3/12/2019

Topics and Coverage

C2: AUDITING AND ASSURANCE 1. Professional Appointment
2. Ethical and Legal Issues
3. Audit of PFI
Topic 4. Audit Planning, Materiality, and Risk
assessment
Internal Controls 5. Audit Evidence
6. Auditors Report
7. Going Concern

Compiled by EmmaChris 1 Compiled by EmmaChris 2

Topics and Coverage

8. Subsequent events
9. Fraud, Money Laundering and internal audit • Now.. Starting today’s lecture..
10.Internal Controls
11.Audit Letters
12.Audit finalisation
13.Group Audit
14.Assurance Engagements & Public sector Audit

Compiled by EmmaChris 3 Compiled by EmmaChris 4

Internal Controls (ICs) – ISA 315 1. Introduction to ICs

To be covered: • ISA 315 Indentifying and assessing Risk of Material Misstatement
• Introduction to ICs (RoMM) through understanding the entity and its environment
• Classification of controls states that;
• Components of ICs – ‘The objective of the auditor is to identify and assess the risks of material
misstatement, whether due to fraud or error, at the FS and assertion levels,…
– Control environment
…through understanding the entity and its environment, including the entity’s
– Risk Assessment internal control, …
– Control activities …thereby providing a basis for designing and implementing
– Information and communication responses to the assessed risks of material misstatement’
– Monitoring • Understanding ICs helps the auditor to design further audit
• Responsibilities for ICs procedures.
• Internal audit as an aspect of IC – If the auditor relies on ICs then he will reduce NTE of substantive procedures
• IC in small entities – Otherwise, more detailed procedures have to be performed to substantiate a
transaction or balance
• Limitations of Ics
• A case on ICs Compiled by EmmaChris 5 Compiled by EmmaChris 6

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1. Introduction to ICs 2. Classification of controls

• Internal Control is the process designed and effected by
those charged with governance, management and other
personnel to provide reasonable assurance about the
achievement of the entity’s objectives with regard to
– reliability of financial reporting,
– effectiveness and efficiency of operations and
– compliance with applicable laws and regulations.
• From the definition:
– IC is a process not an event
– IC is affected by people-BOD, mgt..
– IC provides reasonable assurance
– IC is geared to the achievement of objectives
Compiled by EmmaChris
i. Directive controls: cause or encourage a desirable event to
occur-
– e.g policies and procedures, laws and regulations, training seminars
ii. Detective controls: designed to detect errors or
irregularities that may have occurred.
– Eg. reviews and comparisons, reconciliations,
iii. Corrective controls: designed to correct errors or
irregularities that have been detected.
– Eg. corrective journal entries
iv. Preventive controls: designed to keep errors or irregularities
from occurring in the first place.
– E.g. segregation of duties, physical control over assets, locking office
door to discourage theft, using passwords to restrict computer
access
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2. Classification of controls.. 3. Components of internal control

v. Recovery controls: designed to recover data in case there is There are five components of ICs
a loss.
– E.g, backups, storing documents and IT backups in a protected
i. Control environment
environment ii. Risk Assessment
Note that; iii. Control activities
– Controls are complementary (overlap/function together to iv. Information and communication
achieve same objective)
v. Monitoring
– Compensating controls reduce risk that an existing or
potential control weakness will result in a misstatement
– Controls are redundant if they address the same control
objective

Compiled by EmmaChris 9 Compiled by EmmaChris 10

3. Components of internal control.. 3. Components of internal control..

i. Control environment ii. Risk Assessment
• includes the governance and management function of an is the process of identifying risks to achieving objectives; analyzing
organisation. potential events, considering their likelihood of occurring and
• is the foundation for effective Ics impact on achieving objectives; and deciding how to respond to
• Control environment includes the following elements the risks.
– Integrity and ethical values- communication and enforcement of Risk assessment involves:
i. Risk identification
integrity and ethical values
ii. Analyzing the key risks (likelihood and impact)
– Commitment to competence
iii. deciding how to respond to each risk. risk responses are avoiding,
– Human resource policies and practices, reducing, transferring (sharing), and accepting risk.
– Assignment of authority and responsibility,
– Management's philosophy and operating style,
– Board of Director's or Audit Committee participation, and
– Organizational structure.
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3. Components of internal control.. 3. Components of internal control..

ii. Risk Assessment iii. Control activities
In summary, when identifying risk, look at the following: Control activities – actions taken to minimize risks
i. Changes in the Operating Environment (e.g. Increased Control activities include:
Competition) – Segregation of duties
ii. New Personnel – Physical safeguarding (control over assets & records)
iii. New Information Systems – Document design & control (documents & records)
iv. Rapid Growth – Comparisons, reconciliations & control accounts
v. New Technology – Authorisation of transactions & activities
vi. New Lines, Products, or Activities
iv. Information and communication
vii. Corporate Restructuring
Methods and records established to record, process, summarize,
viii. Foreign Operations and report transactions and to maintain accountability of related
ix. Accounting Pronouncements assets and liabilities.

Compiled by EmmaChris 13 Compiled by EmmaChris 14

3. Components of internal control.. 4. Responsibilities for ICs

v. Monitoring
Refers to the assessment of the quality of internal control
performance over time. Can be:
a. Ongoing monitoring occurs in the course of operations.
b. Periodic monitoring includes tasks such as periodic internal
audit and annual reviews of high-risk business processes.
Management:
• Design, installation and maintenance of effective controls
• Concerns include:
– Reliability and accuracy of information
– Compliance with applicable laws/regulations & policies
– Effectiveness & efficiency of operations
– Safeguarding assets and records of the company
Auditor:
• Obtain an understanding of internal control relevant to the audit (ISA 315)
• Concerns include:
– Reliability of financial reporting
– Emphasis on controls over classes of transactions
– Safeguarding assets and records of the company

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5. Internal audit as an aspect of IC 6. ICs in small entities

• ISA 610 (3): “internal auditing means an appraisal activity
established within an entity as a service to the entity. Its functions
include, among other things, monitoring internal control”
• Generally, internal audit is an aspect of internal control
• According to ISA 610 (2): “the external auditor should consider the
activities of internal auditing and their effect, if any, on external
audit procedures”
• Characteristics of small entities that have audit significance
– Owned by few individuals who control their operations
– Management sees no need for hiring personnel with
accounting knowledge (not cost-effective)
– Deficiency in internal controls
– Usually lack an active & effective policy-making body
– Executives dominate affairs of entity to far greater extent
than in larger entities
– Higher potential for management override due to
domination
– Few employees, but may have access to assets

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7. ICs in small entities..
Implications for the audit (SME):
– Limit(few) in employees prevents separation of duties
– Auditor is forced to rely more on management’s
assertions that cannot be independently confirmed
– Auditor has to perform more substantive tests and
consider other qualitative factors
– Lack of/weakness in internal controls has cost
implications
Compiled by EmmaChris
A case on IC..
Compiled by EmmaChris
3/12/2019
8. Limitations of ICs
i. Only cost-effective controls can be implemented
ii. Controls are usually directed at routine transactions
iii. Potential human error due to carelessness, distraction,
mistakes of judgement, etc.
iv. Possible evasion of controls through collusion within or
with those outside the entity
v. Abuse of responsibility for implementing controls
vi. Inadequacy of controls due to changing situations or
compliance may deteriorate over time.
vii. Collusion. Two or more people acting together against
ICs
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C2: AUDITING AND ASSURANCE
Topic: AUDIT LETTERS
Compiled by IMACRIS
ENGAGEMENT LETTER (EL)
• EL-is the agreement between the auditor and
the client.
• Is the letter confirms the auditor’s acceptance
of the appointment, the objective and scope
of that audit, the extent of the auditor's
responsibilities to the client and the form of
any reports expected.
Compiled by IMACRIS
Contents of an EL..
4. An explanation of the nature and scope
of the audit and the auditor’s
responsibilities
5. A statement to the effect that a properly
designed and executed audit may not
detect all material irregularities
6. A Reminder to management that it is
responsible for the preparation of the
FS and for the maintenance of ICs
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To be covered
• Introduction
• Engagement letter and its contents
• Intro to Management letter (ML)
• Contents of ML
• Communication of deficiencies
• Example of comm of deficiencies
• Intro to written representations
• Purposes of WR
• Reliability of WR
• Matters for which WR are obtained
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Contents of an EL
• The form and content of engagement letters
may vary for different clients, but they should
generally include the following:
• 1. Clear identification of the entity and the
financial statements to be audited
• 2. The objective or purpose of the audit
• 3. Reference to the professional standards
to which the auditor will adhere
Example of an EL
Compiled by IMACRIS
Contents of an EL..
7. An indication that management will be asked to
provide certain written representations to the
auditor
8. A description of any auxiliary services to be
provided by the auditor such as the preparation
or review of tax returns
9. The basis on which fees will be computed and
any billing arrangements
10.A statement to the effect that a properly
designed and executed audit may not detect all
material irregularities
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Management letter/IC’s weakness letter/letter
to management/letter of communication
• ISA 260: Communicating deficiencies in ICs-
…deficiencies in ICs can be communicated either in
writing or orally
• Oral communication does not relieve the auditor of the
responsibility to communicate the significant
deficiencies in writing hence a need for ML.
• Management letter (ML) - is a letter from an auditor to
mgt and TCWG communicating significant deficiencies
in ICs identified during the audit.
• It enables mgt to take the necessary actions to remove
deficiencies in ICs
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Communication of deficiencies in ICs
• Deficiencies in ICs should be communicated on
timely basis.
• For significant deficiencies, the auditor may
communicate them orally to assist taking timely
remedial action
• does not eliminate the need for the auditor to
repeat the communication if remedial action has
not yet been taken.
• Should be reported to mgt and TCWG and not
otthers
Compiled by IMACRIS
management Letter
• A sample of management letter
Compiled by IMACRIS
3/12/2019
Contents of the management Letter
• Deficiencies in the system of ICs
– give details of noticed deficiencies
– communicate the reason for deficiencies (Inadequacies of
the ICs, Un-required ICs)
• The implications of the deficiencies
– communicate possible consequences of such deficiencies
– Helps TCWG to take immediate corrective action
• The recommendations suggested by the auditor
– corrective action(s) to be taken to remove defficiencies.
• Disclaimer- It is not the primary duty of the external
auditor to evaluate the controls. Only noticed
deficiencies during the course have been reported
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Examples of communication of deficiencies
• Deficiencies- There is no proper segregation of duties
on payroll system. A supervisor, is responsible for many
activities such as appointment of temporary labour,
authorisation of timesheets and payment to unpaid
workers.
• Implications- A supervisor may take undue advantage
of the responsibilities given to her eg recording dummy
workers
• Recommendation-Some of her duties should be
segregated and delegated to another person so that
she only approve timesheets and calculate the payroll.
Appointment of staff and holding unpaid paypackets
should be done by another person
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WRITTEN REPRESENTATIONS BY
MGT (WR)
a.k.a MGT REPRESENTATIONS
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A sampe of Management
Representation letter
Compiled by IMACRIS
Introduction
• Guiding standards
ISA 580 Written representation:
• Written representation: a written statement
by management provided to the auditor to
confirm certain matters or to support other
audit evidence.
• WR can be used as audit evidence but not a
substitute for other audit evidence that is
expected to be available.
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Procedure for obtaining written

Purposes of written representations
• Acknowledging responsibility for FS by management-
completeness of info provided
• Acknowledging responsibility for other matters e.g.
internal control, adjustments relating to subsequent
events..
• Used as audit evidence e.g in lawsuit
• Acknowledges representations previously made
verbally by management
• Minimises misunderstandings between management
and auditor
• Reasonable assurance about the effective working of
internal control system. E.g, we have designed and
implemented…
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representation
• differs case by case
• the auditor may note down the matters for which
representation is required and ask management to fill it in
and sign it
• Otherwise, they may discuss all the matters orally, note them
down and ask mgt to sign and acknowledge their statement.
• What ever form, WR should possess the following elements
• Addressed to the auditor
• appropriately dated and signed
• Date should be as near as practicable to, but not after the
date of AR
• If the auditor is the one who wrote it, should discuss
contents with mgt at early stage so that mgt may not refuse
Compiled by IMACRIS
to sign

Quality and reliability of WR Evaluation of reliability of WR

If a representation is obtained for matters which have a
• Recall..reliability of evidence material effect on the FS, its reliability should be evaluated
by:
• Third party vs internal 1. Seeking corroborative audit evidence
• Documentary vs oral 2. Evaluate consistency of the representation with other
evidence, if any
• Original vs photocopied i. If the auditor has concerns about the competence, integrity,
ethical values, the auditor has to determine the effects of such
• Since WR is an internal document: concerns to MM
• It lacks independence ii. If he concludes that WR are not reliable, consider disclaiming an
opinion
• Less reliable iii. If inconsistent,then redesign procedures by increasing NTE of
Aps
• Auditor should review it with an attitude of iv. Incase the matter remains unsolved, the auditor should consider
professional scepticism appropriate procedures

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Circumstances under which

management may refuse to provide WR
• when it feels that, an auditor is trying to pass their
responsibility to mgt
• when management is, in fact, ignorant of the fact
• when it wants to hide something from the auditor
When mgt refuses, an auditor shall:
i. discuss the reason with mgt
ii. re-evaluate the integrity of management
iii. take appropriate actions, including issuing a modified
report with a disclaimer of opinion on the financial
statements.
Matters for which WR are obtained
i. Mgt’s responsibilities on FS preparation
ii. providing the auditor with all relevant and
necessary information and documents
iii. completeness of all transactions recorded
in the financial statements.
iv.Mgt’s responsibilities on Designing and
implementation of an adequate internal
control system

Compiled by IMACRIS Compiled by IMACRIS

Matters for which WR are obtained

v. Mgt to state that uncorrected aggregate
misstatements are immaterial
vi. Subsequent events confirm that the FS have included THE END
all adjustments and disclosures
THANK YOU!
vii.Related party transactions has been properly
disclosed
viii.actual, suspected or alleged fraud affecting the entity
according to their knowledge.
ix. When sufficient appropriate audit evidence is not
available for any subject matter which is material

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 C2: AUDITING AND ASSURANCE SAMPLE AUDIT LETTERS

Example of a Management Representation Letter

The following letter is not intended to be a standard letter. Representations by management will
vary from one entity to another and from one period to the next.
Although seeking representations from management on a variety of matters may serve to focus
management’s attention on those matters, and thus cause management to specifically address those
matters in more detail than would otherwise be the case, the auditor needs to be cognizant of the
limitations of management representations as audit evidence as set out in this ISA.

(Entity Letterhead)

(To Auditor) (Date)

This representation letter is provided in connection with your audit of the financial statements of
ABC Company for the year ended December 31, 20X9 for the purpose of expressing an opinion
as to whether the financial statements give a true and fair view of (present fairly, in all material
respects) the financial position of ABC Company as of December 31, 20X9 and of the results of
its operations and its cash flows for the year then ended in accordance with (indicate applicable
financial reporting framework).

We acknowledge our responsibility for the fair presentation of the financial statements in
accordance with (indicate applicable financial reporting framework).1

We confirm, to the best of our knowledge and belief, the following representations:

Include here representations relevant to the entity. Such representations may include the following:
 There have been no irregularities involving management or employees who have a
significant role in internal control or that could have a material effect on the financial
statements.
 We have made available to you all books of account and supporting documentation and all
minutes of meetings of shareholders and the board of directors (namely those held on
March 15, 20X9 and September 30, 20X9, respectively).

1
If required add “On behalf of the board of directors (or similar body).”

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 C2: AUDITING AND ASSURANCE SAMPLE AUDIT LETTERS

We confirm the completeness of the information provided regarding the identification of
related parties.
AUDITING
 The financial statements are free of material misstatements, including omissions.
 The Company has complied with all aspects of contractual agreements that could have a
material effect on the financial statements in the event of noncompliance. There has been
no noncompliance with requirements of regulatory authorities that could have a material
effect on the financial statements in the event of noncompliance.
 The following have been properly recorded and, when appropriate, adequately disclosed in
the financial statements:
o The identity of, and balances and transactions with, related parties.
o Losses arising from sale and purchase commitments.
o Agreements and options to buy back assets previously sold.
o Assets pledged as collateral.
 We have no plans or intentions that may materially alter the carrying value or classification
of assets and liabilities reflected in the financial statements.
 We have no plans to abandon lines of product or other plans or intentions that will result
in any excess or obsolete inventory, and no inventory is stated at an amount in excess of
net realizable value.
 The Company has satisfactory title to all assets and there are no liens or encumbrances on
the company’s assets, except for those that are disclosed in Note X to the financial
statements.
 We have recorded or disclosed, as appropriate, all liabilities, both actual and contingent,
and have disclosed in Note X to the financial statements all guarantees that we have given
to third parties.
 Other than . . . described in Note X to the financial statements, there have been no events
subsequent to period end which require adjustment of or disclosure in the financial
statements or Notes thereto.
 The . . . claim by XYZ Company has been settled for the total sum of XXX which has been
properly accrued in the financial statements. No other claims in connection with litigation
have been or are expected to be received.
 There are no formal or informal compensating balance arrangements with any of our cash
and investment accounts. Except as disclosed in Note X to the financial statements, we
have no other line of credit arrangements.
 We have properly recorded or disclosed in the financial statements the capital stock
repurchase options and agreements, and capital stock reserved for options, warrants,
conversions and other requirements.

(Senior Executive Officer)

(Senior Financial Officer)

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 C2: AUDITING AND ASSURANCE SAMPLE AUDIT LETTERS

Management Letter Sample

Consider the scenario below and prepare a management letter:

Covenant Co is a company which buys printers from a supplier in South Africa. Covenant Co is
situated in Dar es Salaam. The printers come to Dar es Salaam and they are repackaged for different
markets, e.g. the DSM, the Kigali and Nairobi. Covenant Co’s customers are big printer stores in
different countries. 90% of the sales are made on credit and 10% of the sales are in cash. Orders
are placed over the telephone. Elias receives these orders and checks whether they are within the
credit limit. If the order is within the credit limit, Elias will raise the sales order.

The sales order is then sent to the inventory department. Happiness from the inventory department
dispatches the goods and prepares a goods dispatch note. A copy of the goods dispatch note along
with the sales order is then sent to the accounts department where a sales invoice is prepared.

Julius from the accounts department prepares sales invoices then enters sales in the books. In the
case of cash sales, Julius prepares the sales receipt at the counter and collects the cash. He then
enters the cash sales in the books. Sales receipts are perforated and, while preparing the sales
receipt, Julius fills in both the sales receipt as well as the counterfoil at the same time. The director,
Goodluck, checks the credit limits every six months.

Required:

As an auditor of Covenant Co, identify the deficiencies in the system and report them to the
management of Covenant Co. Also, make suggestions on how to eliminate these deficiencies.

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 C2: AUDITING AND ASSURANCE SAMPLE AUDIT LETTERS

Answer

The deficiencies in the above system shall be communicated as follows:

Letter of communication
To,
Dear Sir / madam,

We have noticed the following deficiencies in the internal control system, during the course of
our audit. We did not design the audit to discover deficiencies in the internal control system. The
deficiencies stated below are those which were discovered while performing the audit.

Deficiencies Implications Recommendations

Orders are taken Since no written orders are placed, it Written orders
over the telephone. may happen that an order is not
No written recorded by Elias and Covenant Co
orders are placed. will lose sales.
No segregation of Orders may be accepted
duties. Same person exceeding the credit limit
receives As the same person (i.e. Happiness),
orders, checks limits receives the order, checks the limit and exceeding the credit limit, there should be
and prepares the sales order there is a
prepares sales possibility that Happiness may not
orders. check the credit limit or, if
she has a good relationship with the
customer, she may prepare the order
even if the order is not within the
credit limit allowed to the customer.
No segregation of Fraud in inventory department
duties In the inventory department, the
for dispatch of goods person who dispatches goods is also
and responsible for preparation of the
preparation of goods goods dispatch note. He may actually
dispatch note. dispatch 600 printers and prepare a
goods dispatch note for 500 printers.
He may
remove the extra 100 printers secretly
and may misappropriate the money for
100 printers.
Use of perforated Fraud in cash sales
sales
Information may be given over the telephone but an
order should be confirmed only when it is given in
writing.
The customers should be asked to send the orders by
e-mail, letter or fax (something in writing).
Otherwise they can come and fill in a sequentially
numbered order form which is available with the
entity. This will avoid the chance of omission of
orders and also processing of the fictitious orders.
Segregation of duties
Segregation of duties is the basic requirement of the
good internal control system. To avoid the orders
segregation of the duties between the person
checking
the credit limit and the person preparing the sales
order. Happiness should be asked to check limits and
the sales orders should be prepared by, say, Huyang.
Segregation of duties
There should be segregation of duties between the
person dispatching goods and the person preparing
the goods
dispatch note.
Use of receipt books with duplicate
copies

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 C2: AUDITING AND ASSURANCE SAMPLE AUDIT LETTERS
receipts. Cash sales are recorded on perforated
sequentially numbered sales receipts.
Julius, who prepares the cash sales
receipts and also receives the money,
may write a lower quantity and
amount on the counterfoil compared to
the actual sales receipt and
misappropriate the balance.
Low frequency of Goodluck reviews the credit limits
reviewing credit every 6 months. This interval is large
limits. and it may happen that a customer
with a limit of, say,Tshs100 million,
has defaulted twice for a total amount
of Tshs45 million
Elias does not check Non-payment of sales
whether the credit Continuing with the above
previous payments example of Tshs100 million, due to
are this it may happen that goodsmay be
made by the sold to a person who is not able to pay.
customers
on the due dates but
just checks the
availability of the
credit limit.
| Email: info@covenantfinco.com |
Julius, who prepares the cash receipts, should be
given numerically sequenced receipts books with
duplicate copies, and he should be asked to put
carbon paper between the two and prepare a cash
receipt where the original copy will be given to the
customer and the carbon copy will be kept by the
entity as evidence of cash sales.
Also, there should be segregation of duties between
preparation of receipt for cash sales and receiving
cash.
The accounting should be computerized and, in the
case of power failures, manual receipts should be
maintained and should
be signed by an appropriate authority.
To avoid this, Goodluck should review the credit
limits every month. A person who has not used their
full credit limit but has been unable to pay the credit
taken by the due dates should not be given more
credit.
Credit limit should be decided by the
authorised person only.
Elias should be asked to check the defaults made by
the customer, if any, before allowing further credit.
Also the credit limits should be verified more
frequently than six months, say, monthly, according
to the payment record of the customer.
Auditor
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 C2: AUDITING AND ASSURANCE SAMPLE AUDIT LETTERS

AN ILLUSTARTIVE AUDITORS REPORT

Report of the independent auditor to the members of CFCB BANK LIMITED
For the year ended 31st December 2017
Opinion
We have audited the accompanying financial statements of CFCB BANK LIMITED, set out on
pages 9 to 45, which comprise the statement of financial position as at 31st December 2017, the
statement of profit or loss and comprehensive income, of changes in equity and of cash flows for
the year then ended, and notes, including a summary of significant accounting policies.
In our opinion the accompanying financial statements give a true and fair view of the financial
position of the company as at 31st December 2017 and of its financial performance and cash flows
for the year then ended in accordance with International Financial Reporting Standards, the
Tanzanian Companies Act, 2002 and Banking and Financial Institutions Act, 2006.

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (ISAs). Our
responsibilities under those standards are further described in the Auditor's Responsibilities for the
Audit of the Financial Statements section of our report. We are independent of the company in
accordance with the International Ethics Standards Board for Accountants' Code of Ethics for
Professional Accountants (IESBA Code) together with the ethical requirements that are relevant
to our audit of the financial statements in Tanzania, and we have fulfilled our ethical
responsibilities in accordance with these requirements and the IESBA Code. We believe that the
audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance
in our audit of the financial statements of the current period. These matters were addressed in the
context of our audit of the financial statements as a whole, and in forming our opinion thereon,
and we do not provide a separate opinion on these matters. In addition to the matter described in
the Material Uncertainty Related to Going Concern section, we have determined no other key
matters to be described.
Other information
The directors are responsible for the other information. Other information comprises the
information included in the Annual Report, but does not include the financial statements and our
auditor's report thereon.
Our opinion on the financial statements does not cover the other information and we do not express
any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other
information and, in doing so, consider whether the other information is materially inconsistent
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 C2: AUDITING AND ASSURANCE SAMPLE AUDIT LETTERS

with the financial statements or our knowledge obtained in the audit or otherwise appears to be
materially misstated. If, based on the work we have performed, we conclude that there is a material
misstatement of this other information, we are required to report that fact. We have nothing to
report in this regard.
Directors' responsibility for the financial statements
The directors are responsible for the preparation and fair presentation of the financial statements
that give a true and fair view in accordance with International Financial Reporting Standards, the
requirements of the Tanzanian Companies Act, 2002 and the Banking and Financial Institutions
Act, 2006, and for such internal control as the directors determine is necessary to enable the
preparation of financial statements that are free from material misstatement, whether due to fraud
or error.
In preparing the financial statements, the directors are responsible for assessing the company's
ability to continue as a going concern, disclosing, as applicable, matters related to going concern
and using the going concern basis of accounting unless the directors either intend to liquidate the
company or to cease operations, or have no realistic alternative but to do so.
Auditor's responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole
are free from material misstatement, whether due to fraud or error, and to issue an auditor's report
that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee
that an audit conducted in accordance with ISAs will always detect a material misstatement when
it exists. Misstatements can arise from fraud or error and are considered material if, individually
or in the aggregate, they could reasonably be expected to influence the economic decisions of users
taken on the basis of these financial statements.
As part of an audit in accordance with ISAs, we exercise professional judgement and maintain
professional scepticism throughout the audit. We also:
· identify and assess the risks of material misstatement of the financial statements, whether due to
fraud or error, design and perform audit procedures responsive to those risks, and obtain audit
evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not
detecting a material misstatement resulting from fraud is higher than for one resulting from error,
as fraud may involve collusion, forgery, intentional omissions, misrepresentations or the override
of internal control.
· obtain an understanding of internal control relevant to the audit in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the company's internal control.
· evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by management.

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 C2: AUDITING AND ASSURANCE SAMPLE AUDIT LETTERS

· conclude on the appropriateness of management's use of the going concern basis of accounting
and, based on the audit evidence obtained, whether a material uncertainty exists related to events
or conditions that may cast significant doubt on the company's ability to continue as a going
concern. If we conclude that a material uncertainty exists, we are required to draw attention in
our auditor's report to the related disclosures in the financial statements or, if such disclosures are
inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up
to the date of the auditor's report. However, future events or conditions may cause the company
to cease to continue as a going concern.

· evaluate the overall presentation, structure and content of the financial statements, including the
disclosures, and whether the financial statements represent the underlying transactions and events
in a manner that achieves fair presentation.
We communicate with those charged with governance regarding, among other matters, the planned
scope and timing of the audit and significant audit findings, including any significant deficiencies
in internal control that we identify during our audit.

Report on other legal requirements

This report, including the opinion, has been prepared for, and only for, the company's members as
a body in accordance with the Tanzanian Companies Act, 2002, the Banking and Financial
Institutions Act, 2006 and for no other purpose.
As required by the Tanzanian Companies Act, 2002 we report to you, based on our audit, that:
i) we have obtained all the information and explanations which to the best of our knowledge and
belief were necessary for the purposes of our audit;
ii) the report of the directors is consistent with the financial statements;
iii) in our opinion proper accoutning records have been kept by the company, so far as appears
from our examination of those records;
iii) the company's statement of financial position and comprehensive income are in agreement with
the accounting records; and
v) information specified by law regarding directors remuneration and transactions is appropriately
disclosed.

For and on behalf of

……………………..….
2017
Dar es Salaam
Ref: XXX/XXXX

A link for engagement letter sample

https://www.accaglobal.com/content/dam/ACCA_Global/.../atol_incorporated.doc

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