Auditing: Complete Combined Course Summary
Introduction to Auditing + International Auditing (ISA), KU Leuven
Table of Contents
How to use this document.................................................................................................................................... 3
Colour key................................................................................................................................................................... 3
Part 1: What an audit is and why it exists (ItA Lecture 1).......................................................................4
1.1 Definitions of an audit............................................................................................................................... 4
1.2 Types of audit................................................................................................................................................ 4
1.3 The financial-statement audit and assurance.................................................................................. 4
1.4 Audit quality.................................................................................................................................................. 5
1.5 Audit as a “credence good”...................................................................................................................... 5
1.6 Why is there demand for auditing?...................................................................................................... 5
1.7 The audit market: structure and concentration.............................................................................. 6
1.8 Landmark audit-failure cases................................................................................................................. 6
1.9 Regulatory concerns flowing from concentration.........................................................................6
Part 2: Audit regulation and the Belgian/EU framework (ItA Lecture 2; Belgian detail also in
Int. Auditing).............................................................................................................................................................. 7
2.1 Why regulate auditing at all?.................................................................................................................. 7
2.2 Three types of regulation......................................................................................................................... 7
2.3 Sarbanes-Oxley Act (US, 2002).............................................................................................................. 7
2.4 EU Audit Directive 2006........................................................................................................................... 8
2.5 EU Audit Reform 2014 (Directive + Regulation, effective 17 June 2016)............................8
2.6 Belgian audit regulation: history and the commissaris................................................................9
Part 3: The auditor’s overarching duties: objectives, skepticism, ethics, engagement,
documentation, communication (Int. Auditing Lecture 1: ISA 200, 210, 230, 260).....................10
3.1 ISA 200: Overall objectives of the independent auditor...........................................................10
3.2 ISA 210: Agreeing the terms of audit engagements....................................................................11
3.3 ISA 230: Audit documentation............................................................................................................ 12
3.4 ISA 260: Communication with those charged with governance (TCWG)..........................12
Part 4: Fraud (Int. Auditing Lecture 2: ISA 240; plus auditing financial services).........................13
4.1 ISA 240: The auditor’s responsibilities relating to fraud..........................................................13
4.2 The fraud triangle..................................................................................................................................... 13
, 4.3 The two presumed significant risks.................................................................................................. 14
4.4 Responsibilities, procedures and responses.................................................................................. 14
4.5 Auditing financial-services entities (Belgium).............................................................................. 15
Part 5: Planning the audit and understanding the entity (ItA Lecture 4; Int. Auditing Lecture
3: ISA 300, ISA 315(R))......................................................................................................................................... 15
5.1 The audit process (the spine of the whole course).....................................................................15
5.2 ISA 300: Planning an audit of financial statements..................................................................... 16
5.3 ISA 315 (Revised): Identifying and assessing the risks of material misstatement........16
Part 6: Materiality (ItA Lecture 4; Int. Auditing Lecture 3: ISA 320)..................................................18
Part 7: The Audit Risk Model (ItA Lecture 4)............................................................................................. 19
Part 8: Internal control (COSO) (ItA Lecture 4; Int. Auditing Lecture 3)..........................................20
Part 9: Audit objectives, assertions and evidence (ItA Lecture 3; Int. Auditing Lecture 4: ISA
500, 501, 505, 520, 530, 540R, 560)................................................................................................................ 21
9.1 The five levels of audit objectives...................................................................................................... 21
9.2 The management assertions................................................................................................................ 21
9.3 ISA 500: Audit evidence......................................................................................................................... 22
9.4 Sampling: ISA 530..................................................................................................................................... 23
9.5 Specific evidence standards (ISA 501, 505, 520)......................................................................... 24
9.6 ISA 540 (Revised): auditing accounting estimates...................................................................... 24
9.7 ISA 560: subsequent events.................................................................................................................. 24
Part 10: Responding to assessed risk: the testing toolkit (ItA Lecture 5; Int. Auditing Lecture
3: ISA 330; Lecture 4 procedures).................................................................................................................... 25
10.1 ISA 330: the auditor’s responses to assessed risks..................................................................25
10.2 The client’s internal-control activities........................................................................................... 26
10.3 The five test types and how they map to the risk model........................................................26
10.4 Cycle procedures (Int. Auditing Lecture 4: illustrative depth)............................................26
Part 11: Using the work of others (Int. Auditing Lecture 3: ISA 610, ISA 620)..............................27
Part 12: Evaluating misstatements and concluding (Int. Auditing Lecture 5: ISA 450).............28
Part 13: Going concern (ItA Lecture 5; Int. Auditing Lecture 5: ISA 570R)......................................29
Part 14: Forming the opinion and the audit report (ItA Lecture 5; Int. Auditing Lecture 5: ISA
700, 705, 706).......................................................................................................................................................... 30
14.1 ISA 700: forming an opinion and reporting................................................................................. 30
14.2 The opinion types and the pervasiveness matrix.....................................................................30
14.3 ISA 706: Emphasis of Matter and Other Matter paragraphs................................................31
14.4 Integrated audit (ItA Lecture 5; since US SOX)............................................................................ 31
,Part 15: Key Audit Matters (Int. Auditing Lecture 5: ISA 701).............................................................32
Part 16: Quality management (Int. Auditing Lecture 6: ISQM 1, ISQM 2, ISA 220R)....................33
Part 17: Technology in the audit (ItA / PwC guest lecture)..................................................................33
Appendix A: ISA quick-map (memorise the numbers).......................................................................... 34
Appendix B: Definitions to know verbatim................................................................................................ 35
Appendix C: Frameworks you must be able to draw and explain.....................................................36
Appendix D: Cross-course connections (how the pieces link)...........................................................36
How to use this document
This is a single, integrated teach-from-scratch summary of both:
• Introduction to Auditing: the economics, regulation and conceptual mechanics of
auditing (lecturer Ditmir Sufaj).
• International Auditing: the ISA-by-ISA treatment applied to Belgian statutory audits
(lecturer Griet Helsen, PwC).
The two courses cover much of the same audit lifecycle from different angles, so this
document is organised thematically in the natural order of an audit rather than by
separate lecture numbers. Each part tells you which lecture(s) it draws on. Where the slides
contain an important diagram, model or matrix, you’ll see a [VISUAL] call-out describing
exactly what the figure shows and what you must be able to reproduce or explain. Because I
worked from the extracted slide text, I flag each figure by its lecture and topic; match it to
the precise slide as you read.
The throughline of both courses: an audit reduces information risk by giving
reasonable assurance, through evidence gathered in a risk-driven process, that
financial statements are free from material misstatement: and then reports that
conclusion. Almost everything else is detail hanging off that sentence.
Colour key
Gold box = Exam relevance. How heavily this topic tends to be tested, shown at the
start of each Part.
Red box = Exam tip / common trap. A point students routinely get wrong.
Purple box = Visual to recognise. A diagram or matrix from the slides you should be
able to reproduce and explain.
Green italic box = a definition to memorise word-for-word.
Blue box = Key takeaway. The one-line essence to carry into the exam.
, Part 1: What an audit is and why it exists (ItA Lecture 1)
Exam relevance: HIGH. Definitions of audit and of audit quality, the three demand
theories (information / agency / insurance), and the Type I vs Type II error distinction
are classic open-question material.
1.1 Definitions of an audit
Two definitions you should be able to quote and contrast:
• Arens et al.: “The accumulation and evaluation of evidence about information to
determine and report on the degree of correspondence between the information and
established criteria.” Notice the four moving parts: (1) evidence is accumulated and
evaluated, (2) about some information, (3) compared against established criteria (e.g. a
financial-reporting framework such as IFRS or Belgian GAAP), and (4) the auditor
reports the degree of correspondence. This is the structural definition.
• Knechel: “An economically motivated professional service designed to reduce
information risk that relies on the knowledge and skills of experts used in a
systematic process that considers the idiosyncratic needs of a client where the
outcome is unobservable and subject to market forces and regulatory constraints.”
This is the economic definition: it stresses why anyone pays for an audit (to reduce
information risk), that it depends on expertise, that it is a systematic process, and
crucially that its outcome is unobservable: you cannot see whether the auditor “got it
right.”
Key term: information risk: the risk that the information used to make a decision
(e.g. financial statements used by an investor or lender) is materially inaccurate. The audit’s
economic purpose is to lower this risk so that capital can be allocated efficiently.
1.2 Types of audit
The slides distinguish several audit types; the course focuses on the financial (statement)
audit:
• Financial audit: opinion on whether financial statements are fairly presented under a
reporting framework. (Course focus.)
• Operational audit: efficiency and effectiveness of operations/processes.
• Compliance audit: adherence to laws, regulations, contracts or policies.
1.3 The financial-statement audit and assurance
A financial-statement audit provides reasonable assurance: defined as a high, but not
absolute, level of assurance: that the financial statements as a whole are free from
material misstatement (this is the ISA 200 objective; see Part 3). Reasonable assurance is
not a guarantee: some audit risk always remains no matter how good the work. The
auditor expresses an opinion on whether the statements give a “true and fair view” / are
“presented fairly, in all material respects.”
Introduction to Auditing + International Auditing (ISA), KU Leuven
Table of Contents
How to use this document.................................................................................................................................... 3
Colour key................................................................................................................................................................... 3
Part 1: What an audit is and why it exists (ItA Lecture 1).......................................................................4
1.1 Definitions of an audit............................................................................................................................... 4
1.2 Types of audit................................................................................................................................................ 4
1.3 The financial-statement audit and assurance.................................................................................. 4
1.4 Audit quality.................................................................................................................................................. 5
1.5 Audit as a “credence good”...................................................................................................................... 5
1.6 Why is there demand for auditing?...................................................................................................... 5
1.7 The audit market: structure and concentration.............................................................................. 6
1.8 Landmark audit-failure cases................................................................................................................. 6
1.9 Regulatory concerns flowing from concentration.........................................................................6
Part 2: Audit regulation and the Belgian/EU framework (ItA Lecture 2; Belgian detail also in
Int. Auditing).............................................................................................................................................................. 7
2.1 Why regulate auditing at all?.................................................................................................................. 7
2.2 Three types of regulation......................................................................................................................... 7
2.3 Sarbanes-Oxley Act (US, 2002).............................................................................................................. 7
2.4 EU Audit Directive 2006........................................................................................................................... 8
2.5 EU Audit Reform 2014 (Directive + Regulation, effective 17 June 2016)............................8
2.6 Belgian audit regulation: history and the commissaris................................................................9
Part 3: The auditor’s overarching duties: objectives, skepticism, ethics, engagement,
documentation, communication (Int. Auditing Lecture 1: ISA 200, 210, 230, 260).....................10
3.1 ISA 200: Overall objectives of the independent auditor...........................................................10
3.2 ISA 210: Agreeing the terms of audit engagements....................................................................11
3.3 ISA 230: Audit documentation............................................................................................................ 12
3.4 ISA 260: Communication with those charged with governance (TCWG)..........................12
Part 4: Fraud (Int. Auditing Lecture 2: ISA 240; plus auditing financial services).........................13
4.1 ISA 240: The auditor’s responsibilities relating to fraud..........................................................13
4.2 The fraud triangle..................................................................................................................................... 13
, 4.3 The two presumed significant risks.................................................................................................. 14
4.4 Responsibilities, procedures and responses.................................................................................. 14
4.5 Auditing financial-services entities (Belgium).............................................................................. 15
Part 5: Planning the audit and understanding the entity (ItA Lecture 4; Int. Auditing Lecture
3: ISA 300, ISA 315(R))......................................................................................................................................... 15
5.1 The audit process (the spine of the whole course).....................................................................15
5.2 ISA 300: Planning an audit of financial statements..................................................................... 16
5.3 ISA 315 (Revised): Identifying and assessing the risks of material misstatement........16
Part 6: Materiality (ItA Lecture 4; Int. Auditing Lecture 3: ISA 320)..................................................18
Part 7: The Audit Risk Model (ItA Lecture 4)............................................................................................. 19
Part 8: Internal control (COSO) (ItA Lecture 4; Int. Auditing Lecture 3)..........................................20
Part 9: Audit objectives, assertions and evidence (ItA Lecture 3; Int. Auditing Lecture 4: ISA
500, 501, 505, 520, 530, 540R, 560)................................................................................................................ 21
9.1 The five levels of audit objectives...................................................................................................... 21
9.2 The management assertions................................................................................................................ 21
9.3 ISA 500: Audit evidence......................................................................................................................... 22
9.4 Sampling: ISA 530..................................................................................................................................... 23
9.5 Specific evidence standards (ISA 501, 505, 520)......................................................................... 24
9.6 ISA 540 (Revised): auditing accounting estimates...................................................................... 24
9.7 ISA 560: subsequent events.................................................................................................................. 24
Part 10: Responding to assessed risk: the testing toolkit (ItA Lecture 5; Int. Auditing Lecture
3: ISA 330; Lecture 4 procedures).................................................................................................................... 25
10.1 ISA 330: the auditor’s responses to assessed risks..................................................................25
10.2 The client’s internal-control activities........................................................................................... 26
10.3 The five test types and how they map to the risk model........................................................26
10.4 Cycle procedures (Int. Auditing Lecture 4: illustrative depth)............................................26
Part 11: Using the work of others (Int. Auditing Lecture 3: ISA 610, ISA 620)..............................27
Part 12: Evaluating misstatements and concluding (Int. Auditing Lecture 5: ISA 450).............28
Part 13: Going concern (ItA Lecture 5; Int. Auditing Lecture 5: ISA 570R)......................................29
Part 14: Forming the opinion and the audit report (ItA Lecture 5; Int. Auditing Lecture 5: ISA
700, 705, 706).......................................................................................................................................................... 30
14.1 ISA 700: forming an opinion and reporting................................................................................. 30
14.2 The opinion types and the pervasiveness matrix.....................................................................30
14.3 ISA 706: Emphasis of Matter and Other Matter paragraphs................................................31
14.4 Integrated audit (ItA Lecture 5; since US SOX)............................................................................ 31
,Part 15: Key Audit Matters (Int. Auditing Lecture 5: ISA 701).............................................................32
Part 16: Quality management (Int. Auditing Lecture 6: ISQM 1, ISQM 2, ISA 220R)....................33
Part 17: Technology in the audit (ItA / PwC guest lecture)..................................................................33
Appendix A: ISA quick-map (memorise the numbers).......................................................................... 34
Appendix B: Definitions to know verbatim................................................................................................ 35
Appendix C: Frameworks you must be able to draw and explain.....................................................36
Appendix D: Cross-course connections (how the pieces link)...........................................................36
How to use this document
This is a single, integrated teach-from-scratch summary of both:
• Introduction to Auditing: the economics, regulation and conceptual mechanics of
auditing (lecturer Ditmir Sufaj).
• International Auditing: the ISA-by-ISA treatment applied to Belgian statutory audits
(lecturer Griet Helsen, PwC).
The two courses cover much of the same audit lifecycle from different angles, so this
document is organised thematically in the natural order of an audit rather than by
separate lecture numbers. Each part tells you which lecture(s) it draws on. Where the slides
contain an important diagram, model or matrix, you’ll see a [VISUAL] call-out describing
exactly what the figure shows and what you must be able to reproduce or explain. Because I
worked from the extracted slide text, I flag each figure by its lecture and topic; match it to
the precise slide as you read.
The throughline of both courses: an audit reduces information risk by giving
reasonable assurance, through evidence gathered in a risk-driven process, that
financial statements are free from material misstatement: and then reports that
conclusion. Almost everything else is detail hanging off that sentence.
Colour key
Gold box = Exam relevance. How heavily this topic tends to be tested, shown at the
start of each Part.
Red box = Exam tip / common trap. A point students routinely get wrong.
Purple box = Visual to recognise. A diagram or matrix from the slides you should be
able to reproduce and explain.
Green italic box = a definition to memorise word-for-word.
Blue box = Key takeaway. The one-line essence to carry into the exam.
, Part 1: What an audit is and why it exists (ItA Lecture 1)
Exam relevance: HIGH. Definitions of audit and of audit quality, the three demand
theories (information / agency / insurance), and the Type I vs Type II error distinction
are classic open-question material.
1.1 Definitions of an audit
Two definitions you should be able to quote and contrast:
• Arens et al.: “The accumulation and evaluation of evidence about information to
determine and report on the degree of correspondence between the information and
established criteria.” Notice the four moving parts: (1) evidence is accumulated and
evaluated, (2) about some information, (3) compared against established criteria (e.g. a
financial-reporting framework such as IFRS or Belgian GAAP), and (4) the auditor
reports the degree of correspondence. This is the structural definition.
• Knechel: “An economically motivated professional service designed to reduce
information risk that relies on the knowledge and skills of experts used in a
systematic process that considers the idiosyncratic needs of a client where the
outcome is unobservable and subject to market forces and regulatory constraints.”
This is the economic definition: it stresses why anyone pays for an audit (to reduce
information risk), that it depends on expertise, that it is a systematic process, and
crucially that its outcome is unobservable: you cannot see whether the auditor “got it
right.”
Key term: information risk: the risk that the information used to make a decision
(e.g. financial statements used by an investor or lender) is materially inaccurate. The audit’s
economic purpose is to lower this risk so that capital can be allocated efficiently.
1.2 Types of audit
The slides distinguish several audit types; the course focuses on the financial (statement)
audit:
• Financial audit: opinion on whether financial statements are fairly presented under a
reporting framework. (Course focus.)
• Operational audit: efficiency and effectiveness of operations/processes.
• Compliance audit: adherence to laws, regulations, contracts or policies.
1.3 The financial-statement audit and assurance
A financial-statement audit provides reasonable assurance: defined as a high, but not
absolute, level of assurance: that the financial statements as a whole are free from
material misstatement (this is the ISA 200 objective; see Part 3). Reasonable assurance is
not a guarantee: some audit risk always remains no matter how good the work. The
auditor expresses an opinion on whether the statements give a “true and fair view” / are
“presented fairly, in all material respects.”
