Introduction
•The independent auditor’s overall responsibilities . Specifically, it
–sets out overall objectives of the independent auditor,
–explains the nature and scope of an audit ,
–also explains the scope, authority and structure of the ISAs
•ISAs
–Are written in the context of an audit of FS
–May be adapted for audit of other historical financial information,
–Do NOT address the responsibilities of the auditor that may exist in legislation, regulation
An Audit of Financial Statements
•Purpose of an audit is to enhance the degree of confidence by the expression of an opinion whether the financial statements are prepared, in all material respects, in accordance with an applicable financial reporting framework
•An audit conducted in accordance with ISAs and relevant ethical requirements enables the auditor to form that opinion
•An audit, however, does not assure the future viability of the entity nor the efficiency or effectiveness with which management has conducted the affairs
•For opinion, ISAs require to obtain reasonable assurance (a high level of assurance through SAAE to reduce audit risk to an acceptably low level)
•Absolute assurance is not possible due to inherent limitations of audit.
•Concept of materiality applies for planning and performance of audit. Depends on auditor’s perception and nature & size of misstatement.
•Financial Statements could be ‘General’ or ‘Special’ purpose.
•Applicable FRFW encompasses FRS and legislative-regulatory requirement and other sources such as:
–legal and ethical environment
–Published accounting interpretations
–Published views
–General and industry practices
–Accounting literature
In case of conflict, source with highest authority prevails.
•FRFW are either fair presentation or compliance FWs.
ISAs do not impose responsibility on management but an audit is conducted on the premise that management acknowledges its responsibility:
•For preparation of FS in accordance with applicable FRFW
•For ICs to ensure reliable FS
•To provide (i)access to record, (ii)additional information and (iii)unrestricted access to persons within entity to obtain AE
•Management is required to (i) identification of applicable FRFW, (ii) preparation of FS as per that FW, and (iii) inclusion of an adequate description of that FW in FS
•For making estimates and selecting accounting policies
Overall objectives of the auditor
Obtain reasonable assurance
•To obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, thereby enabling the auditor to express an opinion on whether the financial statements are prepared, in all material respects, in accordance with an applicable financial reporting framework; and
To report
• To report on the financial statements, and communicate as required by the ISAs, in accordance with the auditor’s findings.
Fair presentation framework
••Provides for necessity of giving additional disclosures to achieve fair presentation, explicitly or implicitly
••Acknowledges that in exceptionally rare circumstances, a departure may be required to achieve fair presentation.
Management & TCG
••Management—The person(s) with executive responsibility for the conduct of the entity’s operations.
••Those charged with governance – The person(s) or organization(s) (e.g., a corporate trustee) with responsibility for overseeing the strategic direction of the entity and obligations related to the accountability of the entity. This includes overseeing the financial reporting process.
Misstatements
••A difference between the amount, classification, presentation, or disclosure of a reported financial statement item and the amount, classification, presentation, or disclosure that is required for the item to be in accordance with the applicable financial reporting framework. Misstatements can arise from error or fraud.
Professional Judgment and skepticism
••Professional judgment – The application of relevant training, knowledge and experience, within the context provided by auditing, accounting and ethical standards, in making informed decisions about the courses of action that are appropriate in the circumstances of the audit engagement.
••Professional skepticism – An attitude that includes a questioning mind, being alert to conditions which may indicate possible misstatement due to error or fraud, and a critical assessment of audit evidence.
Others
••Audit Evidence
••Sufficiency
••Appropriateness
••Audit risk
••Risk of material misstatement
••Inherent risk
••Control risk
••Detection risk
••Premise
••Reasonable assurance
To be Continued !!