Now that the ICAI Final Exams are very close it is important to be on top of the game. CA Exam Series has the best CA Final Test Series for you. The ICAI Mock Test May 2022 Series 1 is on our website CA Exams you can join now and chase the excellence that you have been waiting and jump on the final pedestal. However, this article is for those who want to understand Standards of Auditing in a very simple language and score maximum points.
The standards on auditing, review, other assurance, quality control and related services are aimed towards delivery of high-quality audits by improving the quality of practice by professional accountants and ultimately increase public confidence in financial reporting.
Key aspects of the Standards on Auditing
Some of the underlying principles of the Standards on auditing are elaborated below:
The standards of auditing issued by the ICAI require the auditor to perform a ‘Risk Based Audit’. In a risk-based audit, the auditor seeks to obtain a reasonable assurance that no material misstatements whether caused by fraud or errors exist in the financial statements. The Standards on Auditing requires the auditor to consider the following rebuttable presumed risks of material misstatement: (a) That there are risks of fraud in revenue recognition (b) Risks related to management override of controls.
The standards on auditing issued by the ICAI are applicable to audit of all entities. That is, the nature, size, legal form of the entity is irrelevant while applying these standards. Simply put: “An Audit is an Audit”. The International Federation of Accountants (IFAC) has in its Policy Position 2 mentioned that “IFAC considers that high quality auditing standards should be, and in fact are, capable of being applied to the audits of the financial statements of entities of all sizes.”
SA 200 “Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance with Standards on Auditing” defines Professional Skepticism as “An attitude that includes a questioning mind, being alert to conditions which may indicate possible misstatement due to error or fraud, and a critical assessment of audit evidence”. In addition to SA 200, at least 10 other standards such as SA 240, SA 300, etc. emphasize on the need for maintaining professional skepticism while conducting the audit.
An audit requires the auditor to perform procedures to obtain sufficient appropriate audit evidence to be able to draw reasonable conclusions on which to base the auditor’s opinion. The auditor applies professional judgement in deciding which procedures are to be performed. This requires the auditor to rely on their knowledge, training and experience and professional skepticism.
The standards on auditing refer to the concept of materiality. Information is considered material if its omission or misstatement has the potential to influence the economic decisions of users taken on the basis of the financial statements. Materiality is relative to the size and particular circumstances of individual companies. Determining materiality involves the exercise of professional judgment by the auditor.
Standards on auditing in the series 500-599 provide detailed guidance on obtaining sufficient and appropriate audit evidence. This includes guidance on external confirmations, sampling, specific areas such observation of physical verification of inventories, accounting estimates, related parties among others.
Audit Documentation is the record of audit procedures performed (including audit planning), relevant audit evidence obtained, and conclusions the auditor reached. Terms such as ‘working papers’ or ‘workpapers’ are sometimes used for audit documentation. While SA 230 “Audit Documentation” provides detailed and general guidance on the audit documentation, most standards on auditing require specific documentation to be done by the auditor.