RS & Co., Chartered Accountants, were appointed as auditors of X Ltd., a telecom company regulated by the Telecom Regulatory Authority of India…

RS & Co., Chartered Accountants, were appointed as auditors of X Ltd., a telecom company regulated by the Telecom Regulatory Authority of India and Y Bank Ltd., a banking company regulated by the Reserve Bank of India. At the planning stage, the engagement partner emphasised that the audit team should obtain an understanding of the distinct legal and regulatory frameworks applicable to both entities. The team was also instructed to identify significant matters, determine materiality and consider the involvement of experts, particularly in areas involving complex estimates such as provisioning in Y Bank Ltd. Further, risk assessment procedures were initiated to identify and assess risks of material misstatement. During discussions, the audit team noted that certain areas—such as revenue recognition in X Ltd. and loan loss provisioning in Y Bank Ltd.—were inherently complex and involved significant judgment. The engagement partner clarified that such areas are susceptible to material misstatement even before considering internal controls. Subsequently, discrepancies were identified in both entities. However, the audit team was unable to immediately conclude whether these misstatements arose due to fraud or error. The engagement partner explained that the auditor's objective is to obtain reasonable assurance that the financial statements as a whole are free from material misstatements, whether caused by fraud or error and to evaluate their impact in totality while forming an opinion on compliance with the applicable financial reporting framework.