Financial Performance Insights
3. Internal Controls and IT Environment
4. Key Accounting and Auditing Focus Areas
5. Group Audit Dynamics
6. Materiality Benchmarks
The document also offers practical guidance for effective auditing:
1. Planning and Strategy: Hold team/client meetings for alignment; maintain skepticism and ethics; update plans dynamically (SA 300).
2. Risk and Testing: Detailed SA 315 assessments on assertions; SA 330 programs with control/substantive tests (e.g., statistical sampling).
3. Specialist Engagement: Use actuaries (benefits), valuers (intangibles/acquisitions), tax experts (Pillar 2/transfer pricing) etc.
4. Group Execution: Confirm auditor independence; issue risk-focused instructions; conduct visits and reviews for Ind AS/SA compliance, allocate materiality by risk/size.
5. Materiality and Reporting: Monitor thresholds ongoing; communicate findings to governance (SA 260/265); cover CARO, fraud (Section 143(12), ICFR, and SEBI requirements.
This educational memorandum illustrates robust audit planning for a complex auto entity like ABC Limited, stressing risk integration across financials, operations, and regulations. It promotes quality through specialist input, dynamic updates, and standards compliance, ultimately boosting transparency and confidence. As a training tool, it encourages auditors to customize its risk-based framework for real audits. Thanks.
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