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How auditor gives Auditor opinion on financial statement in Big 4 | Qualified Unqualified Opinion - YouTube
Channel: CA Tushar Makkar
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Hello friends, how do you do?
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So, todayās video will be on opinion
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in previous videos we have already discussed about the three stages
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planning, execution and completion
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We are going to discuss about
āopinionā,
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our all four characters i.e., Sonu, Monu, Pappu and Chetan are
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all set for the next stage i.e., Opinion.
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So, letās go and understand this
process of opinion
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So, our character Chetan enquiringly went to Sonu
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and says sir, now we have done all the three stages
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We have done planning,
execution, and completion now as you said
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we have to make an audit report
and have to give opinion about that
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so, tell us about that, Sonu, how we
will do it?
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Sonu says, on the basis of all three main processes we have done
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we have to conclude our opinion in the audit report
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Sonu said, but before that we have to do is,
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get the financial statement accepted by the Board of Directors
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so do one thing chetan send the financial statements to the client
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and ask them to get it accepted by the Board of Directors in the board meeting
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It is sent to the client; the client then get it accepted by the Board of Directors
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after that it goes to the Auditor for signature as director already signed, so after that
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it will come to auditor, When Auditor will sign on financial statement
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on the same day when he will also sign the auditorsā reports
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In the auditorās report, the auditor will give his auditor opinion.
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Sonu tells Chetan
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He asks okay, but what we have to write in the auditorās report,
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Sonu tells him whatever we have concluded so far, On the basis of all the processes
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On that basis, we have concluded that our opinion will be unmodified i.e., unqualified
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opinion
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we will not send any qualification
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Chetan inquisitively asks, ok sir got it, but for an instance,
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if there were any
qualification or any other adverse things
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then what we would do in that
particular situation
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Sonu explains Chetan, that we can divide opinion in five parts
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Chetan asks what sir; how can we divide it in five parts
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sonu explains chetan, look buddy the first kind of opinion is unqualified,
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that means it have no problems & everything is all ok
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Second type of opinion is qualified opinion
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it can be further divided into two parts
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first could be because of lack of some proper documents
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and second reason could be because of few mistakes in my financial statement
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Next is Adverse opinion, it can be also further divided into two parts
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first is I am giving adverse opinion (also called as disclaimer of opinion)
because I didnāt find certain documents
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And secondly, I found some really problematic things
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thatās why I am giving adverse opinion
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Now we have divided the opinion in five parts,
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first letās talk about qualification opinion, it is given when,
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I feel the mistake is bigger than my materiality
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but not that big that I had to give an adverse opinion,
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means it is not impacting the financial statement of the company as whole
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An Adverse opinion is given,
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when it impacts the whole financial statement of the company
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Chetan says okay I got it, but please explain me more precisely, or explain with examples
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Sonu says letās say for example
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letās say any number, like we have detected an error of Rs two crore in the revenue
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in case if management is not willing to rectify the mistake
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so, in such kind of cases we give qualification only,
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Normal qualification is given
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Chetan said, Now Iām Getting it
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Adverse qualification is given when, for example
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Chetan, you went to talk about going concern with clients, he said yes sir
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you find there is a problem with Going concern of client
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so, in that scenario, what you have to do in case of Going concern.
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to make the financial statement,
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you have to revaluate liabilities and assets on the liquidation basis
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means you cannot make the statement on historical basis,
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means as we make financial statement on the historical basis
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you should not make it on that basis, you have to make on liquidation basis
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in case the client denies the making of financial statement on liquidation basis
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and says there is no problem with my going
concern
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then in such a case you have to give adverse opinion
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because in this case, it will impact all your account balance's
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means there will be no amount balance on which it will not impact
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Chetan says, okay sir now I got your point that what you want to say
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So that's how bifurcation happens in qualification and adverse opinion
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Chetan asks, but sir in case, I donāt get the documents then in that case
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what should I do, what you want to say?
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I give you an example, suppose
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Sonu says that from a branch of stock, you have to count a stock
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and there was a branch, Which due to any reasons,
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due to any circumstances, letās say flood, or due to any reason or you won't be able to go
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and due to reasons, you were not able to conclude your stock count
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So, if a branch has more material but donāt have much material
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letās say your companyās total stock value is of Rs two hundred crores
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and from the stock of 200 crore, we only have stock of 1 crore
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Which is higher than the materiality of 50 lakh,
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but it's not that big that I had to give adverse opinion
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But on the other hand, if there is another factory of mine
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in which my stock of Rs. 100-150 crore is there
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because of some reason if I could not verify this 100-150 crore
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then it is a very material number.
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Let's say, the item of balance sheet, the amount of balance sheet is 250 crores only,
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let's say the size of balance sheet, if it's not that huge, that you had to give
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adverse opinion because the number of stocks is more material
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I hope Chetan you are getting what I want to say
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That means, we have to give adverse opinion, only when
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when there is more material impact because I wasn't able to do the checking
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In that case, we have to give an adverse opinion
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I hope Chetan, now you are able to understand it
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Chetan says definitely sir I got what you wanted to say,
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Now Iām getting confident about what you want to say, its feeling so nice
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Sonu said, yes it should be like that, you should enjoy it
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if you have any doubts, Sonu told Chetan
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you can ask in the comment section in the youtube video of CA Tushar Makkar
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he said, Sure, I will ask him
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and then Sonu said, let us move forward
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and now as we decided, we are going to give our opinion, as Unmodified
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So, we are going to give Unmodified opinion
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As we have to give an unmodified opinion,
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going to give unqualified opinion, so letās start the work of reporting
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We will divide the report in three parts
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He said, Sir which three reports?
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He said, first we will give our comments on the standalone financial statement
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whether it is true & fair or not.
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as we have talked about, that there is no qualification so, it is true and fair
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he said, okay sir
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Second report as we have talked
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Chetan said, yes sir I remembered it, you said we are going to give on ICFR
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He said, yes right
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So, the report, which we give in ICFR
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we will write, that our Controls are working effectively & efficiently
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They have no problems, so this was opinion on control
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Third one, is on CARO
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There is specific requirement of CARO, Specifically
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In which, there are some specific things like inventory, fixed assets or loan
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where you have to check in these things, & thatās how reporting of CARO happens
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Chetan said yes sir I have studied it, that we have to Do reporting on CARO
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& We have to do it
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Chetan said, okay sir,
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but isn't this is only required when it go over certain turnover, in our industry
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He said, Absolutely, you have to make this report, only if your business fall under CARO
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In the same way, we only make ICFR reports, when the turnover crosses a certain threshold
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Chetan sir, yes sir now Iām able to understand that how itās going to be done
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and after making the report, they go to Mohini, & she reviews it
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and then they went to partner for reviewing
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When they reach out to the partner for review, he said that okay everything is right,
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You made the correct audit report, will give an unqualified opinion
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but you forget to add one thing in this i.e., emphasis on matter paragraph
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Sonu asked, on what thing, we have to put emphasis
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Do you know the meaning of emphasis on matter paragraph, he asked to Sonu
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Sonu said, Sir I have never applied it practically
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Mohini stood up and said that I know the meaning of Emphasis on matter paragraph
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It means any information, that's disclosed in financial, but we want to put emphasis on it
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that we want to show that it's something what we wanna tell & show to shareholder & investor
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or to the users of financial statement, whom we want to tell
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Partner said, absolutely right Mohini,
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but here what is the thing that you think you are forgetting
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Mohini was not able to understand & partner explained
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what you have to do here is,
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whatsoever, during the year, whatever valuation they did, or
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whatever shares they issues, the shares which they shared privately,
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you should disclose them, in Emphasis in Matter paragraph
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I want, all investors & all users should know that they have issued shares
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and also tell them about the fire at the factory, might be a small one but
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still, I want all the investors & users, to put attention on Emphasis on matter paragraph
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We already disclosed in financial statement, I know, I have asked you all to disclose it but
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put it on Emphasis on matter paragraph as well,
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so that the investors & users should also know that things like this had happened
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He said, okay sir Iām getting it
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Now partner said, Okay do one more thing, put one more thing in others matter
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You already know the meaning of others matter
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Mohini said yes sir, other matters mean, any information,
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which is not disclosed in financial statement,
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but you want to disclose it, anything like that
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Partner said absolutely correct,
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So do one thing, the 2 subsidiary of company, for what have not audited
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tell this in other matters that
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there are 2 subsidiaries for which we are not able to do the audit
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because they have their separate auditors, so you have to mention this
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So, you can mention this thing in others matters
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We haven't done the audit of these 2 subsidiaries
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Just for the sake of information of users
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Sonu & Mohini are able to get, what he wants to explain
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Now they went & changed the audit report according to what partner had said
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after change, they again reach out to partner
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and ask him to review, partner becomes happy & said it is absolutely correct
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He said that now have finalised the audit report
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Do one thing, the financial statement that client had sent, bring them &
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take my sign, partner signed, signed the audit report & generated UDIN,
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he generated the UDIN on the day he signed and after generating UDIN,
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give it back to client, financial statement, &
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tell the team Sonu, Monu, Pappu, Chetan, Mohini
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Today, we have signed Audit report, letās get back to work & the software we have, ABCD,
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complete the file full-fledged, you should not miss anything in that, & document everything,
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document everything, Today is our last date, document everything and
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the document that we need to attach here, documents for the experts we appointed,
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do attach them all, because after today we can't attach any other document in file
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and partner said, as you guys probably know already, he said to his team members
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you guys probably know that we have a review internally,
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so, keep in mind that if anything left then it will become a problem for us
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& It can impact on our performance Bonus, our promotion, or on anything, partner said
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they said, okay, we have time till 12 AM, attach every required document,
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if there is any problem then talk to me, partner said to everyone
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everyone started their work; they do hard work till 12 &
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after all that hard work, they are able to attach all the files
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Now after 11 pm they go to client, call him and said that everything is completed now,
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Please click the sign-off button & sign off the file & finish it
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partner sign-off the file
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Now, Mohini & everybody become so happy, they do a little celebration & had fun
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and Mohini said, that now we have 60 more days to archive the file
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Chetan got confused, Sonu & Monu knew already & Pappu was also confused
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We have 60 more days?
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Partner said we have only today, then from where these 60 days come
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Both of them got confused, Chetan & Pappu,
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they said that if we had 60 days then why we worked till 11?
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He said, because, on today's day our file got sign-off,
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today we canāt document any new document in the file which is evidence, got it?
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Sonu asked to Chetan that you canāt document any document which is audit evidence
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let's say you You had any bank confirmation that's yet to come
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it should come till this date, and we had documented it till date
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What we are supposed to do in these 60 days?
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Chetan asked, What we should do in these 60 days?
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He said, if you had things like
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For example, their is any problem of formatting, something like that
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if you want to add any links somewhere, something like that, that you can do
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means you can do any decorative thing in that
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but you can't add any new audit evidence in it, We got 60 days
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We got some time, So now will spend 60 days on it & then we will make it archive
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everyone understood, and went back to their home
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Now Sonu said that Now we will do a party tomorrow as we putted our Days & night into
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work & don't know how much hard work we did,
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Sonu said to everybody, that now I will give you a party from my side and
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the about party, we will discuss in next video
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Till here, My Audit is complete & Done
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I hope you guys liked this video, if you liked it, then do leave a like,
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also do subscribe the channel
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In next video, we will discuss, How we do parties in Big-4 after completion of Audit
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How to release stress, will discuss about all these
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So, Thank you :)
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