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Chapter 1: Nature, Purpose and Scope of Audit

Audit Independent examination of & expression of opinion on the fs, by an duly appointed auditor
Auditor Engagement partner or the audit firm
Objective Provide a reasonable assurance, an opinion, to the users that the fs is fairly presents the
company financial condition and are free from material misstatement.
Reason

Rspsblty
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Opinion

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AUDITOR
DIRECTOR
Ensure appropriate working relationship
- 2Ps = preparing & presenting the fs that
with directors (contractual relationship)
are true & fair, based on IFRS.
Plan and perform the audit in accordance
- Maintain internal control relevant to the
to ISA.
preparation of fs.
Obtain sufficient appropriate audit
- Apply appropriate a/cing policies.
evidence before form opinion.
- Making reasonable a/cing estimates.
Report weaknesses in the system using
mgmt letter.
Not guarantee nor certify that fs are correct.
Give reasonable assurance that the fs show a true and fair presentation of the co’s result and
position, free of bias and manupulation and comply with relavant national legislation.
True = info is factual, not false and conformsw with required standard and law.
Fair = infor is clear, free from bias and discrimination & in compliance with expected standard
and rules. A/c reflectsthe commercials substance.

.sufficient appropriate evidencegathered in order to give the assurance level Subject matter.Audit report format = format determined by ISA. Benefit - Gap Assurance Assurance engagement = practitioner expresses a conclusion designed to enhance the degree of condidence of the intended users other than the responsible party abt the outcome of the evaluation or measurement of a subject matter against criteria. NAS Sampling = not pratical to test 100% of transactions. control = operated by human. and give a true & fair view. terminology may not be understood by nonaccountant. an audit adds credibility to the fs.Historic info = audit report issued some time after y/e. ↓ Element of assurance engagement Criteria .data that responsible party has preparred which requried verification Three parties’ relationship – practitioner. Inherent Evidence = persuasive not conclusive.. . based on judgements and estimates. Subjectivity = fs include estimate & judgement. Expectation Gap between the expectation of users of assurance reports and the firm’s legal responsibility. Limitation Inherent limitation of int. so the sample may not be representative..assurance report is the opinion given by practitioner to the intended users & reponsible party Evidence . ensure director fulfill statutory obligation Partnership= reduces disputes. intended users Assurance Type Assurance Level Opinion Example Report Level of Audit/ Reasonable High.. fs may be out of date.human error/ collusion & fraud. . Despire these limitations.used to compare with suject matter Report. Control and operational improvements. responsible party. provide NAS Sole trader= facilities future mergers.” Review/ Limited Moderate Negative Review of “Nothing has come to our engagement (forecasts are financial attention that causes us to based on information believe that subject matter assumptions (cash flow are not in accordance with which are subject forecast) the criteria” to uncertainty) Agreed-upon none none Examination of procedures SOFP Compilation none none Preparation of fs & tax returns . Enter and trade in capital market. but not Positive Statutoty audit “In our opinion the fs are Assurance engagement absolute (external audit) properly prepared. so auditor require to use judgement to assess whether fs are true and fair. Limited co= provide reliance tos/h.Easier to obtain financing from external parties.

Types of Audits Overview of Audit Procedure Preliminary engagement activities (client acceptance/continuance & engagement term) ↓ Obtain understanding of the entity ↓ Establish materiality and assess risk ↓ Set overall audit strategy and develop audit plan ↓ Perform TOC and SP ↓ Overall review of the audit ↓ Evaluate result ↓ Issue audit report .