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ISA 200
INTRODUCTION
Scope of this ISA
Deals with the independent auditors overall responsibilities when it comes to conducting an
audit of the financial statements in accordance with ISA.
- Sets out the overall objectives and the nature and scope of the audit
- Sets out general objectives of an audit
An audit of Financial Statements
The purpose of an audit is to enhance the degree of confidence of the intended users of the FS
- Achieved by expression of an opinion by auditors on whether the FS were prepared in
accordance with a FF
A1: scope of audit
Auditors opinion deals with whether FS are prepared in all material respects and in
accordance with applicable FRF
Audit opinion does to assure viability of the entity, efficiency or effectiveness of
management.
Law/regulation could require auditor to provide opinion on specific matters e.g.
internal controls. This requires additional work
- FS are prepared by those tasked with governance and management. ISA does not
override laws and regulations that govern their responsibilities but those charged with
governance have acknowledged certain responsibilities that are fundamental to the
audit. The FS don’t relieve them of said responsibilities
A2-A11: Preparation of Financial statement
An audit in accordance with ISA is conducted on premises of that management and
those tasked with governance have acknowledged responsibility
1. Preparation of FS in accordance with FRF
2. Internal controls that are necessary to ensure that the FS are free from MM
3. Provide auditor with:
i. Access to all info relevant to prep of FS
ii. Add info that auditor my request
iii. Unrestricted access to persons within the entity who auditor determines
necessary to obtain audit evidence.
Prep of FS by man and TCWG requires
1. Identification of applicable FRF in context of laws and regs
2. Prep of FS in accordance with framework
3. Inclusion of an adequate description of framework in FS
Req man to exercise judgement and determine appropriate acc policies
FS designed to meet
1. Common FI for wide range of users
2. Needs of specific users
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FRF consist of legislative/ regulatory req + and financial reporting standards. Other
sources may provide info on direction of application FRF may consist of said sources
or only contain said sources.
1. Legal ethical environment includes statutes and legislation
2. Accounting interpretations by various authorities
3. General industry practice
4. Accounting literature.
- If there is conflict between FRF and sources, highest authority takes preference
Requirements of FRF determine what constitutes a complete set of FS
- Auditors must obtain reasonable assurance that FS are free from material
misstatement, whether due to fraud or error.
- Materiality is applied in by auditor in planning and perfroming
- ISAs contain objectives
1. Identify and assess risk of material misstatement
2. Obtain sufficient appropriate audit evidence
3. Form an opinion on financial statements
- Opinion formed depends on FRF and legislation
A12-A13
Some frameworks include presentation requirements. If it is a fair presentation
framework then opinion determines whether it was presented fairly. If it’s a
compliance framework then opinion determines whether it applies framework
Tutorial 1.1
Benefit of an audit
- FS are accepted as reliable by third party users
- SARS accepts audited FS as basis of tax calculation.
- Reliable basis of valuation of business or shareholder’s interest
- Sound basis of settlement of claims
- Commitment of fraud is deterred
- Auditor is able to provide business and tax advice.
OVERALL OBJECTIVES OF AN AUDIT
Overall objectives of an auditors are to obtain reasonable assurance about whether the
financial statements as a whole are free from material misstatement whether due to fraud or
error, enabling the auditor to express and opinion on whether the financial statements are
prepared in all material respects in accordance with applicable reporting framework
- If reasonable assurance can’t be obtained and a qualified opinion in the audit report is
not sufficient for the of reporting ISA requires the auditor to disclaim an opinion
or withdraw from the engagement.
DEFINITIONS
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a. Applicable financial reporting framework: the financial reporting framework adopted
by management
b. Audit evidence; information used by the auditor in arriving at the conclusions on
which the audit opinion is based. Information from accounting records and other
information
i. Sufficiency: the measure of the quantity of audit evidence. The quantity
needed is affected by the risk of material misstatement and quality of evidence
ii. Appropriateness: measure of the quality of audit evidence. This includes its
relevance and reliability in providing support for conclusion audit opinion is
based on.
c. Audit risk: the risk that the auditor expresses an inappropriate opinion when the
financial statements are materially misstates
i. Function of RoMM and detection risk
d. Auditor: a person who conducts an audit
e. Detection risk: risk that procedures performed by auditor to reduce risk to acceptably
low level will not detect a misstatement that exists that could be material individually
or in aggregate with other misstatements
f. Misstatement: the difference between the amount, classification, presentation or
disclosure of a reported financial statement item and the amount, classification,
presentation or disclosure required to be in accordance with the financial reporting
framework
g. Professional judgement: the application of training, knowledge and experience to
make an informed decision about the course of action that are appropriate in the
circumstances of an audit agreement.
h. Professional scepticism: an attitude that includes a questioning mind, being alert to
conditions that might indicate a material misstatement and critical assessment of audit
evidence.
i. Reasonable assurance: a high but not absolute level of assurance
j. Risk of material misstatements: risk that FS are materially misstated prior to audit.
Consists of
i. Inherent risk: the susceptibility of an assertion about a class of transactions,
account balance or disclosure to misstatement that could be material
individually or aggregated with other misstatement before considerations of
controls
ii. Control risk: the risk that a misstatement that could occur about an assertion
about a class of transactions, account balance or disclosure to misstatement
that could be material individually or aggregated with other misstatement will
not be prevented, detected and corrected on a timely basis by the entity’s
controls.
REQUIREMENTS
Ethical requirements relating to an Audit of financial statements
An auditor shall comply with the relevant ethical requirements including those pertaining to
independence relating to financial statement and audit engagement
A16-A19
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Part A and B of International ethics standards board for accountants (IESBA)
1. Part A: fundamental principles of professional ethics
a. Integrity
b. Objectivity
c. Professional competence and due care
d. Confidentiality
e. Professional behaviour
2. Part B: illustrates how CF applied to specific situations
If audit is in public interest auditors but be independent of the entity. Independent
mind and independent in appearance
ISQC sets out responsibilities relating to independence
Professional scepticism
Auditor shall conduct the audit with professional skepticism recognising that circumstances
may exist that cause FS to be MM
A20-A24
Being alert to:
1. audit evidence that contradicts other audit evidence
2. Info that brings into question the reliability of documents
3. Conditions that may indicate fraud
4. Circumstances that require auditors to undertake additional audit procedures
Necessary to reduce the risk of
1. Overlooking unusual circumstances
2. Over generalising when concluding
3. Using appropriate assumptions on determining the nature, timing and extent of the
audit
Necessary to critically assess audit evidence. This includes the above as well as
sufficiency and appropriateness of audit evidence
May accept information as genuine unless have reason to believe the contrary. Still
need to consider reliability. In case of doubt the auditor needs to do a further in
investigation
Auditor can’t disregard past experience but still has to discuss professional
judgement
Professional judgement
Exercise professional judgement in planning and performing an audit
A25-A29
Professional judgement is essential to proper conduct of an audit. Professional
judgement is needed when dealing with
1. MM
2. Nature timing and extent of audit procedures
3. Evaluating whether sufficient appropriate audit evidence has been obtained
4. Evaluation of managements judgements
5. Drawing conclusions based on audit evidence.
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Exercised by an auditor whose training knowledge and experience has assisted in
developing the necessary competencies.
Based on facts and circumstances known by the auditor
Can be judges based on judgement made
Needs to be exercised throughout the audit
Sufficient appropriate audit evidence and audit risk
Auditor shall obtain sufficient appropriate audit evidence to reduce audit risk to an acceptably
low level
A30-A54
Audit evidence is necessary to support audit opinion. It accumulative and obtained
from the audit process. It may also include info from other sources such as previous
audits or firms quality control procedures for client acceptance and continuance.
Sufficiency and appropriateness are interrelated:
i. Higher risk more evidence needed
ii. Better quality less evidence
Appropriateness is the measure of quality: relevance and reliability
Auditor needs sufficient appropriate evidence in order to come to a conclusion
1. Audit risk: function of RoMM and detection risk.
o The assessment of risk is based on audit procedures to obtain information
necessary
o Measure of risk is based on judgement
o Audit risk does not include risk the auditor might express an opinion that
the FS are MM
2. RoMM: exists at two levels
i. Overall financial statement level: risks that refer to MM to FS as a whold
and possible to assertions
ii. The assertion level of classes of transaction, account balances and
disclosure: : assessed in order to determine rge nature timing and extent of
further audit procedures necessary to obtain sufficient appropriate audit
evidence
a. Inherent risk are higher for some amounts or balances etc. It is
dependent on the complexity of calculation or maybe different
technlogies
b. Control risk: a function of the effectiveness of the internal controls by
management. Controls can reduce risk but not eliminate due to certain
factors. Therefore auditors may need to test controls
a. Human error or mistakes
b. Controls being circumvented by collusion or management overide
3. Detection risk: higher RoMM lower detection risk and vice versa
o Detections risk relates to the nature timing and extent of audit procedures
that are determined by the auditor to reduce audit risk to an acceptable
level
o Enhancing the effectiveness of audit procedures can be imporved by
a. Adequate planning
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b. Proper assignment to the engagement team
c. Application of professional skeptisicm
d. Supervision of audit work performed
4. Inherent limitations of an audit: auditor is unable to and not expected to reduce
risk to zero and therefor cannot obtain absolute assurance
5. The nature of financial reporting
6. The nature of audit procedures
7. Timeliness of financial reporting and balance between benefit and cost
8. Inherent limitations of an audit
a. The nature of the FS: prep of FS requires judgement when applying FR.
There may be a range on interpretations. Some items consist of a lot of
variability
b. The nature of audit proceedings: practical and legal limitations on obtaining
audit evidence
i. Management or others my not provide complete information,
intentionally and unintentionally. Required to prepare FS. Therefore
auditors can’t assess completeness.
ii. Fraud may involve sophisticated carefully organised schemes to
conceal the fraud therefore making it difficult to detect.
iii. Not a legal investigation and therefore no legal powers
c. The need for an audit to be conducted within reasonable period of time and
reasonable cost:
Relevance of information diminishes over time
Appropriate planning and making sufficient resources available.
Balance between relevant information and the cost
Have to form an opinion in a reasonable period of time and at a
reasonable cost
It is necessary for the auditor to:
i. Plan the audit so that it is performed in an effective manner
ii. Direct audit effort to areas with most expected RoMM
iii. Use testing to and other means of examining populations for
misstatements
Requires the auditor among other things to
i. Have a basis for the identification and assessment of RoMM
and FS level and at assertion by performing risk assessment
procedures and related activities
ii. Use testing and other means of examining populations in a
manner that provides a reasonable basis to draw a conclusions
9. Other matters that may affect inherent limitation of an audit. The limitation of an
audit arises from
a. Fraud
b. Related party relationship and transactions
c. Non-compliance with laws and regulations
d. Future events that may cause entity to cease
Conduct of an audit in accordance with ISA
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The auditor shall comply with all ISAs relevant to the audit
- Shall have understanding of the entire text of the ISA
- Shall not represent ISA in AR unless complied with
1. Objectives stated in individual ISAs: to achieve overall objectives auditor shall
use objectives stated in relevant ISAs in planning and performing
i. Determine whether you need additional audit procedures in addition to
what is required in the ISA
ii. Evaluate whether there is sufficient audit evidence
2. Comply with relevant requirements: auditor shall comply with entire ISA unless
i. Entire ISA is not relevant
ii. Not relevant because it is conditional and condition does not exist
iii. In certain circumstances auditor my use professional judgement and depart
from the ISA. In this case the auditor has to perform alternative audit
procedures. The need only arises when there are requirements for a
specific procedure to be performed and the ISA requirement will be
insufficient in achieving objectives.
3. Failure to achieve an objective: if an objective of an ISA can’t be met the auditor
shall assess whether it prevents the overall objectives of the ISA to be met.
Requires auditor to modify audit opinion or withdraw from engagement. In
accordance with 230
APPLICATION AND OTHER EXPLANATORY MATERIAL
See above text

Unformatted Attachment Preview

ISA 200 INTRODUCTION Scope of this ISA Deals with the independent auditors overall responsibilities when it comes to conducting an audit of the financial statements in accordance with ISA. - Sets out the overall objectives and the nature and scope of the audit Sets out general objectives of an audit An audit of Financial Statements The purpose of an audit is to enhance the degree of confidence of the intended users of the FS - Achieved by expression of an opinion by auditors on whether the FS were prepared in accordance with a FF A1: scope of audit • • • - Auditors opinion deals with whether FS are prepared in all material respects and in accordance with applicable FRF Audit opinion does to assure viability of the entity, efficiency or effectiveness of management. Law/regulation could require auditor to provide opinion on specific matters e.g. internal controls. This requires additional work FS are prepared by those tasked with governance and management. ISA does not override laws and regulations that govern their responsibilities but those charged with governance have acknowledged certain responsibilities that are fundamental to the audit. The FS don’t relieve them of said responsibilities A2-A11: Preparation of Financial statement • • • An audit in accordance with ISA is conducted on premises of that management and those tasked with governance have acknowledged responsibility 1. Preparation of FS in accordance with FRF 2. Internal controls that are necessary to ensure that the FS are free from MM 3. Provide auditor with: i. Access to all info relevant to prep of FS ii. Add info that auditor my request iii. Unrestricted access to persons within the entity who auditor determines necessary to obtain audit evidence. Prep of FS by man and TCWG requires 1. Identification of applicable FRF in context of laws and regs 2. Prep of FS in accordance with framework 3. Inclusion of an adequate description of framework in FS Req man to exercise judgement and determine appropriate acc policies FS designed to meet 1. Common FI for wide range of users 2. Needs of specific users • • - - FRF consist of legislative/ regulatory req + and financial reporting standards. Other sources may provide info on direction of application FRF may consist of said sources or only contain said sources. 1. Legal ethical environment includes statutes and legislation 2. Accounting interpretations by various authorities 3. General industry practice 4. Accounting literature. If there is conflict between FRF and sources, highest authority takes preference Requirements of FRF determine what constitutes a complete set of FS Auditors must obtain reasonable assurance that FS are free from material misstatement, whether due to fraud or error. Materiality is applied in by auditor in planning and perfroming ISAs contain objectives 1. Identify and assess risk of material misstatement 2. Obtain sufficient appropriate audit evidence 3. Form an opinion on financial statements Opinion formed depends on FRF and legislation A12-A13 • Some frameworks include presentation requirements. If it is a fair presentation framework then opinion determines whether it was presented fairly. If it’s a compliance framework then opinion determines whether it applies framework Tutorial 1.1 Benefit of an audit - FS are accepted as reliable by third party users SARS accepts audited FS as basis of tax calculation. Reliable basis of valuation of business or shareholder’s interest Sound basis of settlement of claims Commitment of fraud is deterred Auditor is able to provide business and tax advice. OVERALL OBJECTIVES OF AN AUDIT Overall objectives of an auditors are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement whether due to fraud or error, enabling the auditor to express and opinion on whether the financial statements are prepared in all material respects in accordance with applicable reporting framework - If reasonable assurance can’t be obtained and a qualified opinion in the audit report is not sufficient for the of reporting ISA requires the auditor to disclaim an opinion or withdraw from the engagement. DEFINITIONS a. Applicable financial reporting framework: the financial reporting framework adopted by management b. Audit evidence; information used by the auditor in arriving at the conclusions on which the audit opinion is based. Information from accounting records and other information i. Sufficiency: the measure of the quantity of audit evidence. The quantity needed is affected by the risk of material misstatement and quality of evidence ii. Appropriateness: measure of the quality of audit evidence. This includes its relevance and reliability in providing support for conclusion audit opinion is based on. c. Audit risk: the risk that the auditor expresses an inappropriate opinion when the financial statements are materially misstates i. Function of RoMM and detection risk d. Auditor: a person who conducts an audit e. Detection risk: risk that procedures performed by auditor to reduce risk to acceptably low level will not detect a misstatement that exists that could be material individually or in aggregate with other misstatements f. Misstatement: the difference between the amount, classification, presentation or disclosure of a reported financial statement item and the amount, classification, presentation or disclosure required to be in accordance with the financial reporting framework g. Professional judgement: the application of training, knowledge and experience to make an informed decision about the course of action that are appropriate in the circumstances of an audit agreement. h. Professional scepticism: an attitude that includes a questioning mind, being alert to conditions that might indicate a material misstatement and critical assessment of audit evidence. i. Reasonable assurance: a high but not absolute level of assurance j. Risk of material misstatements: risk that FS are materially misstated prior to audit. Consists of i. Inherent risk: the susceptibility of an assertion about a class of transactions, account balance or disclosure to misstatement that could be material individually or aggregated with other misstatement before considerations of controls ii. Control risk: the risk that a misstatement that could occur about an assertion about a class of transactions, account balance or disclosure to misstatement that could be material individually or aggregated with other misstatement will not be prevented, detected and corrected on a timely basis by the entity’s controls. REQUIREMENTS Ethical requirements relating to an Audit of financial statements An auditor shall comply with the relevant ethical requirements including those pertaining to independence relating to financial statement and audit engagement A16-A19 • • • Part A and B of International ethics standards board for accountants (IESBA) 1. Part A: fundamental principles of professional ethics a. Integrity b. Objectivity c. Professional competence and due care d. Confidentiality e. Professional behaviour 2. Part B: illustrates how CF applied to specific situations If audit is in public interest auditors but be independent of the entity. Independent mind and independent in appearance ISQC sets out responsibilities relating to independence Professional scepticism Auditor shall conduct the audit with professional skepticism recognising that circumstances may exist that cause FS to be MM A20-A24 • • • • • Being alert to: 1. audit evidence that contradicts other audit evidence 2. Info that brings into question the reliability of documents 3. Conditions that may indicate fraud 4. Circumstances that require auditors to undertake additional audit procedures Necessary to reduce the risk of 1. Overlooking unusual circumstances 2. Over generalising when concluding 3. Using appropriate assumptions on determining the nature, timing and extent of the audit Necessary to critically assess audit evidence. This includes the above as well as sufficiency and appropriateness of audit evidence May accept information as genuine unless have reason to believe the contrary. Still need to consider reliability. In case of doubt the auditor needs to do a further in investigation Auditor can’t disregard past experience but still has to discuss professional judgement Professional judgement Exercise professional judgement in planning and performing an audit A25-A29 • Professional judgement is essential to proper conduct of an audit. Professional judgement is needed when dealing with 1. MM 2. Nature timing and extent of audit procedures 3. Evaluating whether sufficient appropriate audit evidence has been obtained 4. Evaluation of managements judgements 5. Drawing conclusions based on audit evidence. • • • • Exercised by an auditor whose training knowledge and experience has assisted in developing the necessary competencies. Based on facts and circumstances known by the auditor Can be judges based on judgement made Needs to be exercised throughout the audit Sufficient appropriate audit evidence and audit risk Auditor shall obtain sufficient appropriate audit evidence to reduce audit risk to an acceptably low level A30-A54 • Audit evidence is necessary to support audit opinion. It accumulative and obtained from the audit process. It may also include info from other sources such as previous audits or firms quality control procedures for client acceptance and continuance. • Sufficiency and appropriateness are interrelated: i. Higher risk more evidence needed ii. Better quality less evidence • Appropriateness is the measure of quality: relevance and reliability • Auditor needs sufficient appropriate evidence in order to come to a conclusion 1. Audit risk: function of RoMM and detection risk. o The assessment of risk is based on audit procedures to obtain information necessary o Measure of risk is based on judgement o Audit risk does not include risk the auditor might express an opinion that the FS are MM 2. RoMM: exists at two levels i. Overall financial statement level: risks that refer to MM to FS as a whold and possible to assertions ii. The assertion level of classes of transaction, account balances and disclosure: : assessed in order to determine rge nature timing and extent of further audit procedures necessary to obtain sufficient appropriate audit evidence a. Inherent risk are higher for some amounts or balances etc. It is dependent on the complexity of calculation or maybe different technlogies b. Control risk: a function of the effectiveness of the internal controls by management. Controls can reduce risk but not eliminate due to certain factors. Therefore auditors may need to test controls a. Human error or mistakes b. Controls being circumvented by collusion or management overide 3. Detection risk: higher RoMM lower detection risk and vice versa o Detections risk relates to the nature timing and extent of audit procedures that are determined by the auditor to reduce audit risk to an acceptable level o Enhancing the effectiveness of audit procedures can be imporved by a. Adequate planning 4. 5. 6. 7. 8. 9. b. Proper assignment to the engagement team c. Application of professional skeptisicm d. Supervision of audit work performed Inherent limitations of an audit: auditor is unable to and not expected to reduce risk to zero and therefor cannot obtain absolute assurance The nature of financial reporting The nature of audit procedures Timeliness of financial reporting and balance between benefit and cost Inherent limitations of an audit a. The nature of the FS: prep of FS requires judgement when applying FR. There may be a range on interpretations. Some items consist of a lot of variability b. The nature of audit proceedings: practical and legal limitations on obtaining audit evidence i. Management or others my not provide complete information, intentionally and unintentionally. Required to prepare FS. Therefore auditors can’t assess completeness. ii. Fraud may involve sophisticated carefully organised schemes to conceal the fraud therefore making it difficult to detect. iii. Not a legal investigation and therefore no legal powers c. The need for an audit to be conducted within reasonable period of time and reasonable cost: ▪ Relevance of information diminishes over time ▪ Appropriate planning and making sufficient resources available. ▪ Balance between relevant information and the cost ▪ Have to form an opinion in a reasonable period of time and at a reasonable cost ▪ It is necessary for the auditor to: i. Plan the audit so that it is performed in an effective manner ii. Direct audit effort to areas with most expected RoMM iii. Use testing to and other means of examining populations for misstatements ▪ Requires the auditor among other things to i. Have a basis for the identification and assessment of RoMM and FS level and at assertion by performing risk assessment procedures and related activities ii. Use testing and other means of examining populations in a manner that provides a reasonable basis to draw a conclusions Other matters that may affect inherent limitation of an audit. The limitation of an audit arises from a. Fraud b. Related party relationship and transactions c. Non-compliance with laws and regulations d. Future events that may cause entity to cease Conduct of an audit in accordance with ISA The auditor shall comply with all ISAs relevant to the audit - Shall have understanding of the entire text of the ISA Shall not represent ISA in AR unless complied with 1. Objectives stated in individual ISAs: to achieve overall objectives auditor shall use objectives stated in relevant ISAs in planning and performing i. Determine whether you need additional audit procedures in addition to what is required in the ISA ii. Evaluate whether there is sufficient audit evidence 2. Comply with relevant requirements: auditor shall comply with entire ISA unless i. Entire ISA is not relevant ii. Not relevant because it is conditional and condition does not exist iii. In certain circumstances auditor my use professional judgement and depart from the ISA. In this case the auditor has to perform alternative audit procedures. The need only arises when there are requirements for a specific procedure to be performed and the ISA requirement will be insufficient in achieving objectives. 3. Failure to achieve an objective: if an objective of an ISA can’t be met the auditor shall assess whether it prevents the overall objectives of the ISA to be met. Requires auditor to modify audit opinion or withdraw from engagement. In accordance with 230 APPLICATION AND OTHER EXPLANATORY MATERIAL See above text Name: Description: ...
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