Revision of ISA’s

ATHAR MEHMOOD
PRACTICE TO PASS SEPT 2020

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 ISA 580 Written Representations

ISA 580 Written Representations requires the auditor to obtain written

representations from management:
• That they have fulfilled their responsibility for the preparation of the financial
statements.
• To support other audit evidence relevant to the financial statements or
specific assertions if deemed necessary by the auditor or required by specific
ISAs.
• That they have provided the auditor with all relevant information.
• That all transactions have been recorded and reflected in the financial
statements.

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 ISA 580 Written Representations
However, as a form of evidence, representations are low down in the order of reliability
because they are internally produced. On their own, written representations do not
provide sufficient appropriate evidence about any of the matters with which they deal.
Other ISAs that require subject matter specific written representations:
 ISA 240 The Auditor's Responsibilities Relating to Fraud
 ISA 250 Consideration of Laws and Regulations
 ISA 450 Evaluation of Misstatements Identified During the Audit
 ISA 501 Audit Evidence – Specific Considerations for Selected Items
 ISA 540 Auditing Accounting Estimates
 ISA 550 Related Parties
 ISA 560 Subsequent Events
 ISA 570 Going Concern

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 ISA 620 Using the Work of an Auditor's Expert

The auditor must determine if the expert’s work is adequate for the auditor’s
purposes.
To fulfill this responsibility the auditor must evaluate whether the expert has
the necessary competence, capability and objectivity for the purpose of the
audit.
Evaluating competence
 Personal experience, discussions with the expert, discussions with other
auditors, knowledge of the expert's qualifications, memberships of
professional bodies and licenses, published papers or books written by the
expert, the audit firm's quality control procedures.

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 ISA 620 Using the Work of an Auditor's Expert

Evaluating objectivity
Assessing the objectivity of the expert is particularly difficult, as they may not be bound by a similar code of ethics
as the auditor and, as such, may be unaware of the ethical requirements and threats with which auditors are
familiar. It may therefore be relevant to:
 Make enquiries of the client about known interests or relationships with the chosen expert.
 Discuss applicable safeguards with the expert.
 Discuss financial, business and personal interests in the client with the expert.
 Obtain written representation from the expert.
Evaluating the work
Once the expert's work is complete the auditor must scrutinize it and evaluate
whether it is appropriate for audit purposes. In particular, the auditor should consider:
 The reasonableness of the findings and their consistency with other evidence.
 The relevance and reasonableness of significant assumptions.
 The relevance, completeness and accuracy of source data used

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 ISA 610 Using the Work of Internal Auditors

Before relying on the work of internal audit, the external auditor must assess the
effectiveness of the internal audit function and assess whether the work
produced by the internal auditor is adequate for the purpose of the audit.
Evaluating the internal audit function
 The extent to which the internal audit function's organizational status and
relevant policies and procedures support the objectivity of the internal
auditors.
 The competence of the internal audit function.
 Whether the internal audit function applies a systematic and disciplined
approach, including quality control.

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 ISA 610 Using the Work of Internal Auditors
Evaluating the internal audit work
The auditor must evaluate whether:
 The work was properly planned, performed, supervised, reviewed and
documented.
 Sufficient appropriate evidence has been obtained.
 The conclusions reached are appropriate in the circumstances.
 The reports prepared are consistent with the work performed.

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 ISA 550 Related party transactions
The auditor should obtain sufficient appropriate evidence that the financial statements achieve fair
presentation of the related party relationships and transactions and have been accounted for in
accordance with the financial reporting framework.
Audit Procedures
 Inspecting prior year working papers.
 Inspecting shareholder records for details of principal shareholders.
 Inspecting minutes of shareholders’ meetings and other relevant minutes and records.
 Enquiring of other auditors involved with the audit.
 Inspecting the entity’s income tax returns and other information supplied to the regulatory authorities.
 Confirm transactions with banks, law firms, or other intermediaries.
 Confirm the terms of related party transactions with the related party.
 Read the financial statements or other relevant financial information of the related party for evidence
of the transactions.

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 ISA 540 Estimates and Fair value
ISA 540 Auditing Accounting Estimates, Including Fair Value Accounting Estimates and Related
Disclosures requires auditors to obtain sufficient appropriate evidence about whether estimates (including
fair values) are reasonable and adequately disclosed in the financial statements.
Audit procedures
 Determine whether events up to the date of the auditor's report provide additional evidence with regard
to the appropriateness of estimates.
 Test how management made their estimates and evaluating whether the method is appropriate.
 Test the effectiveness of controls over estimations.
 Develop a point estimate to use in comparison to managements'.
 If there are significant risks associated with estimates the auditor should also enquire whether
management considered any alternative assumptions and why they rejected them, and whether the
assumptions used are reasonable in the circumstances.
 Obtain written representations from management confirming that they believe the significant
assumptions used in making accounting estimates are reasonable.
 Verify the external prices used to value financial instruments.

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 ISA 510 Initial Engagements – Opening Balances
ISA 510 Initial Engagements – Opening Balances requires that when auditors take on a new client,
they must ensure that:
 Opening balances do not contain material misstatements
 Appropriate accounting policies have been consistently applied, or changes adequately disclosed.
Audit procedures
 Read the most recent financial statements and auditor’s report for information relevant to opening
balances and disclosures.
 Determine whether the prior period’s closing balances have been correctly brought forward or
restated.
 Determine whether the opening balances reflect the application of appropriate accounting policies.
 Review the previous auditor’s working papers.
 Evaluate whether audit procedures performed in the current period provide evidence relevant to
opening balances.
 Substantive testing of any opening balances where the above procedures are unsatisfactory.

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 ISA 560 Subsequent Events

ISA 560 Subsequent Events, requires the auditor to:

 Obtain sufficient appropriate audit evidence about whether events occurring
between the date of the financial statements and the date of the auditor's
report, that require adjustment or disclosure are appropriately reflected in
accordance with the applicable financial reporting framework.
 Respond appropriately to facts that become known to the auditor after the
date of the auditor’s report.

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 ISA 560 Subsequent Events

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 ISA 560 Subsequent Events
Subsequent events procedures
Enquiring of management if they are aware of any events, adjusting or non-adjusting, that have not yet been included
or disclosed in the financial statements.
Enquiring into management procedures/systems for the identification of events after the reporting period.
Reading minutes of members’ and directors’ meetings.
Reviewing accounting records including budgets, forecasts, cash flows, management accounts and interim
information.
Obtaining a written representation from management confirming that they have informed the auditor of all
subsequent events and accounted for them appropriately in the financial statements.
Inspection of correspondence with legal advisors.
Reviewing the progress of known risk areas and contingencies. Considering relevant information which has come to
the auditor’s attention, from sources outside the entity, including public knowledge, competitors, suppliers and
customers.
Inspecting after date receipts from receivables.
Inspecting the cash book after the year-end for payments/receipts that were not accrued for at the year-end.
Inspecting the sales price of inventories after the year-end.

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 ISA 570 Going Concern

The auditor must:

 Obtain sufficient appropriate evidence regarding the appropriateness of
management's use of the going concern basis of accounting in the preparation
of the financial statements.
 Conclude on whether a material uncertainty exists about the entity's ability to
continue as a going concern.
 Report in accordance with ISA 570.

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 ISA 570 Going Concern
Audit procedure
• Evaluate management's assessment of going concern.
• Assess the same period that management have used in their assessment and if this is less
than 12 months, ask management to extend their assessment.
• Consider whether management's assessment includes all relevant information.
• Analyze and discuss cash flow, profit and other relevant forecasts with management.
• Analyze and discuss the entity’s latest available interim financial statements.
• Review the terms of debentures and loan agreements and determining whether any have
been breached.
• Read minutes of meetings for reference to financing difficulties.
• Enquire of the entity’s lawyer regarding the existence of litigation and claims and the
reasonableness of management’s assessments of their outcome and the estimate of their
financial implications.

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 ISA 570 Going Concern
• Confirm the existence, legality and enforceability of arrangements to provide or
maintain financial support with related and third parties and assessing the financial
ability of such parties to provide additional funds.
• Review subsequent events to identify those that either mitigate or otherwise affect the
entity’s ability to continue as a going concern.
• Review correspondence with customers for evidence of any disputes that might impact
recoverability of debts and affect future sales.
• Review correspondence with suppliers for evidence of issues regarding payments that
might impact the company's ability to obtain supplies or credit.
• Review correspondence with the bank for indication that a bank loan or overdraft may
be recalled.
• Obtain written representation from management regarding its plans for the future and
how it plans to address the going concern issues.

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 ISA 450 Evaluation of
Misstatements Identified During the Audit.
• Accumulate a record of all identified misstatements, unless they are clearly
trivial.
• Consider if the existence of such misstatements indicates that others may
exist, which, when aggregated with other misstatements, could be considered
material.
• If so, consider if the audit strategy and plan need to be revised.
• Communicate all misstatements identified during the course of the audit to an
appropriate level of management on a timely basis and request that all
misstatements are corrected.
• If management refuses to correct some or all of the misstatements the auditor
should consider their reasons for refusal and take these into account when
considering if the financial statements are free from material misstatement.

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 ISA 450 Evaluation of
Misstatements Identified During the Audit.
Evaluation of uncorrected misstatements
If management have failed to correct all of the misstatements reported to them, the auditor
should:
• Revisit their assessment of materiality to determine whether it is still appropriate in the
circumstances.
• Determine whether the uncorrected misstatements, either individually or in aggregate, are
material to the financial statements as a whole, considering both the size and nature of the
misstatements and the effect of misstatements related to prior periods (e.g. on
corresponding figures, comparatives and opening balances). If an individual misstatement is
considered material it cannot be offset by other misstatements.
• Communicate the uncorrected misstatements to those charged with governance and
explain the effect this will have on the audit opinion.
• Request a written representation from management and those charged with governance that
they believe the effects of uncorrected misstatements are immaterial.

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 ISA 250 (Revised) Consideration of Laws and Regulations in an
Audit of Financial Statements
The auditor must obtain sufficient, appropriate evidence regarding compliance with:
 Laws and regulations generally recognised to have a direct effect on the
determination of material amounts and disclosures in the financial statements (e.g.
company law, tax law, applicable financial reporting framework).
 Other laws and regulations that may have a material impact on the financial
statements
Audit procedures to identify instances of non-compliance
 Obtaining a general understanding of the legal and regulator
 Enquiring of management and those charged with governance as to
 Inspecting correspondence with relevant licensing authority
 Remaining alert
 Obtaining written representation from the directors

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 ISA 250 (Revised) Consideration of Laws and Regulations in an
Audit of Financial Statements
Audit procedures when non-compliance is identified
 Enquire of management of the penalties to be imposed.
 Inspect correspondence with the regulatory authority to identify the consequences.
 Inspect board minutes for management's discussion on actions to be taken regarding the non-compliance.
 Enquire of the company's legal department as to the possible impact of the non-compliance.
Communicating and reporting non-compliance
 The auditor should communicate non-compliance with management and those charged with governance, unless
prohibited by law.
 If the auditor believes the non-compliance is intentional and material, the matter should be communicated with
those charged with governance.
 If the auditor suspects management or those charged with governance are involved in the non-compliance, the
matter should be communicated to the audit committee or supervisory board.
 If the non-compliance has a material effect on the financial statements, a qualified or adverse opinion should be
issued.
 The auditor should also consider whether they have any legal, regulatory or ethical responsibility to report non-
compliance to third parties

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 ISA 240 The Auditor's Responsibilities
Relating to Fraud
Auditor responsibilities
Provide reasonable assurance that the financial statements are free from material misstatement, whether caused
by fraud or error.
Apply professional scepticism and remain alert to the possibility that fraud could take place.
Consider the potential for management override of controls and recognise that audit procedures that are effective
for detecting error may not be effective for detecting fraud.
This can be achieved by performing the following procedures:
 Discuss the susceptibility of the client's financial statements to material misstatement due to fraud with the
engagement team.
 Enquire of management regarding their assessment of fraud risk, the procedures they conduct and whether they
are aware of any actual or suspected instances of fraud.
 Enquire of the internal audit function to establish if they are aware of any actual or suspected instances of fraud.
 Enquire of those charged with governance with regard to how they exercise oversight of management processes
for identifying and responding to the risks of fraud and the controls established by management to mitigate these
risks.
 Consideration of relationships identified during analytical procedures.

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 ISA 240 The Auditor's Responsibilities
Relating to Fraud
Procedures
 Review journal entries made to identify manipulation of figures recorded or
unauthorized journal adjustments
 Review management estimates for evidence of bias
 Review transactions outside the normal course of business
 Obtain written representation from management and those charged with
governance

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 Audit Report

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 Types of Audit report

• Unmodified Report
• Unmodified Opinion with modified report
• Unmodified opinion

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 Unmodified Report

• F/S gives true and fair view

• No material misstatement is found or if found it is adjusted

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 Unmodified opinion with modified Report

• Gives true and fair view

• Some extra paragraphs are added to audit report.
 Emphasis of matter paragraph ISA 706
 Material uncertainty paragraph ISA 560
 Other matter paragraph ISA 706
 Other information paragraph ISA 720

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 Emphasis of matter

• F/S prepared on break up basis (IAS 1 )

• Uncertainty regarding case (IAS 37)
• Early adoption of IFRS (IFRS 16 )
• Restatement of corresponding figure (IAS 8 )
• Any event that has significant impact on Financial position (IAS 10 )

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 Other matter paragraph

• Previous auditor was some one else

• Why we didn’t resigned
• Where two sets of F/S are prepared and audited
• Limit the use audit report
• Explain auditors responsibility

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 Modified Opinion

• Qualified Report ( Except for Provision, F/S gives true and fair view )
• Adverse Opinion (F/S does not give true and fair view )
• Disclaimer ( We are not able to draw any conclusion on F/S )

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 Examination approach

• Discuss Accounting Issue (IAS 37)

• Material Misstatement (Materiality level ) Yes /No ISA706 /560/720)
• Evaluate the evidence (ISA)
• ISA 450 Evaluation of material misstatement
• Discussion of being material or pervasive ISA 705
• Discussion of Auditors ability to obtain evidence
• Which modified opinion ? ISA 705

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