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Chapter 1 Basics

The document provides an overview of auditing concepts including the objectives and components of an audit, threats to auditor independence and related safeguards, and definitions of assurance and reasonable assurance. It discusses the responsibilities of auditors to comply with ethical standards and exercise professional skepticism and judgment when obtaining sufficient audit evidence.

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Kaji Thebe
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119 views

Chapter 1 Basics

The document provides an overview of auditing concepts including the objectives and components of an audit, threats to auditor independence and related safeguards, and definitions of assurance and reasonable assurance. It discusses the responsibilities of auditors to comply with ethical standards and exercise professional skepticism and judgment when obtaining sufficient audit evidence.

Uploaded by

Kaji Thebe
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Advance Auditing & Assurance

Quick Revision Notes for CAP III

Chapter 1 : Introduction & Basic Concepts

CA Sunil Joshi

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Introduction to Audit
 An audit is systematic and Independent examination of Financial Statements with an
objective of expressing an opinion on their True and Fair view.
Member Of ICAN
 Independent Examination depends upon Independence of Auditors. +
COP Holder
 Independence is of Two Types : +
Not Disqualified
1. Independence of Mind Unbiased Judgment
2. Independence in Appearance  To appear to be independent (from others point of view)

Components of Financial Statements


1. Statement of Financial Position
2. Statement of Profit or Loss and OCI
3. Cash Flow Statements Managements Responsibility
4. Statement of Changes in Equity
5. Comparatives
6. Notes comprising significant policies
& other explanatory Information
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Threats to Independence
Self Interest Threat Direct or Indirect Financial Interest with client, Undue Dependence
of Fees, Contingent Fees etc
Self Review Threat Reviewing the work performed earlier
Advocacy Threat Representing the client in litigations or endorsing the client
Familiarity Threat Close Relationship, Gifts, Hospitalities
Intimidation Threat Threats of Replacement, Reduction in fees, Disagreement over
principles

• Safeguards fall in three categories : Safeguards Created by profession, legislation


Safeguards Within the Auditee
Safeguards within the firm
Whenever threats are identified, Suitable safeguards to be applied to reduce threats to
acceptable level otherwise withdraw

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Discussion Session!!
 Auditor purchased goods on credit & requested to set off the amount
against audit fees.
 A CEO of company requested the auditor to update accounts before
starting the audit.
 You are the statutory auditor of PQR Ltd., while carrying out the audit you
found existence of certain threats to objectivity at significant level. What is
your duty in such situation? Give the examples of safeguards you will apply
in such situation?
◦ Withdrawing from the engagement team;
◦ Supervisory procedures;
◦ Terminating the financial or business relationship giving rise to the threat;
◦ Discussing the issue with higher levels of management within the firm;
◦ Discussing the issue with those charged with governance of the client.

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NSA 200: OVERALL OBJECTIVES OF THE INDEPENDENT AUDITOR AND
THE CONDUCT OF AN AUDIT IN ACCORDANCE WITH NEPAL STANDARDS
ON AUDITING.

 Objectives of Auditor To Obtain Reasonable Assurance that FS are free from material
misstatements & To Report on the status of FS (i.e. to express opinion)

Requirements for Auditor


1. Ethical Requirements Relating to an Audit of Financial Statements (Para 14)
2. Professional Skepticism (Para 15)
3. Professional Judgment (Para 16)
4. Sufficient Appropriate Audit Evidence and Audit Risk (Para 17)
5. Conduct of an Audit in Accordance with NSAs (Para 18,19,20)

Note: NSAs are not only meant for reference. Non compliance can bring
serious consequences. (You Make Declaration of Compliance in Audit Report
As Well!!
BEWARE!!
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Mentioned
SS 111
in Part I of Integrity

Code of
Ethics

Professional SS 112
Objectivity
SS 115 Behavior

Fundamental
Principles

Professional
Confidentiality Competence &
SS 114 Due Care SS 113

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Failure to Achieve Objectives of Particular NSA
(Para 21-24)

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Assurance
 ‘Assurance’ means confidence. In an assurance engagement, an ‘assurance firm’ is engaged
by one party to give an opinion on a piece of information that has been prepared by
another party.
 An audit engagement is an assurance engagement but not all the assurance engagements
are audit engagements.
 Valuation, RAP Reports, System Reliability Reports, Audit Etc.

Reasonable Assurance A high (but not absolute) level of assurance

Limited Assurance A moderate level of assurance (expressed in


negative form)

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Types of Assurance

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Elements of Assurance
Relevant, Completeness, Reliability,
Neutrality, Understandability

Appropriate
Three Party Suitable
Subject
Relationship Criteria
Matter Benchmark to evaluate ASM

Practitioner Matter on which opinion


Responsible Party is to be given
Users

Sufficient
Assurance
Appropriate
Reports
Evidence
Opinion Basis for Opinion

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Identify with context to AUDIT??

Three Party Appropriate Suitable


Relationship Subject Matter Criteria

Sufficient
Assurance
Appropriate
Reports
Evidence

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--------END OF CHAPTER--------

PC: Quotefancy/ google

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