Auditing in Specialized Industries (Notes)
Auditing in Specialized Industries (Notes)
An adverse opinion should be expressed when the Is this a material difference? What if the difference were
auditor, having obtained sufficient appropriate audit only MU 1,000?
evidence, concludes that misstatements, individually or in
The concept of materiality as it relates to our audit
the aggregate, are both material and pervasive to the
can be tricky. A material difference at one of your
FS.
clients might not be a material difference at another
client. It all depends on the materiality levels
established by your team in response to the factors
Disclaimer of Opinion at that particular client. The determination of
materiality is not a mathematical exercise but
A disclaimer of opinion should be expressed when the requires professional judgment involving audit
auditor is unable to express an opinion because: executives, including the partner in charge of the
They are unable to obtain sufficient appropriate audit.
audit evidence on which to base the opinion, and
the auditor concludes that the possible effects on Materiality is defined as the magnitude of an omission or
the FS of undetected misstatements, if any, could misstatement that, individually or in the aggregate, in
be both material and pervasive. light of the surrounding circumstances, could reasonably
be expected to influence the economic decisions of the
In circumstances involving multiple uncertainties,
users of the FS.
and not withstanding having obtained sufficient
appropriate audit evidence regarding each of the
individual uncertainties, it is not possible to form an
(What if the MU 500,000 error were to change an PSA and ISA.
investor’s mind as to whether she wants to invest in the
company’s stock?
An auditor should plan and perform an audit with an
The MU 500,000 then would be material to that
attitude of professional skepticism.
company.)
Questioning mind of an auditor.
General Principles and with a provision in the code, the national requirement
prevails.
For example, the American Institute of Certified Public
Scope of an Audit Accountants (AICPA) sets out the principles and rules that
should be observed by accountants practicing in the US.
The three general principles of an audit: The principle of integrity imposes an obligation on all
professional accountants to be straightforward and
An auditor should comply with a code of ethics honest in all professional and business relationships.
Similar to other professions, like law and medicine, the Integrity also implies fair dealing and truthfulness.
accounting profession has a code of ethics, which we
should comply with at all times, unless certain parts of it
being precluded by laws and regulations in specific Objectivity
circumstances.
The principle of objectivity imposes an obligation on all
As an auditor, you should comply with the Code of Ethics professional accountants not to compromise their
for Professional Accountants issued by the International professional or business judgment because of bias,
Federation of Accountants (IFAC). conflict of interest or the undue influence of others.
Professional Skepticism
Professional Behavior
The principle of professional behavior imposes an Plan and perform an audit with an attitude of
obligation on professional accountants to comply with professional skepticism.
relevant laws and regulations and avoid any conduct Professional skepticism includes a questioning mind,
that the accountant knows or should know might bring being alert to conditions which may indicate possible
discredit to the profession. This includes actions which a misstatement due to fraud or error, and a critical
reasonable and informed third party would be likely to assessment of evidence.
conclude negatively affects the good reputation of the
profession. For example, an attitude of professional skepticism is
necessary throughout the audit process for the auditor to
reduce the risk of overlooking suspicious circumstances,
of overgeneralizing when drawing conclusions from audit
Responsibility of Professional Accountants observations, and using faulty assumptions in determining
the nature, timing and extent of the audit procedures
A distinguishing mark of a profession is acceptance of its
and evaluating the results.
responsibility to the public.
It is your responsibility to make sure you do not
Investors
become too comfortable working with your client and
Employers that you always question and verify the information
that you obtain.
Government
Continue to question the reliability of documents and
Creditors information until you are comfortable that you have
Business community obtained sufficient appropriate audit evidence.
Services period.
We determine that we are independent in fact and in
appearance with the entity being audited.
Phases of an Audit Engagement We ensure we have adequate professional competence
to perform the services required and we maintain client
confidentiality during the current audit period, including
The securing the work papers.
initial We ensure that we have fulfilled other ethical
phase requirements relevant to our audit.
of a FS
audit
involves Establish the team.
the Our understanding of the entity obtained during the
initial client and engagement acceptance or continuance
plannin process, including our expectations about service
g requirements of those charged with governance and
activitie management, helps us establish our audit team and
s. determine team roles and responsibilities.
from Different Type of Services have agreed and to report on factual findings. When
performing agreed-upon procedures, no opinion is
expressed.
Assurance refers to the auditor’s satisfaction as to the For example, the firm may be asked to complete agreed-
reliability of an assertion (i.e., the reliability of financial upon procedures related to a company’s profit-sharing
reporting and the preparation of FS) being made by one calculation for the company’s employees.
party (i.e., entity’s management) for use by another party
(i.e., the intended users of FS). Reasonable assurance is a
high, but not absolute, level of assurance.
Compilation Engagement
The degree of satisfaction achieved and, therefore, the
level of assurance that may be provided is determined Management may request a professional accountant in
by the procedures performed and their results. public practice to assist with the preparation and
presentation of financial information of an entity.
The level of assurance provided by the auditor is pre-
determined and agreed with those charged with In a compilation engagement, although the users of the
governance of the client prior to the acceptance or compiled information derive some benefit from the
continuance of engagement. professional accountant’s involvement, it is not an
assurance engagement. It does not require the
professional accountant to verify the completeness of the
TYPES OF SERVICES PROVIDED BY A PROFESSIONAL information provided by management for the
ACCOUNTANT compilation or otherwise to gather evidence to express
an audit opinion or a review conclusion on the
preparation of the financial information.
Audit Engagement Due to the requirements for independence, an auditor is
not allowed to prepare the FS that they will later audit.
In an audit engagement, the auditor provides a
reasonable, but not absolute, level of assurance that the
FS as a whole are free from material misstatements Course Summary
whether due to fraud or error.
In this course, you have learned about the basic
Reasonable assurance is a level of assurance. information surrounding what an audit is and the basic
An example of an audit engagement is the period-end concepts of auditing.
audit of a company’s FS.
The ultimate goal in performing an audit is to provide
reasonable assurance to the users of the financial
information that the balances are materially correct
through our audit opinion.
Remember the basic phases of an audit are:
Initial Planning of the Audit
Identify and Assess Risk
Design and Execute Responses to Risks
Conclude and Communicate