Communicating key audit matters in the auditor's report is in the context of the auditor having formed an opinion on the financial statements as a…

As per SA 701, “Communicating Key Audit Matters in the Auditor's Report", communicating key audit matters in the auditor's report is in the context of the auditor having formed an opinion on the financial statements as a whole. Communicating key audit matters in the auditor's report is not: (i) A substitute for disclosures in the financial statements that the applicable financial reporting framework requires management to make, or that are otherwise necessary to achieve fair presentation; (ii) A substitute for the auditor expressing a modified opinion when required by the circumstances of a specific audit engagement in accordance with SA 705, "Modifications to the Opinion in the Independent Auditor's Report"; (iii) A substitute for reporting in accordance with SA 570 when a material uncertainty exists relating to events or conditions that may cast significant doubt on an entity's ability to continue as a going concern; or (iv) A separate opinion on individual matters. OR CA Amit is verifying Occurrence Assertion while verifying the existence of vendors and the actual receipt of goods or raw materials by the company. The audit procedures generally required to be undertaken while verifying Occurrence Assertion: Ensure purchases are not understated/ overstated by performing following audit procedures: Whether any fictitious vendors have been booked or purchases have been recorded by reviewing the vendor selection process followed by the entity and also performing procedures to ensure existence of the vendors.Whether the goods were received at the factory gate and whether there exists an entry in the security gate inward register.Whether quality inspection of goods was done.Whether a goods receipt note was prepared and signed by an appropriate client personnel.Whether the purchase invoice was approved as per delegation of authority and whether a 3 or 2-way match was done.Whether stock record has been updated by the stores personnel. Special considerations during audit of purchases: The purchase invoice received should be the “Original” copy (and not photocopy/ carbon copy) against which the entity has recorded the purchase in its books of account.Purchase invoice should have been booked only once risk and reward incidental to ownership has been transferred to the entity. Specific consideration for cases where the terms of delivery as agreed with vendor are F.O.B., C.I.F. etc.Purchase invoice should be in the name of entity. However, in case of different branches, it should be addressed to the appropriate branch.Input tax component should have been booked in the input tax ledger. The auditor should obtain tax returns filed with the authorities and tally the input tax as reflected in the books to the amount disclosed in the returns.In case of purchases made from related parties or allied and associated concerns, the auditor needs to verify if requisite approval from Board of Directors (appropriate authority) has been obtained and should verify the selected samples and perform analytical procedures in relation to price of goods to confirm that the price charged is at arm's length.The auditor should review whether purchases should be capitalized or expensed off in Statement of Profit and loss according to his professional judgement.Review journal entries for unusual transactions.