4 sa sample

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540 18 Auditing Accounting Estimates, including Fair
Value Accounting Estimates, and Related
Disclosures
550 23 Related Parties
560 19 Subsequent Events
570 16 Going Concern
580 11 Written Representations

600 10 Special Consideraons ― A udi ts o f G r oup
Financial Statements (Including the Work of
Component Auditors) [1.4.2002]
610 7 Using the Work of Internal Auditors
620 9 Using the Work of an Auditor’s Expert

700 28 Forming an Opinion and Reporting on Financial
Statements
705 25 Modifications to the Opinion in the
Independent Auditor’s Report
706 Emphasis of Matter Paragraphs and Other
Matter Paragraphs in the Independent Auditor’s
Report
710 Comparative Information – Corresponding
Figures and Comparative Financial Statements
720 The Auditor’s Responsibility in Relation to Other
Information in Documents Containing Audited
Financial Statements
*Effective date means that the SA is effective for audits of the financial statements for periods beginning on
or after the specified date

. All rights reserved. These notes are for personal use only. Copying or transmitting, selling or profiting in any
other manner from these notes is prohibited.

SA200 – Overall objectives and Conduct of
an Audit
Page 5 of 17

1. This SA establishes the independent auditor’s overall responsibilities when conducting an audit of
financial statements in accordance with other SAs.
2. The purpose of an audit is to enhance the degree of confidence of intended users in the financial
statements.
3. 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.
4. Auditor’s opinion does not assure, for example, the future viability of the entity nor the efficiency or
effectiveness with which management has conducted the affairs of the entity.
5. Laws and regulations may require auditors to provide opinions on other specific matters, such as the
effectiveness of internal control, or the consistency of a separate management report with the financial
statements.

The financial reporting framework adopted by management and, where appropriate, those charged with
governance in the preparation and presentation of the financial statements that is acceptable in view of
the nature of the entity and the objective of the financial statements, or that is required by law or
regulation.
Financial reporting frameworks can be:-
(a) Fair presentation frameworks; or SA210
(b) Compliance frameworks SA800

An audit in accordance with SAs is conducted on the premise that management and, where appropriate,
those charged with governance have responsibilities that are fundamental to the conduct of the audit.
The audit of the financial statements does not relieve management or those charged with governance of
those responsibilities.
Management and those charged with governance have responsibility:-
(a) For the preparation and presentation of the financial statements in accordance with the
applicable financial reporting framework.
(b) For design, implementation and maintenance of internal control relevant to the preparation and
presentation of financial statements that are free from material misstatement, whether due to
fraud or error.
(c) To provide auditor with information and explanations
The financial statements prepared may be:-
(a) general purpose financial statements
(b) special purpose financial statements


SA240 – Fraud and Errors
Page 6 of 17

An intentional act by one or more individuals among management, those charged with
governance, employees, or third parties, involving the use of deception to obtain an unjust or illegal
advantage.
- Events or conditions that indicate an incentive or pressure to commit fraud or
provide an opportunity to commit fraud.

Although fraud is a broad legal concept, for the purposes of the SAs, the auditor is concerned with fraud
that causes a material misstatement in the financial statements.
Two types of intentional misstatements are relevant to the auditor –
(i) Misstatements resulting from fraudulent financial reporting; and
(ii) Misstatements resulting from misappropriation of assets

The primary responsibility for the prevention and detection of fraud rests with both;-
(i) those charged with governance of the entity and
(ii) Management.
This involves a commitment to creating a culture of honesty and ethical behavior which can be
reinforced by an active oversight by those charged with governance

An auditor conducting an audit in accordance with SAs is responsible for obtaining reasonable assurance
that the financial statements taken as a whole are free from material misstatement, whether caused by
fraud or error.
SA200 -Due to , there is an unavoidable risk that some material
misstatements of the financial statements will not be detected, even though the audit is properly
planned and performed in accordance with the SAs.
The risk of not detecting a material misstatement resulting from fraud is higher than the risk of not
detecting one resulting from error.
The risk of the auditor not detecting a material misstatement resulting from management fraud is
greater than for employee fraud, because management is frequently in a position to directly or indirectly
manipulate accounting records, present fraudulent financial information or override control procedures
designed to prevent similar frauds by other employees.
When obtaining reasonable assurance, the auditor is responsible for
throughout the audit, considering the potential for management override of
controls and recognizing the fact that audit procedures that are effective for detecting error may not be
effective in detecting fraud.

(a) To identify and assess the risks of material misstatement in the financial statements due to fraud;


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(b) To obtain sufficient appropriate audit evidence about the assessed risks of material misstatement due to
fraud, through designing and implementing appropriate responses; and
(c) To respond appropriately to identified or suspected fraud.

The auditor shall maintain an attitude of professional skepticism throughout the audit, recognizing the
possibility that a material misstatement due to fraud could exist, the auditor’s past
experience of the honesty and integrity of the entity’s management and those charged with governance.
Unless the auditor has reason to believe the contrary, the auditor may accept records and documents as
genuine.
Where responses to inquiries of management or those charged with governance are inconsistent, the
auditor shall investigate the inconsistencies.

SA 315 – Auditor should conduct a discussion among the engagement team members and a
determination by the engagement partner of matters which are to be communicated to those team
members not involved in the discussion.
The discussion shall place particular emphasis on how and where the entity’s financial statements may
be susceptible to material misstatement due to fraud, including how fraud might occur.
The discussion shall occur notwithstanding the engagement team members’ beliefs that management
and those charged with governance are honest and have integrity.

The auditor shall make inquiries of management regarding:
(a) Management’s assessment of the risk of material misstatements including the nature, extent and
frequency of such assessments
(b) Management’s process for identifying and responding to such risks
(c) Management’s communication to those charged with governance and to its employees regarding its
views on business practices and ethical behavior.
The auditor shall make inquiries of management and others within the entity including Internal Audit to
determine whether they have knowledge of any actual, suspected or alleged fraud affecting the entity.

The auditor shall obtain an understanding of how those charged with governance exercise oversight of
management’s processes for identifying and responding to the risks of fraud in the entity and the
internal control that management has established to mitigate these risks.
The auditor shall make inquiries to determine whether they have knowledge of any actual, suspected or
alleged fraud affecting the entity.


SA265 – Deficiencies in Internal Control
Page 8 of 17

This SA deals with the auditor’s responsibility to communicate appropriately to those charged with
governance and management deficiencies in internal control that the auditor has identified in an audit
of financial statements.
The auditor is required to obtain an understanding of internal control relevant to the audit when
identifying and assessing the risks of material misstatement.
The objective of the auditor is to communicate appropriately to those charged with governance and
management deficiencies in internal control that the auditor has indentified during the audit and that, in
the auditor’s professional judgment, are of sufficient importance to merit their respective attentions.

- This exists when:
(i) A control is designed, implemented or operated in such a way that it is unable to prevent, or detect
and correct, misstatements in the financial statements on a timely basis; or
(ii) A control necessary to prevent, or detect and correct, misstatements in the financial statements on a
timely basis is missing.
- A deficiency or combination of deficiencies in internal control
that, in the auditor’s professional judgment, is of sufficient importance to merit the attention of those
charged with governance.

The auditor shall determine whether, on the basis of the audit work performed, the auditor has
identified one or more deficiencies in internal control.
If auditor has identified one or more deficiencies in internal control, the auditor shall determine, on the
basis of the audit work performed, whether, individually or in combination, they constitute significant
deficiencies.
The auditor shall communicate in writing significant deficiencies in internal control identified during the
audit to those charged with governance on a timely basis.
The auditor shall also communicate to management at an appropriate level of responsibility on a timely
basis.
The auditor shall include in the written communication of significant deficiencies in internal control:
(a) A description of the deficiencies and an explanation of their potential effects; and
(b) Sufficient information to enable those charged with governance and management to understand the
context of the communication.
In particular, the auditor shall explain that:

SA450 – Misstatements Identified
(i) The purpose of the audit was for the auditor to express an opinion on the financial statements;
(ii) The audit included consideration of internal control relevant to the preparation of the financial
statements in order to design audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion of the effectiveness of internal control; and


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This SA deals with the auditor’s responsibility to evaluate the effect of identified misstatements on the
audit and of uncorrected misstatements, if any, on the financial statements.
The objective of the auditor is to evaluate:
(a) The effect of identified misstatements on the audit; and
(b) The effect of uncorrected misstatements, if any, on the financial statements.

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. When the auditor expresses an opinion on whether the
financial statements give a true and fair view or are presented fairly, in all material respects,
misstatements also include those adjustments of amounts, classification, presentation, or disclosure
that, in the auditor’s judgment, are necessary for the financial statements to give a true and fair view or
present fairly, in all material respects.
- Misstatements that the auditor has accumulated during the audit and that
have not been corrected.

The auditor shall accumulate misstatements identified during the audit, other than those that are clearly
trivial.
The auditor shall determine whether the overall audit strategy and audit plan need to be revised if :-
(a) The nature of identified misstatements and the circumstances of their occurrence indicate that
other misstatements may exist that, when aggregated with misstatements accumulated during the
audit, could be material; or
(b) The aggregate of misstatements accumulated during the audit approaches materiality determined in
accordance with SA 320.
At the auditor’s request, if management has examined a class of transactions, account balance or
disclosure and corrected misstatements that were detected, the auditor shall perform additional audit
procedures to determine whether misstatements remain.

The auditor shall communicate on a timely basis all misstatements accumulated during the audit with
the appropriate level of management, unless prohibited by law or regulation. The auditor shall request
management to correct those misstatements.
If management refuses to correct some or all of the misstatements communicated by the auditor, the
auditor shall obtain an understanding of management’s reasons for not making the corrections and shall
take that understanding into account when evaluating whether the financial statements as a whole are
free from material misstatement.

The auditor shall determine whether uncorrected misstatements are material, individually or in
aggregate. In making this determination, the auditor shall consider :-


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(a) The size and nature of the misstatements, both in relation to particular classes of transactions,
account balances or disclosures and the financial statements as a whole, and the particular
circumstances of their occurrence; and
(b) The effect of uncorrected misstatements related to prior periods on the relevant classes of
transactions, account balances or disclosures, and the financial statements as a whole.
The auditor shall communicate with those charged with governance uncorrected misstatements and the
effect that they, individually or in aggregate, may have on the opinion in the auditor’s report, unless
prohibited by law regulation. The auditor’s communication shall identify material uncorrected
misstatements individually. The auditor shall request that uncorrected misstatements be corrected.

The auditor shall request a written representation from management and, where appropriate, those charged
with governance whether they believe the effects of uncorrected misstatements are immaterial, individually
and in aggregate, to the financial statements as a whole. A summary of such items shall be included in or
attached to the written representation.

The audit documentation shall include:-
(a) The amount below which misstatements would be regarded as clearly trivial;
(b) All misstatements accumulated during the audit and whether they have been corrected; and
(c) The auditor’s conclusion as to whether uncorrected misstatements are material, individually or in
aggregate and the basis for that conclusion.


SA510 – Opening Balances
Page 11 of 17

This SA deals with the auditor’s responsibilities relating to opening balances when conducting an initial
audit engagement. In addition to financial statement amounts, opening balances include matters
requiring disclosure that existed at the beginning of the period, such as contingencies and commitments.
In conducting an initial audit engagement, the objective of the auditor with respect to opening balances
is to obtain sufficient appropriate audit evidence about whether:
(a) Opening balances contain misstatements that materially affect the current period’s financial
statements; and
(b) Appropriate accounting policies reflected in the opening balances have been consistently applied in
the current period’s financial statements, or changes thereto are properly accounted for and
adequately presented and disclosed in accordance with the applicable financial reporting
framework.

- An engagement in which either;
(i) the financial statements for the period were not audited or
(ii) the financial statements for the prior period were audited by a predecessor auditor.
-Those account balances that exist at the beginning of the period. Opening balances
are based upon the closing balances of the prior period and reflect the effects of transactions and events
of prior periods and accounting policies applied in the prior period. Opening balances also include
matters requiring disclosure that existed at the beginning of the period, such as contingencies and
commitments.
- The auditor from a different audit firm, who audited the financial statements of an
entity in the prior period and who has been replaced by the current auditor.

The auditor shall read the most recent financial statements, if any, and the predecessor auditor’s report
thereon, if any, for information relevant to opening balances, including disclosures.
The auditor shall obtain sufficient appropriate audit evidence about whether the opening balances
contain misstatements that materially affect the current period’s financial statements by:-
(a) Determining whether the prior period’s closing balances have been correctly brought forward to the
current period or, when appropriate, any adjustments have been disclosed as prior period items in
the current items in the current year’s statement of profit and loss; and
(b) Determining whether the opening balances reflect the application of appropriate accounting
policies.
(c) Where the prior year financial statements were audited, perusing the copies of the audited financial
statements including the other relevant documents relating to the prior period financial statements;
(d) Evaluating whether audit procedures performed in the current period provide evidence relevant to
the opening balances; or
(e) Performing specific audit procedures to obtain evidence regarding the opening balances.


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If the auditor obtains audit evidence that the opening balances contain misstatements that could
materially affect the current period’s financial statements, the auditor shall perform such additional
audit procedures as are appropriate in the circumstances to determine the effect on the current period’s
financial statements. If the auditor concludes that such misstatements exist in the current period’s
financial statements, the auditor shall communicate the misstatements with the appropriate level of
management and those charged with governance in accordance with SA 450.

The auditor shall obtain sufficient appropriate audit evidence about whether the accounting policies
reflected in the opening balances have been consistently applied in the current period’s financial
statements, and whether changes in the accounting policies have been properly accounted for and
adequately presented and disclosed in accordance with the applicable financial reporting framework

If the prior period’s financial statements were audited by a predecessor auditor and there was a
modification to the opinion, the auditor shall evaluate the effect of the matter giving rise to the modification
in assessing the risks of material misstatement in the current period’s financial statements.

If the auditor is unable to obtain sufficient appropriate audit evidence regarding the opening balances,
the auditor shall express a qualified opinion or a disclaimer of opinion, as appropriate.
If the auditor concludes that the opening balances contain a misstatement that materially affects the
current period’s financial statements, and the effect of the misstatement is not properly accounted for
or not adequately presented or disclosed, the auditor shall express a qualified opinion or an adverse
opinion, as appropriate.

If the auditor concludes that :-
(a) The current period’s accounting policies are not consistently applied in relation to opening balances
in accordance with the applicable financial reporting framework; or
(b) A change in accounting policies is not properly accounted for or not adequately presented or
disclosed in accordance with the applicable financial reporting framework,
the auditor shall express a qualified opinion or an adverse opinion as appropriate.

If the predecessor auditor’s opinion regarding the prior period’s financial statements included a modification
to the auditor’s opinion that remains relevant and material to the current period’s financial statements, the
auditor shall modify the auditor’s opinion on the current period’s financial statements in accordance with
SA705 and SA710.


SA610 – Using work of an Internal Auditor
Page 13 of 17

The purpose of this SA is to provide guidance as to the procedures which should be applied by the
external auditor in assessing the work of the internal auditor for the purpose of placing reliance upon
that work.
The external auditor shall determine :-
(a) Whether the work of the internal auditors is likely to be adequate for purposes of the audit; and
(b) If so, the planned effect of the work of the internal auditors on the nature, timing or extent of
the external auditor’s procedures.

– An appraisal activity established or provided as a service to the entity. Its
functions include, amongst other things, examining, evaluating and monitoring the adequacy and
effectiveness of internal control.
Those individuals who perform the activities of the internal audit function. Internal
auditors may belong to an internal audit department or equivalent function.

1. Review of accounting system and related internal controls
2. Examination for management of financial and operating information
3. Examination of the economy, efficiency and effectiveness of operations including non-financial controls
of an organization
4. Physical examination and verification of assets

Though the objectives and approach of an external audit differ from that of an internal audit, some of
the means of achieving their respective objectives are often similar and, thus, much of the work of the
internal auditor may be useful to the external auditor in determining the nature, timing and extent of his
procedures.
The external auditor should, as part of his audit, evaluate the internal audit function to the extent he
considers that it will be relevant in determining the nature, timing and extent of his compliance and
substantive procedures. Depending upon such evaluation, the external auditor may be able to adopt less
extensive procedures than would otherwise be required.
By its very nature, the internal audit function cannot be expected to have the same degree of
independence as is essential when the external auditor expresses his opinion on the financial
information.
The report of the external auditor is his sole responsibility, and that responsibility is not by any means
reduced because of the reliance he places on the internal auditor’s work.

The external auditor should evaluate the internal audit function and document his conclusions in this
respect.
The important aspects to be considered in this context are:


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(a) Organizational Status
(b) Scope of Function
(c) Technical competence
(d) Due Professional Care
In determining whether the work of the internal auditors is likely to be adequate for purposes of the
audit, the external auditor shall evaluate :-
(a) The objectivity of the internal audit function;
(b) The technical competence of the internal auditors;
(c) Whether the work of the internal auditors is likely to be carried out with due professional care;
(d) Whether there is likely to be effective communication between the internal auditors and the
external auditor.
(e) The nature and scope of specific work performed, or to be performed, by the internal auditors.
(f) The assessed risks of material misstatement at the assertion level for particular classes of
transactions, account balances, and disclosures;
(g) The degree of subjectivity involved in the evaluation of the audit evidence gathered by the internal
auditors in support of the relevant assertions.
(h) The work performed by internal auditors having adequate technical training and proficiency;
(i) The work properly supervised, reviewed and documented;
(j) Adequate audit evidence has been obtained to enable the internal auditors to draw reasonable
conclusions:
(k) Conclusions reached appropriate in the circumstances and any reports prepared by the internal
auditors are consistent with the results of the work performed; and
(l) Any exceptions or unusual matters disclosed by the internal auditors are properly resolved.

If the external auditor intends to rely upon the work of the internal auditor, it is desirable that the
external auditor ascertains the internal auditor’s tentative plan for the year and discusses it with him at
as early a stage as possible to determine areas where he considers that he could rely upon the internal
auditor’s work.
The timing of such work, the extent of audit coverage, test levels and proposed methods of sample
selection, documentation of the work performed, and review and reporting procedures etc. should be
planned in advance.
Coordination with the internal auditor is usually more effective when meetings between External and
Internal Auditors are held at appropriate intervals during the year.
Any significant matter that comes to the internal auditor’s attention and which he believes may affect
the work of the external auditor should be informed promptly and vice-versa.

The external auditor should document his conclusions in respect of the specific work which he has
reviewed.
When the external auditor uses specific work of the internal auditors, the external auditor shall
document conclusions regarding the evaluation of the adequacy of the work of the internal auditors, and
the audit procedures performed by the external auditor on that work.
The external auditor should also test the work of the internal auditor on which he intends to rely.


SA710 – Comparatives
Page 15 of 17

This SA deals with the auditor’s responsibilities regarding comparative information in an audit of
financial statements.
When the financial statements of the prior period have been audited by a predecessor auditor or were
not audited, the requirements and guidance in SA 510 regarding opening balances also apply.
There are two different broad approaches to the auditor’s reporting responsibilities in respect of
comparative information, i.e., corresponding figures and comparative financial statements.
The objectives of the auditor are :-
(a) To obtain sufficient appropriate audit evidence about whether the comparative information
included in the financial statements has been presented, in all material respects, in accordance with
the requirements for comparative information in the applicable financial reporting framework; and
(b) To report in accordance with the auditor’s reporting responsibilities.

- The amounts and disclosures included in the financial statements in respect
of one or more prior periods in accordance with the applicable financial reporting framework.
- Comparative information where amounts and other disclosures for the prior
period are included as an integral part of the current period financial statements, and are intended to be
read only in relation to the amounts and other disclosures relating to the current period (referred to as
“current period figures”). The level of details presented in the corresponding amounts and disclosures is
dictated primarily by its relevance to the current period figures.
Comparative information where amounts and other disclosures for
the prior period are included for comparison with the financial statements of the current period but, if
audited, are referred to in the auditor’s opinion. The level of information included in those comparative
financial statements is comparable with that of the financial statements of the current period.

The auditor should obtain sufficient appropriate audit evidence that the corresponding figures meet the
requirements of the relevant financial reporting framework.
The extent of audit procedures performed on the corresponding figures is significantly less than that for
the audit of the current period figures and is ordinarily limited to ensuring that the corresponding figures
have been correctly reported and are appropriately classified.
This involves the auditor assessing whether:
(a) accounting policies used for the corresponding figures are consistent with those of the current
period or whether appropriate adjustments and/or disclosures have been made; and
(b) corresponding figures agree with the amounts and other disclosures presented in the prior period or
whether appropriate adjustments and/or disclosures have been made.
The incoming auditor should assess compliance with SA 510, "Initial Engagements-Opening Balances".


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If the auditor becomes aware of a possible material misstatement in the comparative information while
performing the current period audit, the auditor shall perform such additional audit procedures as are
necessary in the circumstances to obtain sufficient appropriate audit evidence to determine whether a
material misstatement exists.
If the auditor had audited the prior period’s financial statements, the auditor shall also follow the
relevant requirements of SA 560.
As required by SA 580, the auditor shall request written representations for all periods referred to in the
auditor’s opinion. The auditor shall also obtain a specific written representation regarding any prior
period item that is separately disclosed in the current year’s statement of profit and loss.

When the comparatives are presented as corresponding figures, the auditor's report
specifically identify comparatives because the auditor’s opinion is on the current period financial
statements as a whole, including the corresponding figures.
If the auditor’s report on the prior period, as previously issued, included a qualified opinion, a disclaimer
of opinion, or an adverse opinion and the matter which gave rise to the modification is unresolved, the
auditor the auditor’s opinion on the current period’s financial statements.
If the auditor’s report on the prior period, as previously issued, included a qualified opinion, disclaimer
of opinion, or adverse opinion and the matter which gave rise to the modification is resolved and
properly dealt with in the financial statements, the current report does not ordinarily refer to the
previous modification. However, if the matter is material to the current period, the auditor may include
an emphasis of matter paragraph dealing with the situation.
If the financial statements of the prior period were audited by a predecessor auditor and the auditor is
permitted by law or regulation to refer to the predecessor auditor’s report on the corresponding figures
and decides to do so, the auditor shall state in an Other Matter paragraph in the auditor’s report:
(a) That the financial statements of the prior period were audited by the predecessor auditor;
(b) The type of opinion expressed by the predecessor auditor and, if the opinion was modified, the
reasons therefore; and
(c) The date of that report.
If the prior period financial statements were not audited, the auditor shall state in the auditor’s report
that the corresponding figures are unaudited. Such a statement does not, however, relieve the auditor
of the requirement to obtain sufficient appropriate audit evidence that the opening balances do not
contain misstatements that materially affect the current period’s financial statements.


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This is a sample document only. You can purchase full notes at http://coursemateonline.com. This is a
sample document only. You can purchase full notes at http://coursemateonline.com. This is a sample
document only. You can purchase full notes at http://coursemateonline.com. This is a sample document
only. You can purchase full notes at http://coursemateonline.com. This is a sample document only. You can
purchase full notes at http://coursemateonline.com. This is a sample document only. You can purchase full
notes at http://coursemateonline.com. This is a sample document only. You can purchase full notes at
http://coursemateonline.com. This is a sample document only. You can purchase full notes at
http://coursemateonline.com.






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