What are the five requirements of ISA 200?

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ISA 200 highlights the importance of objectives in auditing standards. Understanding ISA 200 is fundamental to understanding the challenge of implementing ISAs. This guide seeks to help auditors understand the overall objectives of the auditor and how they relate to the individual objectives and requirements in ISAs, and the role of professional judgement and scepticism.

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ISA 200 Summary

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ISA 200 by Sazzad Hossain ITP CSCA

• Report

INTERNATIONAL STANDARD ON AUDITING 200 (REVISED)

OVERALL OBJECTIVES OF THE INDEPENDENT AUDITOR AND THE
CONDUCT OF AN AUDIT IN ACCORDANCE WITH INTERNATIONAL
STANDARDS ON AUDITING

Audit & Consultancy In-Charge at Ahsan Manzur & Co. Chartered Accountants

INTERNATIONAL STANDARD ON AUDITING 200 (REVISED)

OVERALL OBJECTIVES OF THE INDEPENDENT AUDITOR AND THE
CONDUCT OF AN AUDIT IN ACCORDANCE WITH INTERNATIONAL
STANDARDS ON AUDITING

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ISA 200 by Sazzad Hossain ITP CSCA

1. 1. INTERNATIONAL STANDARD ON AUDITING 200 (REVISED) OVERALL OBJECTIVES OF THE INDEPENDENT AUDITOR AND THE CONDUCT OF AN AUDIT IN ACCORDANCE WITH INTERNATIONAL STANDARDS ON AUDITING Presented by Sazzad Hossain ITP CSCA™ BBA, MBA ( Accounting & Information Systems, University of Dhaka CA (professiona level), ICAB, Bangladesh
2. 2. Scope of this ISA  Deals with  the independent auditor’s overall responsibilities  when conducting an audit of financial statements  in accordance with ISAs
3. 3. Scope of this ISA 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
4. 4. An Audit of Financial Statements purpose of an audit is to enhance the degree of confidence of intended users In the financial statements
5. 5. An Audit of Financial Statements 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
6. 6. An Audit of Financial Statements In the case of most general purpose frameworks, that opinion is on whether the financial statements are presented fairly, in all material respects, or give a true and fair view in accordance with the framework.
7. 7. An Audit of Financial Statements An audit conducted in accordance with ISAs and relevant ethical requirements enables the auditor to form that opinion. (Ref: Para. A1)
8. 8. An Audit of Financial Statements financial statements subject to audit are those of the entity, prepared by management of the entity with oversight from those charged with governance
9. 9. An Audit of Financial Statements ISAs do not impose responsibilities on management or those charged with governance and do not override laws and regulations that govern their responsibilities.
10. 10. An Audit of Financial Statements 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
11. 11. An Audit of Financial Statements Reasonable assurance is a high level of assurance. It is obtained when the auditor has obtained sufficient appropriate audit evidence to reduce audit risk To an acceptably low level
12. 12. An Audit of Financial Statements audit risk (that is, the risk that the auditor expresses an inappropriate opinion when the financial statements are materially misstated)
13. 13. An Audit of Financial Statements Identify and assess risks of material misstatement, whether due to fraud or error, based on an understanding of the entity and its environment, including the entity’s internal control.
14. 14. An Audit of Financial Statements Obtain sufficient appropriate audit evidence about whether material misstatements exist, through designing and implementing appropriate responses to the assessed risks.
15. 15. An Audit of Financial Statements Form an opinion on the financial statements based on conclusions drawn from the audit evidence obtained.
16. 16. An Audit of Financial Statements The form of opinion expressed by the auditor will depend upon the applicable financial reporting framework and any applicable law or regulation. (Ref: Para. A12 - A13)
17. 17. Overall Objectives of the Auditor (a) 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 on whether the financial statements are prepared, in all material respects, in accordance with an applicable financial reporting framework; and
18. 18. Overall Objectives of the Auditor (b) To report on the financial statements, and communicate as required by the ISAs, in accordance with the auditor’s findings.
19. 19. Overall Objectives of the Auditor In all cases when reasonable assurance cannot be obtained and a qualified opinion in the auditor’s report is insufficient in the circumstances for purposes of reporting to the intended users of the financial statements, the ISAs (UK) require that the auditor disclaim an opinion or withdraw (or resign) from the engagement, where withdrawal is possible under applicable law or regulation.
20. 20. Definitions
21. 21. Definitions  The term “compliance framework” is used to refer to a financial reporting  framework that requires compliance with the requirements of the framework, but  does not contain the acknowledgements in (i) or (ii) above.
22. 22. Definitions
23. 23. Definitions Audit risk – The risk that the auditor expresses an inappropriate audit opinion when the financial statements are materially misstated. Audit risk is a function of the risks of material misstatement and detection risk.
24. 24. Definitions Audit risk – The risk that the auditor expresses an inappropriate audit opinion when the financial statements are materially misstated. Audit risk is a function of the risks of material misstatement and detection risk.
25. 25. Definitions Detection risk – The risk that the procedures performed by the auditor to reduce audit risk to an acceptably low level will not detect a misstatement that exists and that could be material, either individually or when aggregated with other misstatements.
26. 26. Definitions Financial statements – A structured representation of historical financial information, including disclosures, intended to communicate an entity’s economic resources or obligations at a point in time or the changes therein for a period of time in accordance with a financial reporting framework.
27. 27. Definitions Misstatement – 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.
28. 28. Definitions 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.
29. 29. Definitions 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 audit evidence.
30. 30. Definitions Inherent risk – The susceptibility of an assertion about a class of transaction, account balance or disclosure to a misstatement that could be material, either individually or when aggregated with other misstatements, before consideration of any related controls.
31. 31. Definitions Control risk – The risk that a misstatement that could occur in an assertion about a class of transaction, account balance or disclosure and that could be material, either individually or when aggregated with other misstatements, will not be prevented, or detected and corrected, on a timely basis by the entity’s internal control.
32. 32. Ethical Requirements Relating to an Audit of Financial Statements The auditor shall comply with relevant ethical requirements, including those pertaining to independence, relating to financial statement audit engagements. (Ref: Para. A16 - A19)
33. 33. Failure to Achieve an Objective auditor shall evaluate whether this prevents the auditor from achieving the overall objectives of the auditor and thereby requires the auditor, in accordance with the ISAs , to modify the auditor’s opinion or withdraw from the engagement (where withdrawal is possible under applicable law or regulation). Failure to achieve an objective represents a significant matter requiring documentation in accordance with ISA 230 (Revised). (Ref: Para. A77 - A78)
34. 34. Preparation of the Financial Statements (Ref: Para. 4) Other examples of a single financial statement, each of which would include related notes, are: o Balance sheet. o Statement of income or statement of operations. o Statement of retained earnings. o Statement of cash flows. o Statement of assets and liabilities that does not include owner’s equity.
35. 35. Preparation of the Financial Statements (Ref: Para. 4) o Statement of changes in owners’ equity. o Statement of revenue and expenses. o Statement of operations by product lines.
36. 36. Ethical Requirements Relating to an Audit of Financial Statements (Ref: Para. 14) Part A of the IESBA Code establishes the fundamental principles of professional ethics relevant to the auditor when conducting an audit of financial statements and provides a conceptual framework for applying those principles.
37. 37. Ethical Requirements Relating to an Audit of Financial Statements (Ref: Para. 14) The fundamental principles with which the auditor is required to comply by the IESBA Code are: (a) Integrity; (b) Objectivity; (c) Professional competence and due care; (d) Confidentiality; and (e) Professional behavior. Part B of the IESBA Code illustrates how the conceptual framework is to be applied in specific
38. 38. Professional Skepticism (Ref: Para. 15) Professional skepticism includes being alert to, for example: Audit evidence that contradicts other audit evidence obtained. Information that brings into question the reliability of documents and responses to inquiries to be used as audit evidence. Conditions that may indicate possible fraud. Circumstances that suggest the need for audit procedures in addition to those required by the ISAs.
39. 39. Professional Skepticism (Ref: Para. 15) Maintaining professional skepticism throughout the audit is necessary if the auditor is, for example, to reduce the risks of: Overlooking unusual circumstances. Over generalizing when drawing conclusions from audit observations. Using inappropriate assumptions in determining the nature, timing, and extent of the audit procedures and evaluating the results thereof.
40. 40. Professional Judgment (Ref: Para. 16) Professional judgment is necessary in particular regarding decisions about: Materiality and audit risk. The nature, timing, and extent of audit procedures used to meet the requirements of the ISAs and gather audit evidence. Evaluating whether sufficient appropriate audit evidence has been obtained, and whether more needs to be done to achieve the objectives of the ISAs and thereby, the overall objectives of the auditor.
41. 41. Professional Judgment (Ref: Para. 16) The evaluation of management’s judgments in applying the entity’s applicable financial reporting framework. The drawing of conclusions based on the audit evidence obtained, for example, assessing the reasonableness of the estimates made by management in preparing the financial statements.
42. 42. Inherent Limitations of an Audit The inherent limitations of an audit arise from: The nature of financial reporting; The nature of audit procedures; and The need for the audit to be conducted within a reasonable period of time and at a reasonable cost.
43. 43. Considerations Specific to Smaller Entities For purposes of specifying additional considerations to audits of smaller entities, a “smaller entity” refers to an entity which typically possesses qualitative characteristics such as: (a) Concentration of ownership and management in a small number of individuals (often a single individual – either a natural person or another enterprise that owns the entity provided the owner exhibits the relevant qualitative characteristics); and
44. 44. Considerations Specific to Smaller Entities (b) One or more of the following: (i) Straightforward or uncomplicated transactions; (ii) Simple record-keeping; (iii) Few lines of business and few products within business lines; (iv) Few internal controls; (v) Few levels of management with responsibility for a broad range of controls; or (vi) Few personnel, many having a wide range of duties.
45. 45. Considerations Specific to Smaller Entities (b) One or more of the following: (i) Straightforward or uncomplicated transactions; (ii) Simple record-keeping; (iii) Few lines of business and few products within business lines; (iv) Few internal controls; (v) Few levels of management with responsibility for a broad range of controls; or (vi) Few personnel, many having a wide range of duties.

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