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assurance
ISA 200 Overall objectives of the independent auditor
and conduct of an audit in accordance with ISA's
ISA 210 Agreeing the terms of audit engagement
ISA 220
ISQC 1
ISA 230 Audit Documents
ISA 240 The Auditor's responsibilities relating to
fraud in an audit of F/S.
ISA 250 consideration of laws and regulations in an
audit of F/S
ISA 260 Communication with those charged with
governance
ISA 265 Communicating deficiencies in internal
control to those charged with governance and MGM
Nine
SIX
ISA 600
ISA 610 Using the work of internal auditor
ISA 620 Using the work of an auditor's expert
ISA 700 The auditors report on F/S
ISA 705 Modification to opinions in the
independent auditors report
ISA 706 Emphasis of matter paragraphs in
the independent auditors report
ISA 710 Comparative info --corresponding
figures and comparative F/S
ISA 720 The auditors responsibilities relating
to other info in doc containing audited F/S
Eleven
Eight
ISA 200 Objectives of the independent auditor and conduct of the audit in accordance with ISAs
This ISA clarifies objective of audit and importance of conducting audit in accordance
with ISA. The objective of the independent auditor is to express an opinion whether the financial
statements represent true and fair view and are prepared, in all material respects, in accordance
with an applicable financial reporting framework. (I.e. Country specific regulation and
accounting standard). Most importantly the audit should be conducted by using the guideline of
International standards of auditing. Few terms need to be clearly understood:
Materiality:
Second, the auditor must obtain the agreement of management that it acknowledges and understands
its responsibility:
For the preparation of the financial statements in accordance with the applicable financial
reporting framework
For internal controls to enable the preparation of financial statements which are free from
material misstatement, whether due to fraud or error
To provide the auditor with access to all information necessary for the purpose of the audit
If everything goes right an engagement letter will be sent before the audit. Engagement letter
specify the nature of the contract between the audit firm and the client It minimizes risk of
misunderstanding auditors role. It must be updated in accordance with the change in the
context or scope of the audit work after initial auditor appointment
Contents of a typical engagement letter may include:
Quality recruitment where qualified people will be selected and they will be given an intensive
training.
A strong environment where partners will be determined on having good quality audit practice
within the firm.
A separate partner who will be designated only for ensuring quality within the firm and will
continuously work to setting the standards up.
Documented policies and procedures for the staff to follow.
Linking up appraisal of the staffs within the firm with quality of audit.
While selecting engagement team for a specific audit take special care on the skills, experience and
overall work load of that particular auditor. For example for a relatively complex audit assignment
make sure that a more skillful auditor or rather a senior auditor is appointed, but slowly it needs to
be balance out so that the fresher or relatively new auditors slowly enters into that league as well.
Regular Cold Review which means time to time (e.g. every 6 months) choose one of the project of an
audit partner and review whether quality was there on that assignment or not. Though nothing can
be done as it is a previous work but still for future reference they can be used.
The audit complies with professional standards and applicable legal and regulatory regulations.
Its essential to prove that the auditors have worked in accordance with ISA and the
procedures being recorded in the form of documents will act as an important
support for the auditors report.
If its not recorded means no work is done, so no basis for the audit opinion.
The work papers should be in a manner that makes it easily understandable, so that it is
easier to spot anything that has been omitted,
To ensure that the time spent by senior staff reviewing the audit file is minimized.
As per ISA 230 working paper is the property of the auditor and must be retained at
least 5 years; and hence all preventative and security measures should be taken to
preserve it.
E.g. archiving older files; Back up It based files; Secure storage of recent files by any
relevant means
Working paper
Contents
Objective
Method
Results
Conclusion
First task would be to obtain an understanding of the nature of the event and
circumstances in which it has occurred. Along, assessing the possible effects on F/S
The auditors should document their findings and communicate them to the
appropriate level of management. This would usually be the board of directors or the
audit committee. But remember if fraud affects public interest then reporting to third
party may be essential.
The extent to which the suspected or actual fraud is likely to affect members of the
public
Whether the directors have rectified the matter or are taking, or are likely to take,
effective corrective action.
The extent to which non-disclosure is likely to enable the suspected or actual fraud to
recur.
The seriousness of the matter and the weight of available evidence and the degree of the
auditors suspicion that there has been an instance of fraud.
If the auditors conclude that the matter ought to be reported to an appropriate authority in the
public interest, they should notify and request the directors in writing to disclose voluntarily.
If the entity does not report the matter or is unable to provide evidence that the matter has
been reported, auditor has an obligatory duty to report it themselves.
Where a suspected or actual instance of fraud casts doubt on the integrity of the directors,
auditors should make a report direct to the proper authority in the public interest without
delay, informing the directors in advance.
Auditors duties
The auditor must ask Are the identified deficiencies, either individually or collectively,
significant?
Any significant deficiencies must be communicated in writing to those charged with
governance.
Other, insignificant, deficiencies should at least be verbally communicated to management
Evaluation criteria
Materiality is concerned not just with size / value but also with the nature of the matter
and the circumstances of the entity
Judgments about materiality are made in the light of the surrounding circumstances and
are affected by the size and nature of a misstatement, or a combination of both
Judgments about matters that are material to users of the financial statements are
based on a consideration of the common financial information needs of users as a
group
The audit firm must be concerned with identifying material errors, inclusions,
omissions and misstatements.
A misstatement or omission can be considered material if, individually or in
aggregate, it would reasonably be expected to influence the economic decisions of
users of the F/S.
Ensure independence and objectivity of third party by assessing the fees charged etc
They are qualified and have a reputation indicating their service can be relied upon
That the third party has maintained appropriate documentation
The size and nature of the misstatements, and the particular circumstances of the
occurrence and their effect on prior periods.
The auditor will communicate the uncorrected misstatements and their implication on
the auditors report to those charged with governance.
The auditor will also request a written representation (including a summary of
uncorrected misstatements) from management and, where appropriate to those charged
with governance as to whether they believe the effects of uncorrected misstatements
are immaterial, individually and in aggregate to the F/S as a whole.
Written evidence
better than verbal
evidence
Evidence generated
by auditors is high
quality than others
Evidence from original
copy is better than
photocopy etc
Analytical procedures: It is the analysis of financial and nonfinancial information to determine the reasonableness of reported
amounts and mainly estimated figures in financial statements. This
can be done by comparing current periods result with Prior
periods, Budgets and forecasts, Predictive estimates, Industry
information, ratio analysis
This ISA guides auditor on how to take external confirmation for auditing purpose, what are the
different types and what audit procedures need to be applied on the replies received
Represent prior period comparatives ( Review previous audit report (D) i.e. being qualified or confirm
ISA 710) -May contain errors that
Whether amendments to F/S have been done as per advice of
distort current figures E.g. Overstated auditors.
provision relieved in current year to
show huge profit
Review of opening balances i.e. Confirm whether closing figures
of previous years audited F/S have been forwarded
What we can do here is , try to obtain
sufficient audit evidence to conclude:
Opening balance is brought forward
correctly, not having any material
misstatements
Accounting policies are consistent
from year to year and incase if its
changed then adjustments are done as
per IAS8 i.e. retrospective adjustment
Transactions which seem to lack a logical business reason for their occurrence.
Transactions where the substance differs from the legal form.
Transactions processed or approved in a non-routine manner.
Unusual transactions which are entered into shortly before or after the year end.
A high volume of transactions with one supplier or customer compared with others.
Unrecorded transactions such as receipt or provision of MGM services at no charge.
The auditors should obtain written representations from management concerning the
completeness of information provided about related parties and disclosures in the financial
statements.
The group auditors must decide how much reliance they will
place on the work performed by these component auditors. In
order to do this they will consider the qualifications,
experience and resources of the component auditors.
Letters of support
Audit work
documentation