Summary Principles of International Auditing and Assurance
Inhoudsopgave
Chapter 1.2 An audit defined .................................................................................................................. 2
Chapter 2.6 Standard setting .................................................................................................................. 4
Chapter 4: The fundamental concepts of auditing and assurance ......................................................... 5
Chapter 5 Fraud and other considerations of law and regulation in an audit (ISA 240, 250)................. 7
Chapter 6.6 Use of other professional in the audit ............................................................................... 13
Chapter 7 Planning through understanding and risk analysis ............................................................... 13
Chapter 8 Internal control and control risk ........................................................................................... 20
Chapter 9 Building and execution of the test plan and auditor’s response to assessed risk ................ 27
Chapter 10 Building and execution of the test plan – analytical review............................................... 30
Chapter 12.8 Communications with those charged with governance .................................................. 35
Chapter 13.4 Group Audit ..................................................................................................................... 36
Auditors: Their mindset and their decisions ......................................................................................... 39
Information and Communications Technology and Auditing: Current implications and Future
Directions .............................................................................................................................................. 42
Breakdowns in internal controls in bank trading information systems: The case of the fraud at Société
Générale ................................................................................................................................................ 45
,Chapter 1.2 An audit defined
A general definition of auditing is:
An audit is a systematic process of objectively obtaining and evaluating evidence regarding assertions
about economic actions and events to ascertain the degree of correspondence between these
assertions and established criteria, and communicating the results to interested users.
Components of audit definition
To give confidence to investors, creditors and the management on financial statements, an auditor
provides an independent expert opinion on the fairness of the reports, called an audit opinion. An
audit is a systematic approach. It follows a structured, documented plan (audit plan). In the process
of the audit, accounting records are analyzed by the auditors using a variety of generally accepted
techniques. The audit must be planned and structured in such a way that those carrying out the audit
can fully examine and analyze all important evidence.
An audit is conducted objectively. An audit is an independent, objective and expert examination and
evaluation of evidence. Auditors are fair and do not allow a prejudice or bias to override their
objectivity. They maintain an impartial attitude.
The auditor obtains and evaluates evidence. The auditor assesses the reliability, relevance and
sufficiency of the information contained in the underlying accounting and records and other source
data by:
• Studying and evaluating accounting systems and internal controls on which she wishes to
rely and testing those internal controls to determine the nature, extent and timing of other
auditing procedures; and
• Carrying out such other test, inquiries and other verification procedures of accounting
transaction and account balances, as she considers appropriate in the particular
circumstances.
The evidence obtained and evaluated by the auditor concerns assertions about economic actions and
events. There are different type of assertions:
Primary assertions/objectives used in an audit:
- Accuracy – amount and other data relating to recorded transactions and events have been
recorder appropriately, and related disclosures have been appropriately measured and
described.
- Completeness (for example revenue) – all transactions and events that should have been
recorded have been recorded, and all related disclosures that should have been included in
the financial statements have been included
Other relevant assertions:
- Existence and occurrence – transactions and events have been recorded or disclosed have
occurred, and such transactions and events pertain to the entity.
- Cut-off – transactions and events have been recorded in the correct accounting period
- Classification (or presentation and disclosure) – transactions and events have been recorded
in the proper accounts.
- Valuation (and allocations) – assets, liabilities and equity interest have been included in the
financial statements at appropriate amounts and any resulting valuation or allocation
, adjustments have been appropriately recorded, and related disclosures have been
appropriately measured and described.
- Right and obligations – the entity holds or controls the rights to assets, and liabilities are the
obligation of the entity.
General principles of governing an audit of financial statements
A public auditor can also examine non-financial information, such as effectiveness of internal
controls, but the majority of audit work is concerned with the financial statements. This are, under
international standards, the balance sheets, income statements and cash flow statements and the
notes thereto.
Requirements of financial statements
ISA 200 sets out several requirements relating to an audit of financial statements:
- Required to comply with relevant ethical requirements;
- Shall plan and perform an audit with professional skepticism (includes having a questioning
mind);
- Shall exercise professional judgement in planning and performing the audit
- Obtain appropriate audit evidence, to obtain reasonable assurance that the financial
statements are accurate.
Purpose and characteristics of a financial statement
Function of auditing is to lend credibility to the financial statements. The purpose of an audit it to
enhance the degree of confidence of intended users in the financial statements. This is achieved by
the expression of an opinion by the auditor on whether the financial statements are prepared, in all
material respects, in accordance with an applicable financial reporting framework.
ISAs do not impose responsibilities on management or those charged with governance and do not
override laws and regulations that govern their responsibilities. However, an audit in accordance
with ISAs is conducted on the premise that management and those charged with governance have
acknowledged certain responsibilities that are not fundamental to the conduct of audit.
Materiality is applied by auditors in planning and performing the audit, and in evaluating the effect of
identified misstatements on the financial statements. Misstatements, including omissions, are
considered to be material if, individually or in the aggregate, they could reasonable by expected to
influence the economic decisions of users taken on the basis of the financial statements.
ISA require that the auditor exercise professional judgement and maintain professional skepticism
throughout the planning and performance of the audit and, among other things:
• Identify and assess risks of material misstatements, whether due to fraud of error, based on
understanding the entity and its environment, including the entity’s internal control;
• Obtain sufficient appropriate audit evidence about whether material misstatements exist,
through designing and implementing appropriate responses to the assessed risks;
• Form an opinion on the financial statements based on conclusions drawn from the audit
evidence obtained
Risk in financial statements
Two levels of risks:
, 1. Overall financial statements may be misstated;
2. Misstatements in relation to classes of transaction, account balances and disclosure.
Chapter 2.6 Standard setting
International financial reporting standards (IFRS)
Formerly called International Accounting Standards (IAS), which are set by the International
Accounting Standards Board (IASB). For a great majority of the world IFRS are required for domestic
public companies. For even more of the world’s countries IFRS are required or permitted for public
listings on foreign companies.
IAASB auditing, quality control, and related service standards
• Standard setter of ISAs, ISAEs and other standards
• Supported by IFAC
IAASB issues several sets of standards to be applied to international auditing and assurance services.
IAASB standards contain basic principles and essential procedures together with related guidance in
the form of explanatory and other material. IAASB issues:
• ISAs as the standards to be applied by auditors in reporting on historical financial
information;
• International Standards on Assurance Engagements (ISAEs) as the quality control standards
to be applied by practitioners in assurance engagements dealing with information other than
historical financial information;
• Information on Standards on Quality Control (ISQCs) as the standards the be applied for all
services falling under the standards of the IAASB;
• International Standards on Related Services (ISRSs) as the standards to be applied to related
services;
• Internal standards on Review Engagements (ISREs) as the standards to be applied to their
review of historical financial information.
International Standards on Auditing
International standards on auditing
• International standards ensure the same audit globally
• Harmonization of standards for auditing financial statements
100–999 International Standards on Auditing (ISAs):
• 100–199 Introductory Matters
• 200–299 General Principles and Responsibilities
• 300–499 Risk Assessment and Response to Assessed Risks
• 500–599 Audit Evidence
• 600–699 Using the Work of Others
• 700–799 Audit Conclusions and Reporting
• 800–899 Specialized Areas
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