Auditing & Assurance  Standards 2 & 15
AAS 2- Objective and scope of audit of financial statements <ul><li>Describes the overall scope & objective of audit by an...
Scope of an Audit <ul><li>Will be determined by terms of engagement, requirements of statute and ICAI’s pronouncements. </...
<ul><li>Exercise of judgement  – deciding extent of audit procedures and drawing conclusions from audit evidence. </li></u...
AAS 15-Audit Sampling <ul><li>Purpose-  establish standards on the design & selection of audit samples & evaluation. </li>...
<ul><li>Design of the sample : When designing the audit sample,the auditor should consider the specific audit objectives,t...
Stratification <ul><li>Stratification :  Process of dividing the population into sub-populations,which have similar charac...
Sampling risk <ul><li>While determining sample size, the auditor should consider sampling risk,tolerable error and expecte...
<ul><li>Tests of control: </li></ul><ul><li>Risk of under reliance </li></ul><ul><li>Risk of over reliance </li></ul><ul><...
Tolerable error <ul><li>Maximum error in the population that the auditor would be willing to accept & still conclude that ...
Selection of the Sample <ul><li>The sample should be selected such that it is expected to be representative of the populat...
Evaluation of Sample Results <ul><li>Having carried out audit procedures on the sample,the auditor should: </li></ul><ul><...
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Auditing & Assurance Presentation

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Auditing & Assurance Presentation

  1. 1. Auditing & Assurance Standards 2 & 15
  2. 2. AAS 2- Objective and scope of audit of financial statements <ul><li>Describes the overall scope & objective of audit by an independent auditor. </li></ul><ul><li>The objective is to express an opinion on financial statements. </li></ul><ul><li>The auditor’s opinion helps in determination of “true and fair view” of financial position & operating results of an organisation. </li></ul><ul><li>Effective date – audits relating to accounting periods after 1-4-1985. </li></ul>
  3. 3. Scope of an Audit <ul><li>Will be determined by terms of engagement, requirements of statute and ICAI’s pronouncements. </li></ul><ul><li>Assessing the reliability & sufficiency of underlying accounting records. </li></ul><ul><li>Determination of whether relevant info is properly disclosed by : </li></ul><ul><li> - Comparing financial statements with underlying records. </li></ul><ul><li>- Judgements ,estimates,consistent application of policies,adequacy of disclosure. </li></ul>
  4. 4. <ul><li>Exercise of judgement – deciding extent of audit procedures and drawing conclusions from audit evidence. </li></ul><ul><li>Conducting audit procedures, substantive and compliance tests. </li></ul><ul><li>Judgement on materiality and disclosure of material items in financial statements. </li></ul><ul><li>Not expected to perform duties outside the scope of his competence. </li></ul><ul><li>Constraints on the scope of audit should be expressed. </li></ul>
  5. 5. AAS 15-Audit Sampling <ul><li>Purpose- establish standards on the design & selection of audit samples & evaluation. </li></ul><ul><li>The auditor can use either statistical or non-statistical sampling methods to evaluate sample results to provide sufficient audit evidence. </li></ul><ul><li>Audit sampling means the application of audit procedures to less than 100% of items within a class of transactions. </li></ul>
  6. 6. <ul><li>Design of the sample : When designing the audit sample,the auditor should consider the specific audit objectives,the population & sample size. </li></ul><ul><li>Population : It refers to the entire set of data from which the auditor wishes to sample. </li></ul><ul><li>The individual items making up the population are known as sampling units.Division into units can be done in many ways. </li></ul>
  7. 7. Stratification <ul><li>Stratification : Process of dividing the population into sub-populations,which have similar characteristics. </li></ul><ul><li>Strata need to be defined in order that each sampling unit can belong to only one stratum. </li></ul><ul><li>It enables the auditor to direct efforts towards items which contain, for eg, the greatest potential monetary error. </li></ul>
  8. 8. Sampling risk <ul><li>While determining sample size, the auditor should consider sampling risk,tolerable error and expected error. </li></ul><ul><li>It arises from the possibility that the auditor’s conclusion based on a sample may be different if the whole population had been considered. </li></ul><ul><li>The auditor is faced with sampling risk in both compliance and substantive procedures. </li></ul><ul><li>Sample size is affected by the level of sampling risk the auditor is willing to accept. </li></ul>
  9. 9. <ul><li>Tests of control: </li></ul><ul><li>Risk of under reliance </li></ul><ul><li>Risk of over reliance </li></ul><ul><li>Substantive procedures: </li></ul><ul><li>Risk of incorrect rejection </li></ul><ul><li>Risk of incorrect acceptance </li></ul>
  10. 10. Tolerable error <ul><li>Maximum error in the population that the auditor would be willing to accept & still conclude that the sample has achieved audit objective. </li></ul><ul><li>The smaller the tolerable error,the greater the sample size. </li></ul>
  11. 11. Selection of the Sample <ul><li>The sample should be selected such that it is expected to be representative of the population. </li></ul><ul><li>Random selection </li></ul><ul><li>Systematic selection </li></ul><ul><li>Haphazard selection </li></ul>
  12. 12. Evaluation of Sample Results <ul><li>Having carried out audit procedures on the sample,the auditor should: </li></ul><ul><li>Analyse errors detected in the sample </li></ul><ul><li>Project errors found in the sample to the population </li></ul><ul><li>Reassess sampling risk </li></ul>
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