ISA 200 OVERALL OBJECTIVES OF THE INDEPENDENT AUDITOR


 Various countries have different rules and standards for conducting an independent audit. ISAs have been developed to establish uniform, standardized approach for conducting  the audits of historical financial statements.

ISA 200 defines the main objectives of the independent auditor and explains what it means to conduct an audit in accordance with the International Standards on Auditing.


Summary of ISA 200

OVERALL OBJECTIVES OF THE INDEPENDENT AUDITOR AND THE CONDUCT OF AN AUDIT IN ACCORDANCE WITH INTERNATIONAL STANDARDS ON AUDITING.

(Effective for audits of financial statements for periods beginning on or after December 15, 2009)

Overall objectives of the Auditor

The overall objectives of the auditor are:

  • To obtain reasonable assurance about whether the financial statements are free from material misstatements to express an opinion on whether the financial statements are prepared, in all material respects, in accordance with an applicable financial reporting framework; and 
  • To report on the financial statements and communicate  in accordance with the auditor’s findings.

Requirements

Ethical Requirements Relating to an Audit of Financial Statements

The auditor shall comply with relevant ethical requirements, including those pertaining to independence, relating to financial statement audit engagements.

Professional Skepticism

The auditor shall plan and perform an audit with professional skepticism recognizing that circumstances may exist that cause the financial statements to be materially misstated. Auditors should be alert to:

  •  Audit evidence that contradicts other audit evidence obtained
  •  Information that brings into question the reliability of documents and responses to inquiries to be used as audit evidence. 
  • Conditions that may indicate possible fraud. 
  • Circumstances that suggest the need for audit procedures in addition to those required by the ISA.

Professional Judgment

The auditor shall exercise professional judgment during planning and performing an audit of financial statements. Professional judgment is necessary in decisions about: 

  •  Materiality and audit risk. 
  •  The nature, timing, and extent of audit procedures.
  •  The evaluation of appropriate audit evidence sufficiency.
  •  The evaluation of management’s judgments regarding the entity’s applicable financial reporting framework. 
  • The drawing of conclusions based on the audit evidences.  

Sufficient Appropriate Audit Evidence and Audit Risk

To obtain reasonable assurance, the auditor shall obtain sufficient appropriate audit evidence to reduce audit risk to an acceptably low level.

Audit evidence – Information used by the auditor in forming audit opinion on financial statements. Audit evidence is primarily obtained from audit procedures performed in the process of the audit.

Audit risk is a risk of giving wrong audit opinion on financial statements. Or speaking in another words:

audit risk is a function of the risk of material misstatement and detection risk.

Risk of material misstatement is  the risk that the financial statements are materially misstated before to audit.

Risk of material misstatements consists of inherent risk and control risk.

Inherent risk is determined by the nature of company and means the susceptibility of financial statements to a material misstatement before consideration of any related internal controls.

Control risk – the risk that a misstatement that could occur will not be prevented, detected, and corrected by the entity’s internal control.

Detection risk - The risk that the procedures performed by the auditor to reduce audit risk to an acceptably low level will not detect a material misstatement.

The greater the risks of material misstatement the auditor believes exists, the less the detection risk that can be accepted.

Conduct of an Audit in Accordance with ISAs

Complying with ISAs Relevant to the Audit

 The auditor shall comply with all ISAs relevant to the audit. An ISA is relevant to the audit when the ISA is in effect and the circumstances addressed by the ISA exist.

Objectives Stated in Individual ISAs

  The auditor shall use the objectives stated in relevant ISAs.

Complying with Relevant Requirements

  The auditor shall comply with each requirement of an ISA. The auditor may be required to comply with legal or regulatory requirements in addition to the ISAs. If that such law or regulation differs from the ISAs, an audit conducted only in accordance with law or regulation will not automatically comply with ISAs. In this situation, in addition to complying with each of the ISAs relevant to the audit, to perform additional audit procedures to comply with the relevant standards of that  country.

Failure to Achieve an Objective 

   If an objective in a relevant ISA cannot be achieved, the auditor shall evaluate whether this prevents the auditor from achieving the overall objectives of the auditor and thereby requires the auditor, in accordance with the ISAs, to modify the auditor’s opinion or withdraw from the engagement.

Conclusion

ISA 200 refers to the audit of financial statements of any company, regardless of size, form of ownership and complexity.


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