MUNHUMUTAPA SCHOOL OF COMMERCE

DEPARTMENT OF ACCOUNTING AND INFORMATION SYSTEMS

NAME SURNAME REG NUMBER

MERCY MIDZI M202035

TINOTENDA MANYEVERE M201395

ANISHA MUTUKWA M205398

ELECTOR ZVOUFA M206070

LAVENDER SHOKO M200165

BRILLIANT BHEBHURA M202483

TAKUDZWA MATANDAURE M206675

VICTOR MBIZVO M203584

MODULE ADVANCED AUDITING (HACC423)

LEVEL 4.2

PROGRAMME ACCOUNTING

GROUP 4

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(a) ISA 210 Terms of Audit Engagements explain the content and use of engagement
letters.

Required:

State any Four items that could be included in an engagement letter.

[4 marks]

1. The objective and scope of the audit of financial statements. This outlines what the
audit will entail and the binderies of the auditor’s responsibilities.

2. The responsibilities of the auditor. This section clarifies what the auditor is required to
do as part of the audit process.

3. The responsibilities of management. It specifies the tasks and duties of the

management team in relation to the financial statements and the audit.

4. Identification of the applicable financial reporting framework. This indicates the set of
accounting standards that the financial statements should adhere to.

(b) ISA 500 Audit Evidence explains types of audit evidence that the auditor can
obtain.

Required:

State, and briefly explain, four types of audit evidence that can be obtained by the
auditor.

[12 marks]

Under ISA 500, an auditor can obtain various types of audit evidence to support their
findings and opinions. Here are four types of audit evidence:

Inspection

This involves examining records, documents, or tangible assets for example , an auditor
might look at invoices to verify that sales had actually occurred or inspect physical
inventory to confirm its existence and condition. Inspection provides reliable audit
evidence because it is obtained from independent sources and directly by the auditor.

Observation

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This refers to looking act at a process or procedure being performed by others. An
example is observing the client’s inventory counting procedures to ensure they are
being carried out properly. It can provide audit evidence about the performance of a
process but is limited to the point in time at which the observation occurs.

Confirmation

This is a process of obtaining a direct written response from a third party verifying the
accuracy of information that was requested by the auditor. For instance, an auditor
might send a letter to a bank asking them to confirm the balance of the company’s bank
account.

Recalculation

This involves checking the mathematical accuracy of documents or records. An auditor

could recalculate the depreciation of an asset to ensure it has been calculated correctly
according to the relevant accounting framework. Recalculation can be done manually or
electronically and provides evidence of the accuracy of the numbers presented.

(c) ISA 700 The Independent Auditor’s Report on a Complete Set of General
Purpose Financial Statements explains the form and content of audit reports.

Required:

State three ways in which an auditor’s report may be modified and briefly explain
the use of each modification. [9 marks]

According to ISA 700, a negative audit report is issued with some modifications/
qualifications and there are two circumstances that cause financial statements to be
modified, i.e., limitation of scope and disagreement.

Three ways an auditor’s report may be modified

Circumstance Material but not pervasive Material and pervasive

Limitation of scope Except for Disclaimer

Disagreement Except for Adverse

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1.“Except for” opinion

a) The auditor would issue this opinion if the limitation of scope is material but not
pervasive. Under the circumstance of limitation of scope, for this opinion to be
issued, there is a specific reservation for the financial statements to give a true
and fair view.
Limitation of scope may occur when:

 The entity does not allow the auditor to perform an audit procedure the he
believes is necessary
 The entity’s records are inadequate

b) Under the circumstance of disagreement, the auditor would issue this opinion if
the disagreement is material but not pervasive.

Disagreement may occur when:

 The auditor may disagree with management about matters such as acceptability
of accounting policies
 They disagree about application of those policies and the adequacy of
disclosures

2.“Adverse” opinion

It is issued where the effect of a disagreement is so material or pervasive that the

financial statements are seriously misleading. The appropriate wording is as follows:
“………in our opinion the financial statements do not give a true and fair view”.

A pervasive issue is one that affects the view given by the financial statements as a
whole. In the case of disagreements, it is the one that renders the financial statements
seriously misleading. In the case of limitation of scope, it renders the auditor unable to
form an opinion.

3.“Disclaimer” of opinion

If an auditor finds limitations in obtaining information or audit evidence, it will be

necessary to disclaim an opinion. All significant reasons for doing so should be stated.
The possible effect of a limitation of scope is so material and pervasive that there is
insufficient evidence to support and therefore express an opinion. The appropriate
wording is as follows:

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“…..because of the possible effect of the limitation in evidence available to us, we are
unable to form an opinion….”

References

International Standards on Auditing 210

International Standards on Auditing 500

International Standards on Auditing 700