Auditor Responsibility (Overall Objective of Independent Audit)
As per SA 200, Overall Objective of Independent Audit is:
- To obtain reasonable assurance that financial statements are free from Material Mismanagement resulting from either due to fraud or error enabling Auditor to express an opinion on whether financial statements are prepared in all material respects as per applicable Financial reporting framework.
- To Report on Financial Statement & Communicate as required by Standard of Auditings.
- The objective of independent audit is to report u/s 143(2) to Members of Company on Account examined by him & Financial Statement to be laid in AGM.
- To ensure that his opinion on Financial Statement is reflecting the True & Fair view.
- The objective of independent audit to State in his Report u/s 143(2) whether A/c examined by him & Financial Statement give True & Fair view.
- Audit evidence to reduce Audit Risk to Acceptable low level & consider SA 500 as per SA 200.
REQUIREMENTS OF SA 200
- Its auditor’s states of mind for Alertness to for any indication to possible misstatement due to error or fraud
- A critical assessment of audit evidence
- Maintain it throughout Audit to identify fraud risk factors & evaluate Related Party transactions
- Attitude requiring: –
- Alertness towards Info provided to him by client
- A Questionable mind being alert
- Reduces Risks of: –
- Overlooking unusual circumstances.
- Overgeneralizing when drawing conclusions from audit observations.
- Using inappropriate assumptions in determining Nature, Time & Extent of Audit Procedures & evaluating results
- Being alert to: –
- Info provided by the auditee to bringing in doubt the trustworthiness of records & responses to audit evidence.
- Conditions and situations creating doubt for fraud or and auditor’s competence to assess the need to carry out additional Audit Procedures.
Scope of Audit
Area of work for Auditor determined by following factors: –
- Requirements of legislation.
- SA & other guidance by ICAI
- Terms of engagement of Auditor
Terms of engagement can’t override Scope decided by Legislation or SAs.” (i.e. management cannot Restrict Scope of auditor’s audit function)
- If Scope restricted or threat to Independence, in this case auditors duty is to communicate to Those charged with governance as per SA 260
Auditor has to use knowledge & experience for coming to a conclusion in taking decisions about-
- Materiality and audit risk.
- Nature, Time & Extent of audit procedures used to meet requirements of Standard of Auditings & gather audit evidence
- Auditor need to decide using his judgment whether more audit evidence needs to obtain to achieve objectives of SA & thereby overall objective of the independent audit.
- Evaluation of competence of management regarding the accuracy and appropriateness in maintaining applicable Financial Reporting Framework.
- Drawing of conclusions based on Audit evidence i.e. assessing the reasonableness of estimates made by management in preparing Financial Statement.
Obtain Sufficient & Appropriate Audit Evidence
- Auditor to obtain Sufficient & Appropriate Audit Evidence as per AS 500 & Reasonable Assurance (High but not Absolute Level of Assurance) to decrease Audit Risk to Acceptable Low Level
- Sufficient & Appropriate Audit Evidence are interrelated i.e. Sufficiency of audit evidence refers to the measurement of the quantity of Audit Evidence while Appropriateness refers to measure of Quality of Audit Evidence i.e. its relevance & reliability to support conclusions on which auditor’s opinion is based.
- Auditor has to give disclaimer opinion in case auditee is unable to provide sufficient audit evidence which in auditors judgment is not Sufficient for the audit.
Compliance with Standard of Auditing
- Standard of Auditing 200 mandates auditor for compliance with SAs. Section 143(9) of CA 2013 also mandates this.
- If auditors do not comply with the standard of auditing and unable to detect the errors. The auditor will be guilty of professional misconduct
INHERENT LIMITATIONS OF AUDIT AS PER SA 200
1. Nature of Financial Reporting
- Preparation of Financial Statement is the responsibility of management. involving Judgment & decision making by management.
- There are a range of issues involving different interpretations & judgments.
2. Nature of Audit Procedure
- Audit procedures used to gather audit evidence may be ineffective against fraud detection.
- Audit is not an official investigation into alleged wrongdoings
- The possibility that Management may not provide complete Info intentionally or unintentionally.
- Implementation of Internal control is the responsibility of management and management may manipulate it, it is difficult for auditors to check each and every control procedure.
- Frauds may involve sophisticated & carefully organized schemes.
- Nature of audit procedures
- Audit evidence obtained are mostly in the nature of persuasive rather than conclusive
3. Timeliness & Cost-Benefit
- The difficulty, time, or cost is not valid basis to omit Audit procedure for no alternative
- The pressure to finish audit quickly, in least possible time
- Auditors fees are limited because of which there needs to put a certain limit in the audit nature time and extent.
4. Other Limitations
- Frauds, particularly involving senior management or collusion.
- Non-disclosure of related parties.
- Non- compliance with laws & regulations.
- Information not provided by management.