Summary Auditing Theory - Lectures, book, articles and ISAs

Week 1 Introduction

Learning objectiees
 Reproduce the baeic knowledge of Introducton to Auditng and Auditng ractcees
 Recognize what ie needed to eucceeefully paee the couree Auditng heorys
 Interpret the audit etandarde relatng to an audit of fnancial etatemente.

Lecture

Expectation gap = there are high expectatone from the eociety. See fgure below. Diferent expectaton gapes
 Broader ecope than hietorical fnancial informatons
 Errore and inherent limitatones
 Fraud.




Chapter 1 (1.4 & 1.5)

Audit = eyetematc proceee of objectiely obtaining and eialuatng eiidence regarding aeeertone about
economic actone and eiente to aecertain the degree of correepondence between theee aeeertone and
eetabliehed criteria, and communicatng the reeulte to intereeted ueere. hie defniton can be found in ISA 200.
he functon of an audit ie to lend credibility (reaeonable aeeurance) to the fnancial etatemente.

Characterietce of an audits
 It ie a eyetematc approachs
 It ie conducted objectielys
 he auditor obtaine and eialuatee eiidence.

Requiremente of an audit ae determined in ISA 200s
 he auditor muet comply with releiant ethical requirementes
 he auditor muet plan and perform the audit with profeeeional ekeptciems
 he auditor muet exerciee profeeeional judgement in planning and performing the audits
 he auditor muet obtain eufcient appropriate audit eiidence.

he oierall objectiee of an auditor ares
 Obtain reaeonable aeeurance about whether the fnancial etatemente ae a whole are free from
material mieetatement, whether due to fraud or errors
 Report on the fnancial etatemente and communicate in accordance with the auditor’e fndinge.

Inherent limitationn = theee are limitatone that afect the auditor’e ability to detect material mieetatemente.
hey reeult form factore ae the uee of teetng, the inherent limitatone of any accountng and internal control
eyetem and the fact that moet audit eiidence ie pereuaeiie rather than conclueiie. Aleo, the work of an auditor
ie permeated by judgement.




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, he auditor coneidere rieke at two leiele. One leiel of riek ie that the oierall fnancial etatemente may be
mieetated. hie riek ie ofen related to the entty’e control eniironment. he eecond riek ie mieetatement in
relaton to claeeee of traneactone, account balancee and diecloeuree. heee coneideratone directly aeeiet in
determining the nature, tming and extent of further audit proceduree.

Annertionn = theee are repreeentatone by management that are embodied in the fnancial etatemente. he
auditor aecertaine the degree of correepondence between aeeertone and eetabliehed criteria. he primary
aeeertone that the auditor ueee in an audit are accuracy and completeneee. Other releiant aeeertone ares
 Exietence and occurrences
 Cut-ofs
 Claeeifcaton (= preeentaton and diecloeure)s
 Valuaton (and allocaton)s
 Righte and obligatone.

International Standardn ion Auditng ISAn) = etandarde that auditore apply in their audit of hietorical fnancial
informaton (the fnancial etatemente). hey were deieloped by the IAASB. he goale of ISAe ares
 Eneure the eame audit globallys
 Harmonize the etandarde for the audit of fnancial etatemente.

Chapter 4

Scope of eeriicee addreeeee by the IAASB
Aeeurance engagemente Non-aeeurance engagemente
Audit and reiiew of hietorical fnancial
informaton Other aeeurance Agreed-upon
Other engagemente
Other fnancial engagemente proceduree
Financial etatemente
reporte
ISA 200-2999 ISAE 3000-3999 ISRS 4400

All aeeurance engagemente haie fie elementes
 A three-party relatonehip inioliing an auditor, a reeponeible party and the intended ueeres
 An appropriate eubject maters
 Suitable criteria (for inetance IFRS)s
 Sufcient appropriate eiidences
 A writen aeeurance report.

Suitable criteria haie the following characterietces
 Relevances they contribute to conclueione that meet the objectiee of the engagement and aeeiet
decieion making by the intended ueere.
 Ciompletenenns releiant factore that could afect the conclueione in the context of the engagement
objectiee are not omited.
 Reliabilitys they reeult in reaeonably coneietent eialuaton or meaeurement.
 Neutralitys they contribute to conclueione that are free from biae.
 Underntandabilitys they are clear and compreheneiie and are not eubject to eignifcantly diferent
interpretaton.

Sufficient = the meaeure of the quantty of eiidence. hie ie afected by the riek of the eubject mater
informaton being materially mieetated (more riek > more eiidence required) and aleo by the quality of euch
eiidence (higher quality > leee eiidence required).
Appriopriate = the meaeure of the quality of eiidence. hie ie afected by ite eource and ite nature and ie
dependent on the indiiidual circumetancee under which it ie obtained.
> Both are afected by the characterietce of the eubject mater and the circumetancee of the engagement.




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