International Standards on Auditing

**Relevant for F8/AA ACCA exam**

Short forms used :

tcwg= those charged with governance
A.E = Audit Engagement
FS = Financial statement
Mgt = Management
mm - material misstatement
EQC- Engagement Quality Control
p. = professional
IC - Internal control
IA - Internal Audit
APs - Analytical Procedures
IT- Information Technology
PBT - Profit before Tax
a/cing = accounting
"SAAE" or saae = sufficient appropriate audit evidence
•• = Increase or More
 •• = Decrease or Less
WRs = Written Representations
KAM = Key Audit Matter
EMP = Emphasis of Matter Paragraph
OMP = Other Matter Paragraph
1)ISA 200 Overall Objectives of Auditor and the Conduct of an Audit in
Accordance with ISAs: Objective of Audit of FS→Enable auditor to express an opinion on whether FS
are prepared, in all material respects, in accordance with an applicable FR Framework. Objective of Auditor→ To
obtain reasonable assurance about whether the FS as a whole are free from material misstatement, whether due
to fraud or error, in order to enable them to express an opinion on whether FS are prepared, , in all material
respects, in accordance with an applicable FR Framework.

2)ISA 210 Agreeing the Terms of Audit Engagements: Auditor should only accept an
A.E. when “Preconditions for audit are present” & “There’s a common understanding between auditor & mgt of
the terms of the engagement”. Preconditions for audit: -Mgt using acceptable FR framework in preparation of
FS; -Written representation from mgt that it acknowledges & understands it responsibilities for ‘preparation of
FS’, ‘establishing internal control to ensure FS are free from mm’, ‘providing auditor with access to all records and
documents and staff’. Engagement Letters= written terms of an engagement in form of a letter. Must include: -
Objective & scope of audit; -Auditor’s responsibilities; -Mgt’s responsibilities; -Identification of applicable FR
framework; -Reference to expected form & content of any reports; -A statement that there may be situations
where a report may differ from expected form & content. May also include: -Fees & billing arrangements; -
Involvement of other auditors; etc. etc. Reissuing engagement letters: On recurring audits, auditor shall assess
whether circumstances require the terms of A.E. to be revised & whether there’s a need to remind the entity of
the existing terms of A.E.
3)ISA 220 Quality Control for an Audit of Financial Statements: Auditor must
implement quality control procedures over each individual audit engagements so that they have reasonable
assurance that: -Audit complies with professional standards and relevant legal & regulatory requirements; and –
Auditor’s report issued is appropriate. The audit engagement partner has overall responsibility that quality
control procedures have been adhered to. Direction, Supervision and Review: Direction: The partner directs the
audit. Direction includes informing members of engagement team of: -Their responsibilities (objectivity, p.
scepticism, etc); -Responsibilities of respective partners where more than one partner involved in AE; -Objectives
of work to be performed; -Nature of entity’s business; -Risk-related issues; -Problems that may arise; -
Detailed approach to the performance of th engagement. Supervision: It includes: -Tracking the progress of A.E.; -
Considering capabilities & competence of individual members of the team, and whether they have sufficient time
& understanding to carry out their work; -Address significant issues arising during A.E. & modifying the planned
approach appropriately; -Identifying matters for consultation/consideration by more experienced engagement
team members. Review: includes consideration of whether: -Work has been performed according to
professional standards and regulatory requirements; -Significant matters have been raised for further
consideration; -Work performed supports the conclusions reached; -Evidence is sufficient & appropriate to
support auditor’s report; -Objectives of engagement procedures have been achieved.
Quality Control Reviews: EQCRs are required for audits of listed entities & any other engagements where audit
firm has determined so. The EQC reviewer objectively evaluates: -Significant judgements made by engagement
team; -The conclusions reached in formulating auditor’s report. The evaluation include: -Discussion of significant
matters with engagement partner; -Review of FS and Auditor’s report; -Review of audit documentation relating to
significant judgements made by engagement partner; -An evaluation of conclusions reached in formulating
auditor’s report & consideration as to whether report is appropriate. For listed entities, consider the firm’s
independence in relation to audit. EQC Reviewer should document: -That firm’s quality control procedures been
performed; -That EQCR was completed on or before the date of auditor’s report; -That they’re not aware of any
unresolved matters that would render significant judgements & conclusions made by engagement team
inappropriate

4)ISA 230 Audit Documentation: AD is the record of audit procedures performed, relevant audit
evidence obtained, and conclusions the auditor reached. The working papers are tangible evidence of work done
to support the audit evidence. Audit documentation necessary to: -Provide evidence of auditor’s basis for a
conclusion about the achievement of overall objective; -Provide evidence that audit was planned & performed per
ISAs and other legal/regulatory requirements; -Assist mgt team to plan & perform the audit; -Assist team
members responsible for supervision to direct, supervise & review audit work; -Enable audit team to be
accountable for its work; -Enable QCRs & inspections to be performed;etc Working papers should be sufficiently
complete & detailed to enable an experienced auditor with no previous connection with the audit subsequently to
ascertain from them what work was performed and to support the conclusions reached. Working papers may be
divided into two types: -Permanent Audit Files (containing info of matters of continuing importance to audit); and
–Current Audit Files (containing info relevant to the current year’s audit). Working papers are property of
auditors and so audit firm should establish policies & procedures designed to maintain confidentiality, safe
custody, integrity, accessibility…
5)ISA 240 The Auditor’s Responsibilities relating to Fraud & Error in an
Audit of Financial Statements: Fraud= intentional act by one/more individuals among
mgt/t.c.w.g./third parties, involving the use of deception to obtain an unjust/illegal advantage. Fraud risk factors=
events/conditions that indicate an incentive/pressure to commit fraud or provide an opportunity to commit fraud.
Two types→causing mm in FS: a)Fraudulent FR; b)Misappropriation of assets. Responisibility to prevent &
detect fraud→Mgt & tcwg. Auditor’s responsibiities→Auditor is responsible for obtaining reasonable assurance
that FS are free from mm, whether caused by fraud/error. Responsible for maintaining professional skepticism
throughout the audit, considering the possibility of mgt override of controls, and recognizing that the audit
procedures effective for detecting errors may not be effective for detecting fraud. Risk assessment procedures to
obtain info in identifying the risk of mm due to fraud shall include: a)Enquiries of Management regarding: -mgt’s
assessment of the risk; -mgt’s processes for identifying & responding to risk of fraud; -mgt’s communication to
tcwg in respect of its process for identifying & responding to risk of fraud; -mgt’s communication to employees
regarding its view on business practices & ethical behavior; -knowledge of any actual, suspected or alleged fraud;
b)Enquiries of internal audit for knowledge of any fraud, and its views on risk of fraud; c)Obtain an understanding
of how tcwg oversee mgt’s processes for identifying & responding to risk of fraud and internal control to mitigate
these risks; d)Evaluating whether any unusual relationships have been identified in performing APs that may
indicate risk of mm; e)Enquiries of tcwg for knowledge of any fraud; f)Considering whether any other info may
indicate risk of mm due to fraud; g)Evaluating whether any fraud risk factors are present. If auditor identifies
fraud→Report this on a timely basis to the appropriate level of management. If auditor identifies/suspects fraud
involving mgt/employees with significant roles in internal control→communicate this on timely basis to tcwg. The
auditor also needs to consider whether there’s a responsibility to report to regulatory/enforcement authorities…

6)ISA 250 Consideration of Laws & Regulations in an Audit of FS: Auditor is

not responsible for non-compliance and cannot be expected to detect non-compliance with all laws & regulations.
The auditor’s responsibility is to obtain reasonable assurance that FS are free from mm whether due to
fraud/error and, in this respect, auditor must take into a/c the legal & regulatory framework within which entity
operates. Auditor’s responsibilities in relation to compliance with two different categories of laws and
regulations: -Those that have a direct effect on determination of material amounts and disclosures in FS; -Those
that don’t have direct effect on determination of material amounts & disclosures in FS but where compliance may
be fundamental to operating aspects, ability to continue in business, or to avoid material penalties. For the 1st
category, auditor’s responsibility to obtain saae about compliance. For 2nd category, responsibility to undertake
specified audit procedures to help identify non-compliance that may have material effect on FS.
7)ISA 260 Communication with Those Charged With Governance: TCWG=
persons/organizations with responsibility for overseeing the strategic direction of the entity and obligations
relating to the accountability of the company. Matters to communicate: -Auditor’s responsibilities(to form &
express opinion on FS); -Responsibility of tcwg (to prepare FS); -Planned scope & timing of audit; -Significant
findings from audit; -For listed entities: statement to confirm independence, relationships that may impact
independence, safeguards that have been implemented.

8)ISA 265 Communicating Deficiencies in Internal Control to Those

Charged with Governance and Management: that significant deficiencies in internal
control should be communicated in writing to tcwg → Report to management. Significant deficiency= that, in
auditor’s professional judgement, is of sufficient importance to merit the attention of tcwg. In determining
whether significant, consider: -Susceptibility to loss/fraud of related a/l; -Interaction with other deficiencies in IC; -
Likelihood of deficiency resulting in mm in fs; -Subjectivity/complexity of determining estimated amounts; -
Amounts exposed to deficiencies; -Importance of the controls to FR

9)ISA 300 Planning an Audit of Financial Statements: Audit strategy sets the scope,
timing & direction of the audit and guides the development of the more detailed audit plan. Matters to consider
before establishing overall audit strategy: -Characteristics of the engagement (FR framework, nature of business,
expected audit coverage, availability of IA work, effect of IT on audit procedures); -Reporting objectives, timing of
the audit and nature of communications (organization of meetings with mgt & tcwg, discussions with mgt & tcwg,
expected communications with third parties); -Significant factors, preliminary engagement activities, and
knowledge gained on other engagements (determination of materiality, results of previous audits, significant
changes in FR framework, significant business & industry developments, mgt’s commitment to design,
implementation & maintenance of sound internal control); -Nature, timing and extent of resources (selection of
engagement team, assignment of work to team members, engagement budgeting). Audit plan converts audit
strategy into a more detailed plan and includes the nature, timing and extent of audit procedures to be performed
by engagement team members in order to obtain ‘saae’ to reduce audit risk to an acceptably low level. Examples:
Timetable of planned audit work, Materiality for FS and performance materiality, allocation of work to audit team
members, etc. Note that during the audit, auditor may need to modify the overall audit strategy or audit plan,
due to unexpected events, changes in conditions or audit evidence obtained.

10) ISA 315 Identifying & Assessing the Risks of Material Misstatement
through Understanding the Entity and its Environment: auditor should identify and
assess the risk the risk of mm, whether due to fraud or error, through understanding the entity and its
environment, including the entity’s internal control, thereby providing a basis for designing and implementing
responses to assessed risks of mm. Obtaining an understanding of entity and its environment: WHAT? →
➢ Industry, regulatory and other external factors, including applicable FR framework
➢ Nature of entity (eg operations, ownership&governance, investments, structure& financing, etc)
➢ Entity’s selection & application of accounting policies
➢ Objectives & strategies and related business risks that might cause mm in fs
➢ Financial performance
 ➢ Internal Control

HOW?→ Enquiries of mgt, Analytical Procedures, Observation & Inspection, Prior period knowledge
and the PAF (permanent audit file), Information from client’s websites and publications, etc

11) ISA 320 Materiality in Planning & Performing an Audit: Information is

material if its omission/misstatement could reasonably be expected to influence the economic decisions
of users taken on the basis of the FS. Materiality level set by auditor→matter of judgement and
depends on level of audit risk. Materiality level set impacts: -Nature, timing and extent of audit
procedures (↓→↑work needed); -Whether to use sampling techniques; -The evaluation of the effect
of misstatements in terms of: whether to seek adjustments to FS, or modification of audit report.
BENCHMARKS: ≥(0.5 to 1%) of Revenue, ≥(1 to 2%) of total assets, ≥(5 to 10%) of PBT.
Performance Materiality: “the amount set by auditor at less that materiality for FS as a whole to reduce
to an approprialtely low level the probability that the aggregate of uncorrected misstatements exceeds
materiality for the FS as a whole”. OR “the amount set by auditor at less than the materiality level for
particular classes of transactions, account balances or disclosures”. Revising materiality: may be due
to events that occur during the audit, new information, or a change in auditor’s understanding of entity.
Documentations required: -Materiality for FS as whole; -Materiality levels for particular classes of
transactions, a/c balances or disclosures if applicable; -Performance materiality; -Any revision of above.

12) ISA 330 The Auditor’s Responses to Assessed Risks: The auditor should obtain
saae regarding the assessed risks of mm, through designing and implementing appropriate responses to those
risks. In exam, need to explain: -The types of enquiries auditor should make (and of whom); -The information or
documentation they would require; -The correspondence they should review; -The impact on the level of
materiality; -The type of testing they should perform; -The calculations they would do/reperform; -The assets
they should inspect.

13) ISA 402 Audit Considerations Relating to an Entity Using a Service

Organization: Service organization= A third-party organization that provides services to user entities that
are part of those entities’ information systems relevant to financial reporting. User Entity= An entity that uses a
service organization and whose FS are being audited. User Auditor= An auditor who audits and reports on the FS
of a user entity. Service Auditor= An auditor who, at the request of the service organization, provides an
assurance report on the controls of a service organization. User auditors must obtain an understanding of the
services provided by the service organization. This understanding includes: -Nature of services provided &
significance of these to the entity, including effect on internal conntrol; -Nature & materiality of transactions
processed; -Degree of interaction; -Nature of relationship including contractual terms. In responding to assessed
risks, the user auditor must “determine whether ‘saae’ concerning the relevant FS assertions is available from
records held at the user entity (and if not, then perform further audit procedures…). The user auditor is always
solely responsible for the auditor’s opinion. They must therefore not refer to the work of a service auditor in the
user auditor’s report if it contains an unmodified opinion
14) ISA 450 Evaluation of Misstatements Identified during the Audit:
Misstatement= A difference between the reported amount, classification, presentation or disclosure of a FS item
and the amount, classification, presentation, or disclosure that is required for the item to be in accordance with
the applicable FR framework. Misstatements can arise from error or fraud. An uncorrected misstatement is a
misstatement that the auditor has accumulated during the audit and that has not been corrected.
Auditor should communicate uncorrected misstatements and their effect to tcwg, with material uncorrected
misstatements being identified individually. Auditor shall request uncorrected misstatements to be corrected. Also
communicate the effect of uncorrected misstatements relating to prior periods. Auditor shall request a
written representation from mgt and tcwg as to whether they believe the effects of uncorrected misstatements
are immaterial (individually & in aggregate) to FS as a whole. Auditor should document the following info:
➢ Amount below which misstatements would be regarded as clearly trivial
➢ All misstatements accumulated during the audit and whether they have been corrected
➢ Auditor’s conclusion as to whether uncorrected misstatements are material and the basis for
that conclusion

15) ISA 500 Audit Evidence: Audit evidence is all the info used by the auditor in arriving at the
conclusions on which the auditor’s opinion is based. Auditor should obtain “sufficient appropriate” audit evidence
to be able to draw conclusions on which to base the audit opinion. Sufficient→ Quantity sufficient to support audit
opinion. Consider risk assessment, nature of a/cing & internal control systems, materiality of item, results of audit
procedures, etc. Appropriate→ Relevant (the evidence gathered must cover the FS assertions); and Reliable
(external better than internal, auditor generated>client generated, written>oral, original docs>copies)

16) ISA 501 Audit Evidence- Specific Considerations: ISA 501 provides guidance for
auditors on attending inventory count: Where inventory is material, auditor shall obtain “saae” regarding its
existence & condition by attending the physical inventory count (unless impracticable). Following procedures:
1) Evaluate mgt’s instructions & procedures for recording & controlling the result of the inventory count
2) Observe the performance of count procedures 3) Inspect the inventory 4) Perform test counts
5) Perform audit procedures over entity’s final inventory records to determine whether they accurately reflect the
count results.
Part of ISA 501 also covers contingencies relating to litigation and legal claims, which will represent the major part
of audit work on contingencies. The auditor shall design and perform procedures in order to identify any litigation
and claims involving the entity which may give rise to a risk of mm. Such procedures would include: -Make
appropriate enquiries of mgt and others including in-house legal advisers; -Review minutes of meetings of tcwg
and correspondence between the entity and its external legal advisers; -Review legal expense accounts;
-Use any info obtained regarding the entity’s business, including info obtained from discussions with any in-house
legal dept. When litigation claims have been identified, or auditor believes they may exist, the auditor shall
seek direct communication with entity’s legal advisers through a letter of enquiry that’s prepared by mgt and sent
by auditor, requesting legal adviser to communicate directly with auditor. This assists auditor in obtaining “saae”
as to whether potentially material litigation & claims are known and mgt estimates are reasonable.
17) ISA 505 External Confirmations: External confirmations are frequently used by the
auditor to confirm that balances are correctly stated in the financial statements. For example, the auditor could
request external confirmation from an entity’s bankers to confirm the balances on the respective bank accounts
agree with the reconciliations performed by the entity at the reporting date. External bank confirmation can also
confirm the nature of any security which is required to be disclosed within the financial statements together with
any related party issues that require disclosure such as directors’ guarantees. Another common external
confirmation is that of customer (receivable) circularisation to confirm the balance outstanding at the reporting
date. Such external confirmations are not absolute and other confirmations may be necessary depending on the
risk assessment and the nature and complexity of the client being subject to audit.

When selecting the appropriate confirmation, the auditor will take into consideration various factors such as the
assertion being addressed, the likelihood of the response rate, whether management will allow such external
confirmation to be made and past experience of the audit.

18) ISA 510 Initial Audit Engagements- Opening Balances: objective of ISA 510 is
to outline the auditor’s responsibilities in terms of whether the opening balances in initial engagements contain
material misstatements which may affect the current period’s financial statements and whether the entity’s
accounting policies have been consistently applied in the current period or whether any changes in accounting
policy have been properly accounted for. ISA 510 defines opening balances as:

Those 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.
19) ISA 520 Analytical Procedures: APs mean the analysis of relationships to identify
inconsistencies & unexpected relationships. APs are used as part of risk assessment procedures and in overall
review at the end. They can also be used as a source of substantive audit evidence when their use is more effective
than tests of details in reducing detection risk. Includes comparisions with: -Prior periods; -Budgets & Forecasts;
-Industry information; -Predictive estimates; -Ratio analysis and Variance analysis; -Relationships between
financial & non-financial data. Application of APs may indicate aspects of entity of which the auditor
was unaware and will assist in assessing risk of mm, in order to determine nature, timing and extent of further
audit procedures. Auditor shall design and perform APs to assist in forming that overall conclusion. The
review will determine whether: →FS are prepared using acceptable accounting policies, consistently applied and
appropriate to the entity; →Info included in FS is compatible with audit findings; →There’s adequate disclosure
and proper classification and presentation of info; →FS comply with statutory requirements and other regulations

20) ISA 530 Audit Sampling: Audit sampling= “the application of audit procedures to less than
100% of items within a population of audit relevance such that all sampling units have an equal chance of
selection, in order to provide auditor with a reasonable basis on which to draw conclusions about the entire
population. Types of sampling: Statistical & Non-statistical. Non-statistical→Haphazard selection & Block
selection. Statistical→ Random selection, Systematic selection & Value weighted selection (or monetary
unit sampling MUS). Do you know→Stratification?
Sampling Risk is the risk that auditor’s conclusions, based on a sample, may be different from the conclusion if the
entire population were subjected to the same audit procedure. Auditor must determine a sample size that will
reduce sampling risk to an acceptably low level. Sampling size↑ if ↑Sampling risk (e.g. ↑ : Risk of mm,
Required confidence level, Expected error, or ↓tolerable error/misstatement).
Evaluation of Sample Results: Where there are errors in sample, auditor consider: -Nature & cause of error;
-Whether error is ‘one-off’(anomalous) or recurrent issue; -Whether error effects purpose of audit procedure; etc.
Anomaly: “a misstatement/deviation that’s demonstrably not representative of misstatements/deviations in a
population”. Tolerable misstatement: “a monetary amt set by auditor in respect of which the auditor seeks to
obtain an appropriate level of assurance that the monetary amt set by the auditor is not exceeded by the actual
misstatement in the population”. Tolerable rate of deviation: “a rate of deviation from prescribed internal control
procedures set by the auditor in respect of which the auditor seeks to obtain an appropriate level of assurance
that the rate of deviation set by auditor is not exceeded by the actual rate of deviation in the population”
→Tests of details: When sampling has been used to perform tests of details, auditor should project the monetary
errors found in the sample to population as a whole & compare this to the level of tolerable misstatement.
→Tests of controls: When sampling has been used to test controls, no explicit projection of errors is necessary
since, the sample deviation(or error) rate is also the projected deviation rate for the population as a whole
21) ISA 540 Auditing Accounting Estimates, Including Fair Value
Accounting Estimates, and Related Disclosures: Auditor is required to obtain “saae”
about whether the accounting estimates and related disclosures are reasonable. Accounting estimates include
allowances for receivables, provisions for litigation settlements, inventory obsolescence, accrued revenue,
warranty obligations, etc. Accounting estimate= “a monetary amt for which the measurement, in accordance
with an applicable FR framework, is subject to estimation uncertainty”. Estimation uncertainty= “susceptibility to
an inherent lack of precision in measurement”. Management’s point estimate= “the amount selected by mgt for
recognition/disclosure in FS as an accounting estimate”. Auditor’s point estimate or auditor’s range= “an amount,
or a range of amounts, developed by auditor in evaluating mgt’s point estimate. The auditor shall obtain an
understanding of the entity and its environment and the entity’s internal control related to entity’s accounting
estimates. Auditor shall review the outcomes of previous accounting estimates. The inherent risk factors
auditor may take into account are: -Estimation uncertainty (susceptibility to inherent lack of precision);
-Complexity; -Subjectivity; -Other inherent risk factors (eg susceptibility to misstatement due to mgt bias/fraud)

22) ISA 550 Related Parties: ISA 550 outlines the responsibilities the auditor has in ensuring that
management has correctly identified related party transactions and made sufficient disclosure of such transactions
within the financial statements. IAS 24 ‘Related Party Disclosures’ deals with the disclosure of such related party
transactions.

23) ISA 560 Subsequent Events: “Events occurring between the date of the FS and the date of
auditor’s report, and facts that became known to auditor after the date of auditor’s report”. IAS 10 Events After
the Reporting Period deals with the treatment of subsequent events in FS (adjusting & non-adjusting events)
From Y/e to Auditor’s report sign From Auditor’s report to FS issue From FS issued to AGM
→Active Duty →Passive duty →Passive duty
→Audit procedures to identify →Auditor becomes aware of material →Auditor becomes aware of material
material subs. events (both) subs event: Discuss with mgt….. If mgt subs event: Discuss with mgt….. If mgt
amends, then audit procedures to items amends, then auditor issue a new report
requiring adjustment and issue new including an emphasis of matter
unmodified auditor’s report If mgt paragraph to explain the revision to the
refuses to amend, then auditor resissue previously issued FS If mgt refuses
a modified report (if report not yet to amend, the auditor should seek legal
issued), or seek legal advice (if report advice
already issued)
24) ISA 570 Going Concern: Under the g.c. basis of accounting, the FS are prepared on the
assumption that the entity is a g.c. and will continue its operations for the forseeable future. General purpose FS
are prepared using gc basis of accounting, unless mgt either intends to liquidate the entity or to cease operations,
or has no realsistic alternative but to do so. If gc is not appropriate, FS prepared on break-up basis.
Objectives of auditor: 1) Obtain saae regarding, and conclude on the appropriateness of mgt’s use of gc basis;
2) To conclude whether a material uncertainty exists related to events/conditions that may cast significant doubt
on entity’s ability to continue as gc; 3) To report in accordance with ISA 570
Going concern indicators: -Financial (net liability position, -ve operating CFs, inability to obtain new finance, etc);
-Operational (mgt intention to liquidate, emerging successful competitor, shortage of imp. supplies, loss of major
mkt, loss of key mgt personnel, etc); -Other (non compliance with statutory requirements, pending legal
proceedings against entity, that may,if successful, result in detrimental results, adverse changes in govt policy, etc).
The auditor shall evaluate mgt’s assessment of the entity’s ability to continue as gc (assessment period be atleast
12 months from that date). Auditor shall also enquire of mgt its knowledge of events/conditions beyond period of
assessment that may cast significant doubt on entity’s ability to continue as gc. If events or conditions are
identified that may cast significant doubt on entity’s ability to continue as gc, the auditor shall obtain saae to
determine whether a material uncertainty exists by performing additional audit procedures which include:
→Requesting mgt to make its assessment where it has not been done; →Evaluating mgt’s plans for future action;
→Evaluating reliability of underlying data used to prepare CF forecast;
→Considering whether any additional facts/info have become available since the date mgt made its assessment;
→Requesting written representations from mgt and tcwg for future action and the feasibility of these plans
Specific audit procedures relevant to above include: →Analysing & discussing cash flow, profit & other
forecasts with mgt; →Considering entity’s plans for unfulfilled customer orders; →Enquiring of
entity’s lawyer about existence of litigation & claims, etc. Auditor’s Report Implications:
Scenario 1) Going concern basis is appropriate but a material uncertainty exists: If material uncertainty adequately
disclosed in FS, then auditor express unqualified opinion but add material uncertainty to Going Concern Paragraph.
If material uncertainty not adequately disclosed in FS, then auditor express qualified or adverse opinion due to mm.
Scenario 2) Going concern basis inappropriate: Express adverse opinion due to material & pervasive misstatement
Scenario 3) Management unable or unwilling to make assessment: Express a qualified or disclaimer of opinion due
to insufficient appropriate audit evidence.
25) ISA 580 Written Representations: Written Representations= Written statements by mgt
provided to the auditor to confirm certain matters or to support other audit evidence. They don’t include FS,
assertions or supporting books and records. Three main areas where WRs necessary: →Confirm that mgt has
fulfilled its responsibilities for the preparation of FS, that all transactions have been recorded and reflected therein
and that all relevant info and access has been provided to auditor as agreed in terms of engagement;
→ A number of ISAs require WRs (such as fraud, laws & regulations, estimates, going concern, subsequent events)
→ To support other audit evidence relevant to FS if determined by the auditor
Note: Although WRs are a form of audit evidence, they’re a from an internal source and on their own they don’t
provide “saae” about issues they relate to. May be used to support audit evidence when knowledge of facts is
confined to mgt (eg future plans that may affect classifications of assets or liabilities), or where the matter is
principally one of judgement (eg receivable is doubtful or not) WRs NOT Provided: then auditor shall:
→Discuss matter with mgt; →Re-evaluate integrity of mgt and evaluate the
effect this may have on reliability of representations & audit evidence in general;
→Take appropriate actions, including determining impact on auditor’s report

26) ISA 600 Special Considerations- Audit of Group Financial Statements

(Including the work of component auditors): Two objectives of ISA 600. First and
foremost, the group auditor needs to establish that it is appropriate to act in the capacity of group auditor.
Secondly, the group auditor also needs to ensure that sufficient appropriate audit evidence is gathered to support
the opinion contained in the consolidated financial statements of the group.

27) ISA 610 Using the Work of Internal Auditors: The objectives of the auditor are:
a) To determine whether the work of IA (internal audit) function or direct assistance from internal auditors can be
used and, if so, in which areas and to what extent;
b) If using the work of IA function, to determine whether that work is appropriate for the purposes of audit;
c ) If using internal auditors to provide direct assistance, to appropriately direct, supervise and review the work
An effective IA function may reduce, modify or alter the timing of external audit procedures, but it can never
eliminate them entirely. Criteria to consider when determining whether the work of IA function can be used:
→Objectivity (consider status, to whom it reports, whether mgt acts on recommendations made, etc)
→Competence (consider: adequately resourced?, members of relevant professional bodies?, technical training, etc
→Whether IA function applies a systematic and disciplined approach (consider whether IA activities include
systematic and disciplined approach to planning, supervising, reviewing and documenting assignments, the
existence of audit manuals, etc). Remember using mnemonic “SODIT” (Scope of work, Organisational
status, Due skill & care, Independent, Technical competence)
DIRECT ASSISTANCE : =use of internal auditors to perform audit procedures under the direction, supervision and
review of the external auditor. Considerations: →Amount of judgement involved; →Assessed risk of ‘mm’;
→Obectivity & competence of inernal auditors Where external auditors have used direct assistance, they
have to document –Evaluation of their objectivity & competence; -Who reviewed work performed ; etc.
Prohibitions to perform procedures that: -Involve making significant judgements in audit; -Relate to higher
assessed risks of ‘mm’s; -Relate to work with which internal auditors have been involved; -Relate to decisions the
external auditor makes regarding the IA function
28) ISA 620 Using the Work of an Auditor’s Expert: Auditor’s Expert= “an
individual/organization possessing expertise in a field other than accounting or auditing, whose work in that field is
used by the auditor to assist the auditor in obtaining ‘saae’. An auditor’s expert may be either auditor’s internal
expert (eg partner or staff, including temporary staff) or auditor’s external expert. Auditors’ experts can be
employed to assist with areas other than inventory valuation, such as valuation of land & buildings or legal
opinions concerning interpretations of agreements, etc). Auditor must not refer to the work of an auditor’s
expert in the auditor’s report containing an unmodified opinion.

29) ISA 700 Forming an Opinion and Reporting on Financial Statements:

Requires auditor to give an opinion on whether the FS are prepared, in all material respects, in accordance with an
applicable FR framework. To do this, auditor needs to consider: -Whether “saae” has been obtained; -Whether
uncorrected misstatements are material. Unmodified opinion= opinion expressed by auditor when the auditor
auditor concludes that FS are prepared, in all material respects, in accordance with the applicable FR framework.
Basic Elements of the Auditor’s Report: a)Title b)Addressee c)Auditor’s opinion d)Basis for Opinion
e)Going concern (if relevant) f)Emphasis of matter paragraph (can also be placed after KAM para)
g)Key Audit Matters h)Other Matter paragraph i)Responsibilities for FS j)Auditor’s
responsibilities for the audit of FS k)Report on other legal and regulatory requirements l)Name of audit
engagement partner m)Signature of Auditor n)Auditor’s address o)Date of auditor’s report

30) ISA 701 Communicating Key Audit Matters in the Independent

Auditor’s Report: Key Audit Matters= those matters that, in auditor’s professional judgement, were of
most significance in the audit of FS of the current period. KAMs are selected from matters communicated with
tcwg. E.g. where risk of mm has been assessed as high at the planning stage, areas of FS where mgt had to
exercise significant judgement, the effect on audit of significant events/transactions that occurred.
KAMs don’t constitute a modification of the report. Presentation of KAM in auditor’s report: Each KAM should
refer to the disclosure in the FS and will explain: -Why the matter was considered to be significant and so a KAM;
& -How the matter was addressed in the audit. Where the auditor’s opinion is modified in relation to
KAM, the matter would not be disclosed as KAM, but in the ‘Basis for modified opinion paragraph’. Any concerns
relating to entity’s ability to continue as gc would not be disclosed in KAM, but in the ‘Material uncertainty relating
to going concern’ paragraph
31) ISA 705 Modification of Opinion in the Independent Auditor’s
Report: The auditor will give a modified opinion when:
➢ Auditor concludes, on the basis of evidence obtained, that FS as a whole are not free from mm.
➢ Auditor unable to obtain “saae” to conclude that FS as a whole are free from mm.

In both situations, there can be two levels of modified opinion: a) Material but not pervasive, where the
circumstances prompting mm are material, b) Material and pervasive, where FS are misleading
Pervasiveness: a term used to describe effects or possible effects on FS of misstatements/undetected
misstatements (due to inability to obtain saae). Three types of pervasive effect: →Those that are not confined to
specific elements, accounts or items in FS; →Those confined to specific elements, accounts or items in FS and
represent a substantial portion of FS; →Those that relate to disclosures which are fundamental to users’
understanding of FS (eg significant contingent liability undisclosed). Modification:

→Due to insufficient appropriate evidence: E.g.-Inadequate accounting records/records lost/destroyed; -Auditor

appointed after year end; -Mgt prevents auditor from obtaining audit evidence.
A)Material but not pervasive: Qualified opinion “except for” | b) Material and pervasive: Disclaimer of opinion
‘ “We don’t express an opinion”
→Due to material misstatement: E.g. –Accounting policies not appropriate; -Disclosures in FS not adequate
a)Material but not pervasive: Qualified opinion “except for” | b)Material and pervasive: Adverse opinion
‘ “The FS don’t present fairly”
32) ISA 706 Emphasis of Matter Paragraphs & Other Matter Paragraphs
in the Independent Auditor’s Report: Emphasis of matter paragraph is a paragraph included
in the auditor’s report that refers to a matter appropriately presented or disclosed in FS that, in the auditor’s
judgement, is of such importance that it is fundamental to users’ understanding of the FS. Example:
-An uncertainty relating to the future outcome of exceptional litigation or regulatory action; -A major
catastrophe that has had, or continues to have, a significant effect on entity’s financial position; -A significant
subsequent event; -Early application (where permitted) of new AS having material effect on FS
An EMP is not used to highlight an gc issues. For listed entities, the same matter can NOT be included in EMP &
KAM paragraph. Issue fundamental to users’ understanding and required significant audit attention, then
included in KAM para. If issue is fundamental to users’ understanding but not required significant audit attention
(eg a subsequent event), then included in EMP.
The EMP must state that auditor’s opinion in not modified in respect of that matter.
Other matter paragraph= a paragraph included in auditor’s report that refers to a matter other than those
presented or disclosed in FS that, in auditor’s judgement, is relevant to users’ understanding of the audit, the
auditor’s responsibilities or the auditor’s report. E.g. Where prior year FS have not been audited or have been
audited by another auditor. For listed entities, same matter not included in OMP and KAM paragraph.

33) ISA 720 The Auditor’s Responsibilities Relating to Other

Information: Other information= financial or non-financial info (other than FS and the auditor’s report
thereon) included in an entity’s annual report. Annual report= a document/combination of docs, prepared
typically on an annual basis by mgt or tcwg in accordance with law, regulation or custom. Its purpose is to provide
owners with info on entity’s operations and entity’s financial results and financial position as set out in FS.
A misstatement of other info exists when other info is incorrectly stated or otherwise misleading.
Objective of auditor to respond appropriately when docs containing audited FS include other info that could
undermine the credibility of FS and the auditor’s report. Examples of other info: Overview of strategy,
Financial summaries or highlights, planned capital exp, financial ratios, etc.
Auditor shall read the other info to identify material inconsistencies with the audited FS.
Case1) No material inconsistency with FS: then include Other Information section
Case2)Material Inconsistency with FS: A) Audited FS are misstated: If mgt corrects FS, then include Other
‘ Information section. If mgt refuse to correct FS, then Modify Audit Opinion
B) Other Information is misstated: If mgt corrects other info, then Include Other Information Section.
‘ If mgt refuse to correct other info, then “Communicate with tcwg & modify audit opinion”
‘ OR “Withdraw from engagement” (if permitted legally) AND then,
‘ Include Other Info section immediately after basis for opinion and include a description of the misstatement.
OUT OF SYLLABUS FOR ACCA AA/F8 EXAM:

34) ISA 710 Comparative Information- Corresponding Figures and

Comparative Financial Statements

35) ISA 800 Special Considerations- Audits of Financial Statements

Prepared in Accordance with Special Purpose Frameworks

36) ISA 805 Special Considerations- Audits of Single Financial

Statements and Specific Elements

38) ISA 810 Engagements to Report on Summary Financial Statements