SA 200 "OVERALL OBJECTIVES OF THE INDEPENDENT AUDITOR and

CONDUCT OF AUDIT IN ACCORDANCE WITH SAs"

Overall Objectives of the Auditor
In conducting an audit of financial statements, the overall objectives of the auditor are:
▪ To obtain reasonable assurance about whether the F.S. as a whole are free from material
misstatement, whether due to fraud or error, in accordance with an applicable FRF, and
▪ To report on the F.S. and communicate as required by the SA’s
Special Note- Auditor obtains Reasonable assurance when he obtain SAAE.

Requirements of Standard
a. Ethical Requirements Relating to an Audit of F.S.
▪ The auditor shall comply with relevant ethical requirements, including independence.
▪ Relevant ethical requirements ordinarily comprise the Code of Ethics issued by the
ICAI. The fundamental principles are:
(i) Objectivity;
(ii) Integrity;
(iii) Professional behaviour
(iv) Confidentiality; and
(v) Professional competence and due care;
▪ Independence comprises both independence of mind and independence of
appearance.
▪ Independence enhances the auditor's ability to act with integrity, to be objective and
Confidential and to maintain an attitude of professional skepticism and appropriate
professional behaviour.

b. Professional Skepticism
(1) Meaning:
▪ An attitude that includes
▪ A questioning mind, being alert to conditions (which indicate possible
misstatement due to error or fraud), and critical assessment of audit evidence.
▪ The auditor shall plan and perform an audit with professional skepticism.
▪ Professional skepticism includes being alert to:
(i) Contradictory audit evidence.
(ii) Questions on reliability of documents.

c. Professional Judgement
(1) Meaning
▪ The application of relevant knowledge, training, and experience,
▪ In making informed decisions about the courses of action

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 ▪ The auditor shall exercise professional judgment in planning and performing
an audit of financial statements.
▪ Professional Judgment is important when deciding about:
(i) Materiality and audit risk.
(ii) NTE of audit procedures.
(iii) Evaluating sufficiency and appropriateness of audit procedures.
(iv) Evaluating management judgment in applying applicable FRF.
(v) Drawing conclusions based on audit evidence.

d. Risk of Material Misstatement

▪ The risks of material misstatement may exist at two levels:
(i) The overall financial statement level; and
(ii) The assertion level for account balances, classes of transactions, and
disclosures.
▪ Risks of material misstatement at the overall financial statement level refer to risks
of material misstatement that relate pervasively to the financial statements as a whole
and potentially affect many assertions.
▪ The risks of material misstatement at the assertion level consist of two component
inherent risk and control risk.
▪ Special Note- The SAs do not ordinarily refer to inherent risk and control risk
separately, but rather asks auditor for assessment of the "risks of material
misstatement".

Inherent Limitations for an Audit

The auditor is not expected to, and cannot, reduce audit risk to zero and cannot therefore obtain
absolute assurance that the financial statements are free from material misstatement due to fraud
or error.
This is because there are inherent limitations of an audit, which result in most of the audit evidence
on which the auditor draws conclusions and bases the auditor's opinion being persuasive rather
than conclusive. The inherent limitations of an audit arise from:
(a) The nature of financial reporting:
The preparation of F.S. involves judgment by management in applying the requirements
of the applicable FRF to the facts and circumstances of the entity. For example Accounting
estimates.
(b) The nature of audit procedures:
▪ Management and others do not provide complete information intentionally
unintentionally.
▪ Audit procedures used to gather audit evidence may be ineffective against fraud
detection.
▪ Audit is not an official investigation into alleged wrongdoings.
(c) Balance between Benefit and Cost

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 ▪ User expectation that the auditor will form an opinion on the F.S. within a reasonable
period of time and at a reasonable cost.
▪ It results into use of Test checking and putting most of efforts over the areas having
risk of material misstatement with corresponding less efforts in other areas.

(d) Other Matters that Affect the Limitations of an Audit:

In the case of certain assertions or subject matters, the potential effects of the limitation on
the auditor's ability to detect material misstatements are particularly significant such
assertions or subject matters include:
▪ Fraud, particularly fraud involving senior management or collusion.
▪ The existence and completeness of related party relationships and transactions.
▪ The occurrence of non-compliance with laws and regulations.
▪ Future events or conditions that may cause an entity to cease to continue as a going
concern.

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SA 500 "AUDIT EVIDENCE"
Meaning of Audit Evidence
▪ Information used by the auditor in arriving at the conclusions on which the auditor’s opinion
is based.

Meaning of Sufficient Appropriate Audit Evidence

(a) Sufficiency
▪ Refers to the quantity of audit evidence.
▪ Affected by the Materiality, Risks of material misstatement and Size of population.
(b) Appropriate
▪ Refers to the measure of the quality of audit evidence
▪ That is its relevance (Logical connection B/w Procedure & Assertion) and its
reliability (Trustworthy Source) in providing support for the conclusions on which
the auditor’s opinion is based.

Q1. Auditor's Duties when an Information to be Used as Audit Evidence

(a) Information prepared using the work of Management Expert (ref Q2 for detail answer)
▪ Evaluate the competence, capabilities and objectivity of that expert;
▪ Obtain an understanding of the work of that expert; and
▪ Evaluate the appropriateness of expert’s work as audit evidence for the relevant
assertion.
Management Expert: An individual or organisation possessing expertise in field other
than accounting or auditing, whose work in that field is used by the entity to assist the
entity in preparing the financial statements.
(b) Information produced by the Entity
▪ Obtaining audit evidence about the accuracy and completeness of the information;
and
▪ Evaluating whether the information is sufficiently precise and detailed for the
auditor’s purposes.

Q2. Evaluation of work of Management Expert

(a) Evaluate the competency, capability and objectivity of Expert
▪ Competence: Relates to nature and level of expertise.
▪ Capability: Ability to exercise that competence.
▪ Objectivity: Relates to possible effects that bias, conflict of interest of influence of
others may have on the professional/business objectivity of management expert.
(b) Understanding the Expert Work
It may include:
▪ Areas of specialty within field of expertise.
▪ Applicable professional or other standards, and regulatory or legal requirements.

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 ▪ Assumptions and methods used, their general acceptability within that expert’s field
and appropriateness for financial reporting purposes.
▪ Nature of internal and external data or information the auditor’s expert uses.
(c) Evaluating Appropriateness of Expert Work
▪ The relevance and reasonableness of that expert’s findings or conclusions;
▪ Relevance and reasonableness of assumptions and methods; and
▪ Relevance, completeness, and accuracy of the source data.

Q3. Auditor Duties in case of Inconsistency, or Doubts over Reliability of Audit Evidence
The auditor shall determine modifications or additions required in audit procedures so as to
resolve the matter that arise due to following reasons:
▪ Audit evidence obtained from one source is inconsistent with that obtained from another; or
▪ The auditor has doubts over the reliability of information to be used as audit evidence.
Under the circumstances auditor shall also consider the effect of the matter, if any, on other aspects
of the audit.

Q4. Audit Procedures for obtaining Audit Evidence

(a) RAP
(b) FAP
(1) TOC
(2) Substantive Procedures
▪ TOD
▪ Substantive Analytical Procedures.

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