Please enable JavaScript.
Coggle requires JavaScript to display documents.
SA 200: Overall Objectives of the Independent Auditor, Assertions,…
SA 200: Overall Objectives of the Independent Auditor
Definitions
1. Framework
means
Format
Contents
Disclosures
Accounting Policies
2. Applicable FRFW
Adopted by the management as acceptable to:
Nature of the Entity
Objective of FS
Laws & Regulations
3. Types of Frameworks
a. Fair Presentation Framework — Compliance with applicable L&R + MGT agrees to provide Additional Disclosures + Exceptionally depart from req. of framework
b. Compliance Framework — Compliance with the req. of prescribed framework, but does not contain acknowledgement to achieve fair presentation
4(a). Financial Statements (FS)
A structured representation of historical information,
Includes Notes containing summary of significant Accounting Policies & explanatory material,
Complete set of FS,
SA 200 - 700 on General Purpose FS (incl. tax audit),
SA 800 / 805 / 810 on Special Purpose FS.
:star:
4(b). Audit Premise
MGT, and where applicable TCWG have the following responsibilities:
Preparation and Presentation of FS as per applicable FRFW which includes —
a. Design, implementation, and maintenance of IC, and
b. Preparation and presentation of FS which are free from material misstatement whether due to fraud or error,
To provide the auditor with —
a. All information relevant to audit,
b. Any addition info. auditor may request, and
c. Unrestricted access to those within the entity.
4(c). Audit Evidence
Information used by the auditor to arrive at conclusions / opinions; auditor to gather SAAE.
a. Sufficiency (quantity) — affected by Auditor's assessment of ROMM and Quality of such AE
b. Appropriateness (quality) — measured by its relevance and reliability.
5(a). Reasonable Assurance
A high level of assurance but not absolute assurance.
5(b). TCWG
Responsible for overseeing the strategic direction & accountability of entity
5(c). MGT
With executive responsibility for conduct of entity's operations.
5(d). Auditor
Covers the engagement partners, team, or firm responsible for forming an opinion.
6. Risk of Material Misstatement (ROMM)
(At Individual level)
Misstatement can arise from fraud or error,
Difference between items reported and to be reported wrt. amount, classification, presentation & disclosure.
Inherent Risk — Risk of assertion to be MM before consideration of any controls
Control Risk — Risk that MM will not be prevented or detected and corrected on timely basis by entity's IC
7. Audit Risk
The risk that the Auditor will express an inappropriate opinion when the FS are materially misstated.
DOES NOT INCLUDE the risk that the auditor will express an inappropriate opinion when the FS ARE NOT materially misstated.
8. Detection Risk
Risk of audit procedure not reducing the audit risk to an acceptably low level and accordingly not detecting a MM.
Objectives of Independent Auditor
To obtain reasonable assurance
about whether the FS as a whole are
free from MM
whether due to fraud or error,
enabling
the auditor
to express an opinion
whether the
FS are prepared in all material respects in accordance with applicable FRFW
.
To report on the FS
and communicate as required by SAs in accordance with auditor's findings.
Where an Auditor
fails to achieve the prescribed objective
:
If a
Qualified opinion
in the AR is
sufficient
for purpose of reporting,
no further proceedings
.
If a
Qualified opinion
in AR is
not sufficient
for the purpose of reporting, the SA requires that the auditor
disclaim an opinion or withdraw
from the engagement where withdrawal is legally permitted.
:star:
Reasonable Assurance
To obtain reasonable assurance, the auditor needs to:
Obtain SAAE to reduce the audit risk to an acceptably low level
Excerice professional judgement
Maintain professional skepticism
Identify and assess ROMM whether due to fraud or error — obtain SAAE whether MM exists or not — form an opinion on FS based on conclusions drawn from AE
Ethical Requirements relating to an Audit of FS
Auditor's mind should be free, and he should also appear to be free.
Compliance with Code of Ethics
Fundamental Principles:
Integrity
Objectivity
Professional Competence & Due Care
Confidentiality
Professional Behaviour
:star:
Auditor's Independence
It implies that the judgement of a person is
not subordinate
to the wishes or direction of another person or own interest.
In substance, it is a condition of mind and personal character and should not be confused with the superficial & visible standard of independence which are sometimes imposed by law.
Independence as defined under — COA, 2013, SA 220, SA 260, CA Act, 1949, Guidance Note on Independence
Conduct of an Audit in accordance with SAs
Complying with SAs
relevant to Audit — required to understand the complete text of SAs and its various sections; any non-compliance of SA to be reported in AR else guilty under
Clause 9 of Part I of Schedule II
.
Objectives stated in Individual SAs
— achieve by determining need for any additional procedure and evaluating whether SAAE has been obtained.
Complying with
relevant requirements
— shall comply with each req. of SA unless entire SA is not relevant, or req. is conditional and does not exist.
Failure to achieve an objective
— determine the need of modified opinion or withdrawal.
:star:
Inherent Limitations of Audit
Nature of Audit Procedure — incomplete info. by MGT, fraudulent evidence like fake evidence, inability to conduct search or investigation, or AE persuasive, not conclusive
Balance between Cost & Benefit — user expectation to get AR within a reasonable period and at a reasonable cost
Nature of Financial Reporting — involvement of management judgement
Other matters — fraud involving senior MGT, RPT, non-compliance with L&R, Auditing accounting estimates and going concern
:star:
Audit Risk
(SA 200 + SA 315)
Risk of Material Misstatement (ROMM)
Assertion Level for Class of Transaction, Account Balance and Disclosure:
Relates to MM at level of CT-AB-D
Inherent Risk
Control Risk
It is the function of effectiveness of DIM of IC by management.
However IC, no matter how well designed and operated can ONLY REDUCE, but not eliminate, ROMM in the FS because of Inherent Limitations of IC.
Overall FS Level:
Relates pervasively to FS as a whole
Potentially affects many assertions
Detection Risk
Acceptable level of Detection Risk bears an
inverse relationship to the assessed ROMM at assertion level
.
It is therefore a function of effectiveness of an audit procedure and its application by the auditor.
Matters such as,
Adequate planning
Proper assignment of personnel to ET
Application of professional skepticism
Supervision and review of audit work performed
:star:
Professional Skepticism
Attitudes that include a questioning mind, being alert to conditions which may indicate possible misstatement due to fraud or error, and a critical assessment of audit evidence.
Includes being alert to,
for example
:
Contradictory audit evidence,
Reliability of documents,
Conditions indicating possible frauds,
Circumstances requiring audit procedures in attention to those required by the SAs.
Maintaining professional skepticism throughout the audit is necessary:
To reduce the risk of overlooking unusual transactions, overgeneralising, using inappropriate assumptions in determining NTE of AP & result evaluation.
For critical assessment of AE, questioning on contradictory evidence, response to inquiries, consideration of S&A of AE.
Professional Judgement
The application of relevant training, knowledge, and experience
within the context provided by auditing, accounting, and ethical standards,
in making informed decisions about the course of action,
that are appropriate in the circumstances of audit engagement.
Assertions
Classes of Transaction & Events
Occurrence
Completeness
Accuracy
Cut off
Classification
Account Balances
Existence
Rights & Obligations
Completeness
Valuation & Measurement
Presentation & Disclosures
Occurrence and Rights & Obligations
Completeness
Classification & Understandability
Accuracy & Valuation
Auditor's Opinion
Unmodified
True & fair view with EOM / OM paragraph
Modified
Qualified — True & fair view with exception
Adverse — No true & fair view
Disclaimer — No opinion
Factors affecting Inherent Risk
At Assertion Level
Likely to be susceptible to misstatement
Judgement involved
Unusual pressure
Unsually complex transactions
Abnormal transactions
Asset loss probability
At FS Level
Integrity of MGT
MGT experience, knowledge, professionalism
Nature of entity's biz.
Internal factors
External factors