Audit Revision Notes
1. ISA 10 - Events after the Reporting Period
- Events after reporting period: those occurring between year-end and date financials are authorised for issue.
- Adjusting events: Provide evidence of conditions existing at year-end.
- Example: Court case settled after year-end confirming liability existing at year-end.
- Non-adjusting events: Indicative of conditions arising after year-end.
- Example: Natural disaster damaging assets after year-end.
2. ISA 560 - Subsequent Events
- Responsibilities between year-end and report date:
- - Obtain evidence about events requiring adjustments or disclosures.
- - Perform audit procedures and consider management response.
- Responsibilities between report date and financial statement issue date:
- - No active duty unless auditor becomes aware of facts affecting FS.
- - If necessary, discuss with management and modify audit opinion.
3. Audit Procedures
- (a) Test of control: Evaluate effectiveness of controls.
- - Example: Authorisation of credit sales.
- - Used to assess control risk.
- (b) Substantive procedure: Detect material misstatements.
- - Includes tests of details and analytical procedures.
- - Example: Confirming receivables with customers.
- (c) Analytical procedures: Evaluate financial data via analysis.
- - Used in planning, substantive testing, and final review.
- - Example: Comparing gross margins over years.
4. Audit Risk
- Audit risk = Risk auditor expresses incorrect opinion.
- Components:
- - Inherent risk: Susceptibility of assertion to misstatement.
- - Control risk: Failure of internal controls.
- - Detection risk: Auditor's procedures fail to detect misstatement.
- Responses:
- - IR: Assign experienced staff, understand entity.
- - CR: Test controls or increase substantive testing.
- - DR: Plan effective procedures and sufficient sample sizes.
5. Auditor's Responsibility on Laws and Regulations
- Auditors must obtain assurance that FS are free of material misstatement due to non-compliance.
- Responsibilities:
- - Identify applicable laws and regulations.
- - Perform procedures to detect non-compliance.
- - Respond appropriately to identified/suspected breaches.
- Not responsible for preventing non-compliance; management holds that responsibility.
6. Quality Control Procedures and Challenges
- Procedures:
- - Engagement performance review.
- - Supervision and direction.
- - Ethical requirements compliance.
- - Acceptance and continuance of clients.
- - Consultation and resolution of differences.
- Challenges:
- - Resource constraints.
- - Lack of experienced staff.
- - Pressure from clients.
- - Maintaining independence.
7. Auditor Rights and Audit Objectives
- (a) Rights:
- - Access books and records.
- - Receive information and explanations.
- - Attend and speak at general meetings.
- - Denied rights: May resign or report to regulator.
- (b) Objectives:
- - Primary: Express opinion on FS.
- - Secondary: Detect/prevent fraud, assess internal control.
8. ISA 580 - Management Representations
- Written confirmation from management on responsibilities and information provided.
- Used when other evidence unavailable or to support other evidence.
- Letter includes:
- - Acknowledgement of responsibility.
- - Confirmation of completeness of info.
- - Events after reporting date.
- - Related party disclosures.
9. Audit Report Elements and Modifications
- (a) Unmodified report elements:
- - Title, addressee, opinion, basis, responsibilities, signature, date.
- Modifications:
- - Qualified: Material but not pervasive issue.
- - Adverse: Material and pervasive misstatement.
- - Disclaimer: Insufficient evidence; material and pervasive.
- (b) Modification if FS not fairly presented or scope limited.
10. Understanding Entity and Expert Evaluation
- (a) Importance:
- - Identify risk areas.
- - Understand internal control.
- - Plan nature, timing and extent of procedures.
- (b) Expert evaluation factors:
- - Competence: Qualifications, experience.
- - Objectivity: Independence from client.
- - Work relevance and reasonableness.
11. Financial Interests in Client
- Direct interest: Owned directly (e.g. shares).
- Indirect interest: Through intermediary or associate.
- Prohibited for:
- - Audit firm.
- - Audit team members.
- - Immediate family members.
12. Going Concern
- (a) Definition: Entity will continue operations for foreseeable future.
- Auditor responsibilities:
- - Assess appropriateness of going concern basis.
- - Review management assessment.
- (b) Procedures:
- - Review cash flow forecasts.
- - Assess post-reporting period events.
- - Review minutes and loan agreements.
- - Seek written representations.
13. Audit Planning
- (a) Importance:
- - Efficient and effective audit.
- - Proper resource allocation.
- - Risk identification.
- Matters: Objectives, scope, timing, risk assessment.
- (b) Importance of risk assessment:
- - Guides extent of audit effort.
- - Helps avoid overlooking risks.
14. Internal vs External Auditors and Engagement Acceptance
- (a) Internal: Employees, continuous review, report to management.
- External: Independent, periodic audit, report to shareholders.
- (b) Steps:
- - Evaluate independence and competence.
- - Assess integrity of client.
- - Understand nature of engagement.
- - Evaluate risks.
15. Roles of Audit Committees under PFMA
- Mandatory roles:
- - Review financial statements.
- - Monitor internal controls.
- - Oversee risk management.
- - Ensure compliance with laws.
- - Recommend appointment of auditors.
- Advisory roles:
- - Advise on financial reporting improvements.
- - Review performance info.
- - Recommend governance practices.
- - Evaluate internal audit work.
- - Promote accountability and transparency.
