Key Roles and Responsibilities of a CA in Audit Services

Planning and Organizing the Audit

• Understanding the Business: The CA begins by gaining an understanding of the client’s business, its operations, and internal control systems.
• Risk Assessment: Identifying potential risks of material misstatement in the financial statements due to fraud or errors. The CA assesses the risk factors and tailors the audit plan accordingly.
• Audit Strategy: Developing an audit strategy and plan that defines the nature, timing, and extent of audit procedures to be performed. This plan includes determining the audit scope and objectives.

Performing Risk-Based Audits

• The CA conducts a risk-based audit approach where areas of higher risk or greater materiality are given more attention.
• The CA uses various auditing techniques such as substantive testing and analytical procedures to examine the financial records.

Verification of Financial Statements

• Balance Sheet and Profit & Loss Account: The CA verifies the accuracy of the balance sheet (assets, liabilities, equity) and profit and loss account (income, expenses, profits/losses).
• Cash Flow and Other Statements: The CA checks cash flow statements, statement of changes in equity, and other financial documents to ensure they reflect the true financial position of the company.
• Reconciliation: Ensuring that the company's books of accounts are reconciled with the bank statements, supplier invoices, customer payments, etc.

Assessing Internal Controls

• Internal Control Evaluation: The CA assesses the effectiveness of the organization’s internal control systems to detect any weaknesses that could lead to financial misstatements or fraud.
• Control Testing: This involves testing the controls to ensure they are functioning properly. For example, checking the segregation of duties, approval processes, and authorization of transactions.

Substantive Testing

• Verification of Transactions: The CA performs substantive tests such as inspection of documents, confirmation of balances (e.g., confirming balances with banks or suppliers), and recomputation of calculations to verify the accuracy of the company’s financial transactions.
• Sampling: Since it is not always practical to verify every transaction, the CA will often use sampling techniques to select a representative subset of transactions for detailed testing.

Compliance with Accounting Standards

• The CA ensures that the financial statements are compliant with applicable accounting standards (e.g., Ind AS, IFRS, GAAP), and legal regulations (such as the Companies Act, Income Tax Act).
• The CA checks whether the financial statements reflect the true and fair view of the company’s financial position.

Evaluating Financial Fraud and Irregularities

• Fraud Detection: One of the key responsibilities of the CA is to identify potential frauds or financial irregularities. This may involve reviewing unusual transactions, tracing source documents, and following the audit trail to ensure no fraudulent activity has occurred.
• Whistleblower Procedures: A CA might also advise on establishing a whistleblower policy if fraud risks are identified during the audit.

Providing Audit Opinions

• After completing the audit, the CA issues an audit opinion on the financial statements:
  • Unqualified Opinion (Clean Opinion): Indicates that the financial statements present a true and fair view and are in compliance with applicable standards.
  • Qualified Opinion: Issued when there are certain exceptions or limitations in the audit, such as non-compliance with accounting standards or limitations in the scope of the audit.
  • Adverse Opinion: Given if the financial statements are materially misstated and do not reflect the true financial position of the company.
  • Disclaimer of Opinion: Issued when the auditor is unable to express an opinion due to limitations in the audit scope or insufficient evidence.

Reporting the Findings

• Audit Report: The CA prepares and presents the audit report, which includes:
  • Audit findings, including material misstatements or areas of concern.
  • Recommendations for improvements in internal controls, processes, and accounting practices.
  • Suggestions for addressing any weaknesses or issues identified during the audit.
• The report is submitted to the board of directors, shareholders, or regulatory authorities, depending on the nature of the audit.

Tax Audit and Compliance

• For businesses required to file tax returns, a CA often performs a tax audit to ensure compliance with tax laws (such as the Income Tax Act or GST laws).
• The CA ensures that the business is fulfilling its tax obligations, including accurate reporting of income, deductions, and tax payments.
• The CA also ensures that the company is adhering to GST compliance rules, such as filing the correct returns, maintaining accurate records, and adhering to the GST Act.

1. Communication with Management

• Throughout the audit process, the CA communicates regularly with the management of the company to discuss the audit findings, ask for clarifications, and provide updates.
• The CA may also meet with the audit committee or board members to present critical issues or recommendations.

1. Special Purpose Audits

• In some cases, the CA may conduct audits for specific purposes like forensic audits, performance audits, or compliance audits, which focus on a particular aspect of the business such as detecting fraud, measuring operational efficiency, or ensuring regulatory compliance.

In a company audit, various documents are required to verify the accuracy, completeness, and compliance of the company’s financial records, as well as to assess the effectiveness of its internal controls and risk management practices. These documents provide the necessary evidence and support for the auditor to form an opinion about the company’s financial health, legal compliance, and operational effectiveness.

Key Documents Required in a Company Audit

1. Financial Statements

• Balance Sheet: This shows the company’s assets, liabilities, and shareholders’ equity as of a specific date.
• Profit & Loss Account (Income Statement): Shows the company’s income, expenses, and net profit or loss over a particular period (usually a year or quarter).
• Cash Flow Statement: Provides details about the cash inflows and outflows from operating, investing, and financing activities.
• Statement of Changes in Equity: Shows the changes in the company's equity during the reporting period, such as issued shares, retained earnings, and reserves.
• Notes to Financial Statements: Detailed explanations of accounting policies, significant transactions, and other relevant information to support the figures in the financial statements.

2. Trial Balance

• The trial balance is a list of all ledger accounts (debit and credit) at the end of the accounting period. It helps ensure the accounting records are mathematically correct and balanced before the final accounts are prepared.

3. Bank Statements

• Bank Reconciliation Statements: Bank statements for the audit period are compared with the company's books to ensure that cash balances are accurate and there are no discrepancies. Bank reconciliation helps verify that cash records are accurate.
• Cancelled Cheques: For verifying payments made and their corresponding journal entries.

4. General Ledger and Sub-ledgers

• The General Ledger is the master record of all financial transactions of the company. It is broken down into sub-ledgers, such as:
  • Accounts Payable Ledger (for outstanding debts to suppliers).
  • Accounts Receivable Ledger (for amounts owed by customers).
  • Fixed Assets Register (for tracking assets owned by the company).
  • Inventory Records (showing stock of goods or materials held by the company).

5. Invoices, Receipts, and Payment Vouchers

• Sales Invoices: To verify revenue, sales transactions, and the company's internal controls over invoicing.
• Purchase Invoices: To ensure proper documentation for all purchases and assess whether the purchases are recorded accurately.
• Payment Vouchers: Documents that show payments made, including details such as the amount, recipient, and purpose.

6. Tax Records

• Income Tax Returns (ITR): The company’s filed tax returns for the relevant period, including schedules and assessments.
• Tax Payment Receipts: Proof of payment of taxes, such as income tax, GST, TDS (Tax Deducted at Source), etc.
• GST Returns: If the company is registered under GST, GST returns (GSTR-1, GSTR-3B, GSTR-9, etc.) are required for verification of GST payments, input tax credits, and output tax.
• TDS Certificates: Tax Deducted at Source certificates, including details of tax deductions made on employee salaries and vendor payments.

7. Legal Documents and Agreements

• Memorandum and Articles of Association (MOA & AOA): These foundational documents outline the company’s objectives, rules, and internal governance.
• Board Resolutions: Formal decisions made by the board of directors, such as approving financial statements, dividend declaration, or changes in share capital.
• Shareholder Agreements: Documents related to the rights and obligations of shareholders, including any amendments.
• Loan Agreements: Documents relating to loans or borrowings, including terms of repayment and interest.
• Leases and Rental Agreements: Contracts for property or equipment leases that affect financial obligations.

8. Fixed Asset Documentation

• Fixed Assets Register: This record includes details of all tangible fixed assets owned by the company, such as machinery, buildings, and vehicles.
• Purchase and Sale Invoices for Fixed Assets: Proof of acquisition or disposal of fixed assets, including invoices and other supporting documents.
• Depreciation Schedule: A detailed record showing the depreciation of each fixed asset over time.

9. Inventory Records

• Inventory Valuation and Stock Records: Documentation of goods held in stock, including quantities, valuations, and movement records.
• Stock Registers: Detailed record of the opening, purchases, sales, and closing stock.
• Inventory Reports: Reports for physical stock counts and reconciliations with the financial records to verify that the inventory is correctly valued and recorded.

10. Payroll and Employee Records

• Payroll Register: A record of employee salaries, wages, bonuses, and deductions.
• Tax Withholding and PF/ESI Records: Documentation showing compliance with tax withholding requirements and employee benefits like Provident Fund (PF) and Employee State Insurance (ESI).
• Employee Contracts: Contracts of employment, agreements on bonuses, and other incentives.
• Leave and Attendance Registers: To verify the accuracy of employee benefits, overtime, and salary calculations.

11. Debtors and Creditors Statements

• Debtors List: A detailed list of amounts owed to the company by its customers, with aging analysis (overdue payments).
• Creditors List: A list of amounts the company owes to its suppliers, with details of the outstanding payables.
• Aging Schedules: Showing the aging of debts and liabilities to assess the collection period and potential bad debts.

12. Insurance Documents

• Insurance Policies: Documentation for company insurance policies, such as health insurance, property insurance, and liability insurance, including coverage details and premiums paid.
• Claims or Settlements: If any claims have been made, relevant documents, including claim reports and settlements, are reviewed.

13. External Confirmation Letters

• Bank Confirmation: Confirmation from the company’s bank regarding balances, loans, and credit facilities.
• Receivable Confirmations: Confirmation from customers regarding amounts owed to the company.
• Payable Confirmations: Confirmation from suppliers regarding amounts the company owes.
• Legal Confirmation: If the company is involved in litigation, confirmations from lawyers about the status and amounts involved.

14. Audit Working Papers

• Audit Checklist: A checklist of the procedures performed during the audit to verify that all required audit tasks have been covered.
• Audit Evidence: Any other supporting documents, calculations, or notes that back up the audit findings.
• Lead Schedules: Summaries of the main accounts (e.g., total income, total expenses, and key liabilities) that are used for drafting the financial statements.

15. Management’s Letter of Representation

• A letter from the company’s management that represents their assurance to the auditor regarding the completeness and accuracy of the financial statements, the absence of fraud, and the disclosure of all relevant information.