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International Standards on Auditing.pptx
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- 2. Presentation Outlines - Introductionon ISAs - Objective of ISAs - Scope of this ISAs - Importance of ISAs - Audit Regulatory Environment - ISAs Related to Phase I, Client Acceptance - ISAs Related to Phase II, Planning the audit - ISAs Related to Phase III, Testing and Evidence - ISAs Related to Phase IV, Evaluation and Reporting 05/10/2025 CompiIed by Abdirahman M.
- 3. 05/10/2025 Introduction of ISAs International Standards on Auditing (ISAs) are professional guidelines issued by the International Auditing and Assurance Standards Board (IAASB). They provide a framework for the conduct of high- quality audits of financial statements, ensuring consistency, transparency, and reliability across global audit practices. CompiIed by Abdirahman M.
- 4. 05/10/2025 Cont… • ISAs outlinethe responsibilities of auditors and establish requirements for key areas such as audit planning, risk assessment, evidence gathering, and reporting. • They are widely adopted by audit professionals around the world and serve to enhance investor confidence by promoting uniformity and credibility in the audit process. CompiIed by Abdirahman M.
- 5. 05/10/2025 Objective of ISA Themain goal of ISAs is to enhance the quality and reliability of audits, promote transparency, and ensure that audits are conducted with professionalism and due diligence across different countries and industries. CompiIed by Abdirahman M.
- 6. 05/10/2025 The other Objectivesof ISAs - To enhance the degree of confidence of intended users in the financial statements. - To give expression of an opinion by the auditor s on whether the financial statements are presented fairly. - As the basis for the auditor’s opinion, ISAs require the auditor to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error. CompiIed by Abdirahman M.
- 7. 05/10/2025 Scope of thisISA - This International Standard on Auditing (ISA) deals with the independent auditor’s overall responsibilities when conducting an audit of financial statements in accordance with ISAs. - Specifically, it sets out the overall objectives of the independent auditor, and explains the nature and scope of an audit designed to enable the independent auditor to meet those objectives. CompiIed by Abdirahman M.
- 8. 05/10/2025 Importance of ISAs Enhancing Audit Quality Promoting Global Consistency Comparability Increasing Investor Confidence Supporting Regulatory Oversight Facilitating International Trade and Investment Aiding Auditor Training and Development Strengthening Public Interest Protection CompiIed by Abdirahman M.
- 9. 05/10/2025 Regulatory Environment IFAC InternationalFederation of Accountants IFAC code of ethics IAASB International Auditing & Assurance Standard Board. International Standards on Auditing ( ISA,s) International Standards on Quality Control (ISQC) CompiIed by Abdirahman M.
- 10. 05/10/2025 Auditing Standards andRegulation are Rapidly Changing CompiIed by Abdirahman M.
- 11. 05/10/2025 International standards onAuditing (ISAs 100 - 799) 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 CompiIed by Abdirahman M.
- 12. 05/10/2025 In client acceptancein audit, factors such as reputation, integrity, financial position, and stability are carefully considered. Auditors assess the client's business practices, ethical standards, and overall reputation 240 The Auditor’s Responsibility Relating to Fraud in an Audit of Financial Statements 210 Agreeing the Terms of Audit Engagements 220 Quality Control for an Audit of Financial Statements 230 Audit Documentation Phase I Client Acceptance CompiIed by Abdirahman M.
- 13. 05/10/2025 Cont… 250 Consideration ofLaws and Regulations in an Audit of Financial Statements 260 Communication with Those Charged with Governance 265 Communicating Deficiencies in Internal Control to Those Charged with Governance and Management CompiIed by Abdirahman M.
- 14. 05/10/2025 Cont… Requirements of AuditFinancial Statement ISA 200 gives requirements relating to an audit of financial statements. The auditor is required to comply with relevant ethical requirements, including those relating to independence The auditor shall plan and perform an audit with professional skepticism recognizing that circumstances may exist that cause the financial statements to be materially misstated. CompiIed by Abdirahman M.
- 15. 05/10/2025 Cont… The auditorshall exercise professional judgment in planning and performing an audit of financial statements. To obtain reasonable assurance, the auditor must obtain sufficient appropriate audit evidence to reduce audit risk to an acceptably low level and thereby enable the auditor to draw reasonable conclusions on which to base the auditor’s opinion. CompiIed by Abdirahman M.
- 16. 05/10/2025 Cont… Key Definitions Professionalskepticism—An attitude that includes a questioning mind, being alert to conditions which may indicate possible misstatement due to error or fraud, and a critical assessment of evidence. Material misstatement – A significant mistake in financial information which would arise from errors and fraud if it could influence the economic decisions of users taken on the basis of the financial statements. CompiIed by Abdirahman M.
- 17. 05/10/2025 Cont… Professional judgment—Theapplication of relevant training, knowledge and experience, within the context provided by auditing, accounting and ethical standards, in making informed decisions about the courses of action that are appropriate in the circumstances of the audit engagement. Sufficient appropriate audit evidence – Sufficiency is the measure of the quantity (amount) of audit evidence. Appropriateness is the measure of the quality of audit evidence and its relevance to a particular assertion and its reliability. CompiIed by Abdirahman M.
- 18. 05/10/2025 Cont… objectives of anaudit of financial statements ISA 200 states the overall objectives of an audit of financial statements is 1. to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, thereby enabling the auditor to express an opinion towards financial statements 2. communicate as required by the ISAs, in accordance with the auditor’s findings Terms used 'give a true and fair view' or ‘present fairly, in all material respects’ are equivalent terms. CompiIed by Abdirahman M.
- 19. 05/10/2025 Phase II Planningthe audit Planning the audit is a crucial phase in the audit process where the auditor develops an overall strategy and detailed approach to conduct the audit efficiently and effectively. Key Objectives: • To understand the client's business and environment. • To identify and assess risks of material misstatement. • To design audit procedures responsive to the assessed risks. CompiIed by Abdirahman M.
- 20. 05/10/2025 Cont… 300-499 Risk AssessmentAnd Response To Assessed Risks 300 Planning an Audit of Financial Statements 315 Identifying and Assessing the Risks of Material Misstatement through understanding the Entity and Its Environment 320 Materiality in Planning and Performing an Audit 330 The Auditor’s Responses to Assessed Risks 402 Audit Considerations Relating to an Entity Using a Service Organization 450 Evaluation of Misstatements Identified during the Audit CompiIed by Abdirahman M.
- 21. 05/10/2025 Cont… Content of auditstrategy: Scope of engagement (e.g. input of other auditors). Reporting objectives of assignment (e.g. reporting timetable). Nature/timing/extent of resources. Content of audit plan: Risk assessment procedures. Detailed planned audit procedures. CompiIed by Abdirahman M.
- 22. 05/10/2025 Phase II Planningthe audit ISA 315 Identifying and assessing the risk of material misstatement Required understanding of entity and environment: Industry/regulatory factors affecting FS. Nature of entity: Operations; Ownership and governance; and Financing. CompiIed by Abdirahman M.
- 23. 05/10/2025 Cont… Accounting policies. Objectives andstrategy. Audit Risk Inherent Risk Control Risk CompiIed by Abdirahman M.
- 24. 05/10/2025 Cont… ISA 320 Materiality Materiality: Misstatements, including omissions, are considered to be material if they, individually or in the aggregate, could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements Performance materiality: Performance materiality is set at a level below overall materiality to reduce the probability that the aggregate of uncorrected and undetected misstatements exceeds overall materiality.. CompiIed by Abdirahman M.
- 25. 05/10/2025 Cont… Tolerable error:A monetary amount set by the auditor in respect of which the auditor seeks to obtain an appropriate level of assurance that the monetary amount set by the auditor is not exceeded by the actual misstatement in the population. CompiIed by Abdirahman M.
- 26. 05/10/2025 Phase III Testingand Evidence 500-599 Audit Evidence 500 Audit Evidence 501 Audit Evidence – Specific Considerations for Selected Items 505 External Confirmations 510 Initial Audit Engagements—Opening Balances 520 Analytical Procedures CompiIed by Abdirahman M.
- 27. 05/10/2025 Cont… 530 Audit Sampling 540Auditing Accounting Estimates and Related Disclosures Including Fair Value Accounting Estimates, and Related Disclosures 550 Related Parties 560 Subsequent Events 570 Going Concern 580 Written Representations CompiIed by Abdirahman M.
- 28. 05/10/2025 Cont… 600-699 Using WorkOf Others 600 Special Considerations - Audits of Group Financial Statements (including the work of a competent auditor) 610 Using the Work of Internal Auditors 620 Using the Work of an Auditor’s Expert CompiIed by Abdirahman M.
- 29. 05/10/2025 Cont… ISA 500 AuditEvidence Characteristics Audit Evidence : Appropriateness: quality linked to relevance and reliability. Sufficiency: quantity linked to quality and to risk of material misstatement. Relevance: linked to assertions. Reliability: Independent better than internal. Auditor generated better than indirectly obtained. Documentary better than oral. Originals better than photocopies. CompiIed by Abdirahman M.
- 30. 05/10/2025 Cont… ISA 510 InitialAudit Engagement, Opening balance Objective: To obtain sufficient appropriate evidence whether Opening balances are misstated Consistency accounting policies with current year CompiIed by Abdirahman M.
- 31. 05/10/2025 Cont… ISA 540 AuditingAccounting Estimates Accounting estimates are approximations of amounts in the financial statements that cannot be precisely measured. These could include: • Bad debt provisions/expenses • Inventory obsolescence/wear out • Fair value of financial instruments • Depreciation and amortization • Asset impairments (asset which has a current market value that is less than the value listed on the balance sheet) CompiIed by Abdirahman M.
- 32. 05/10/2025 Cont… Why Estimates Matter Estimates involve management judgment and assumptions, which makes them inherently risky and vulnerable to bias, error, or even fraud. As a result, they are a significant focus during an audit. CompiIed by Abdirahman M.
- 33. 05/10/2025 Phase IV, Evaluationand Reporting 700-799 Audit Conclusions And Reporting 700 Forming an Opinion and Reporting on Financial Statements 705 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 Responsibilities Relating to Other Information in Documents Containing Audited Financial Statements CompiIed by Abdirahman M.
- 34. 05/10/2025 Cont… ISA 700– Forming an Opinion and Reporting on Financial Statements ISA 700 provides guidance to auditors on how to form an opinion on the financial statements and how to communicate that opinion through the auditor’s report. CompiIed by Abdirahman M.
- 35. 05/10/2025 Cont… The auditor must: Form an opinion on whether the financial statements: 1.Are prepared in accordance with the applicable financial reporting framework 2.Give a true and fair view or are presented fairly, in all material respects Issue a written audit report that clearly expresses that opinion. CompiIed by Abdirahman M.
- 36. 05/10/2025 Cont… ISA 705 Modificationof Audit Opinion Sometimes, the auditor can't give a clean (unmodified) opinion. ISA 705 guides auditors on when and how to modify their opinion in such cases. CompiIed by Abdirahman M.
- 37. 05/10/2025 Cont… When is aModified Opinion Required? A modification is needed if: There is a material issue but not pervasive There is a material and pervasive misstatement in the financial statements, or The auditor is unable to obtain sufficient appropriate audit evidence CompiIed by Abdirahman M.
- 38. 05/10/2025 Cont… Types of ModifiedOpinions A. Qualified Opinion 🔹 Used when the issue is material but not pervasive B. Adverse Opinion 🔹 When the misstatement is both material and pervasive C. Disclaimer of Opinion 🔹 When the auditor cannot obtain sufficient evidence and the effects could be material and pervasive CompiIed by Abdirahman M.
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Editor's Notes
- #11 Class Question: What is the process of auditing? Illustration 1.1 List of 2004 International Standards on Auditing pages 8-9; Updated International Federation of Accountants. 2010. Handbook Of International Quality Control, Auditing, Review, Other Assurance, And Related Services Pronouncements 2010 Edition Part I
- #12 Class Question: What is risk? Illustration 1.1 List of 2004 International Standards on Auditing pages 8-9 320 (Revised and Redrafted), Materiality in Planning and Performing an Audit
- #14 ISA 200 sets out several requirements relating to an audit of financial statements. The auditor is required to comply with relevant ethical requirements, including those pertaining to independence, relating to financial statement audit engagements The auditor shall plan and perform an audit with professional skepticism recognizing that circumstances may exist that cause the financial statements to be materially misstated. The auditor shall exercise professional judgment in planning and performing an audit of financial statements. To obtain reasonable assurance, the auditor must obtain sufficient appropriate audit evidence to reduce audit risk to an acceptably low level and thereby enable the auditor to draw reasonable conclusions on which to base the auditor’s opinion. Ibid. ISA 200. Paragraphs 14–17. Professional skepticism—An attitude that includes a questioning mind, being alert to conditions which may indicate possible misstatement due to error or fraud, and a critical assessment of evidence. Discussed in more detail in Chapter 4. Material misstatement – A significant mistake in financial information which would arise from errors and fraud if it could influence the economic decisions of users taken on the basis of the financial statements. Professional judgment—The application of relevant training, knowledge and experience, within the context provided by auditing, accounting and ethical standards, in making informed decisions about the courses of action that are appropriate in the circumstances of the audit engagement. Discussed in more detail in Chapter 4. Sufficient appropriate audit evidence – Sufficiency is the measure of the quantity (amount) of audit evidence. Appropriateness is the measure of the quality of audit evidence and its relevance to a particular assertion and its reliability. We will discuss evidence at some length in Chapters 9 and 10.
- #16 Professional skepticism—An attitude that includes a questioning mind, being alert to conditions which may indicate possible misstatement due to error or fraud, and a critical assessment of evidence. Discussed in more detail in Chapter 4. Material misstatement – A significant mistake in financial information which would arise from errors and fraud if it could influence the economic decisions of users taken on the basis of the financial statements. Professional judgment—The application of relevant training, knowledge and experience, within the context provided by auditing, accounting and ethical standards, in making informed decisions about the courses of action that are appropriate in the circumstances of the audit engagement. Discussed in more detail in Chapter 4. Sufficient appropriate audit evidence – Sufficiency is the measure of the quantity (amount) of audit evidence. Appropriateness is the measure of the quality of audit evidence and its relevance to a particular assertion and its reliability. We will discuss evidence at some length in Chapters 9 and 10.
- #20 Class Question: What is audit evidence? Illustration 1.1 List of 2004 International Standards on Auditing pages 8-9
- #26 Class Question: Why would an auditor need to use the assistance of someone else? Illustration 1.1 List of 2004 International Standards on Auditing pages 8-9 Class Question: What is an audit opinion?
- #27 Class Question: Why would an auditor need to use the assistance of someone else? Illustration 1.1 List of 2004 International Standards on Auditing pages 8-9 Class Question: What is an audit opinion?
- #33 Class Question: What kinds of audit opinions are there? Illustration 1.1 List of 2004 International Standards on Auditing pages 8-9