Immersing in audit

  ISA 550 deals with the auditor’s responsibilities relating to related party relationships and transactions in an audit of financial statements . The objectives of the auditor are to obtain an understanding of related party relationships and transactions to recognize fraud risk factors and conclude, based on the audit evidence obtained, whether the financial statements are affected by those relationships and transactions. This standard requires auditors to perform audit procedures to assess whether relationships, transactions, or balances with related parties are properly accounted for or disclosed in accordance with the requirements of applicable financial reporting principle s. 

  ISA 540 deals with the auditor’s responsibilities relating to accounting estimates and related disclosures in an audit of financial statements.  This ISA defines   requirements relating to risk assessment procedures and related activities connected with accounting estimates, identification of the risks of material misstatement, responses to the assessed risks of material misstatement, disclosures related to accounting estimates, indicators of possible management bias and the evaluation of misstatements of accounting estimates and related disclosures.

  ISA 530 applies when the auditor has decided to use audit sampling in performing audit procedures. It deals with the auditor’s use of statistical and non-statistical sampling when designing and selecting the audit sample, performing tests of controls and tests of details, and evaluating the results from the sample. The ISA defines the requirements relating to the sample design, size and selection of Items for testing, Performance of   Audit Procedures, investigation the nature and cause of any deviations or misstatements identified, projection of   misstatements and evaluation of the results of audit sampling.

  ISA 520 deals with the auditor’s use of analytical procedures as substantive procedures (“substantive analytical procedures”). It also deals with the auditor’s responsibility to perform analytical procedures near the end of the audit that assist the auditor when forming an overall conclusion on the financial statements. The ISA defines the requirements relating to substantive analytical procedures, analytical procedures that assist when forming an overall conclusion and investigating results of analytical procedures.

  ISA 510 deals with the auditor’s responsibilities relating to opening balances in an initial audit engagement. In addition to financial statement amounts, opening balances include matters requiring disclosure that existed at the beginning of the period, such as contingencies and commitments. The ISA defines the Audit Procedures relating the opening balances and the process of arriving audit conclusions and reporting regarding the opening balances.

  ISA 505 deals with the auditor’s use of external confirmation procedures to obtain audit evidence as a direct written response to the auditor from a third party (the confirming party), in paper form, or by electronic or other medium. The ISA defines the external confirmation procedures, the auditor action in the case of management’s refusal to allow the auditor to send a confirmation request, possible results of the external conformation procedure and process of evaluation of the evidence obtained.

  ISA 501 deals with specific considerations by the auditor in obtaining sufficient appropriate audit evidence in respect to certain aspects of inventory, litigation and claims involving the entity, and segment information in an audit of financial statements. The ISA defines the audit procedures that should be performed in obtaining audit evidence regarding: (a) Existence and condition of inventory.  (b) Completeness of litigation and claims involving the entity; and (c) Presentation and disclosure of segment information in accordance with the applicable financial reporting framework.

The ISA explains what constitutes audit evidence in an audit of financial statements and deals with the auditor’s responsibility to design and perform audit procedures to obtain sufficient appropriate audit evidence to be able to draw reasonable conclusions on which to base the auditor’s opinion. ISA 500 deals with objective and requirements relating to the audit evidence. Such requirements include: ·         Information to Be Used as Audit Evidence. ·         Means of selecting items for testing g to Obtain Audit Evidence. ·         Procedures in relation to inconsistency in, or doubts over reliability of, audit evidence.

ISA 450 deals with objectives and requirements relating to the evaluation the effect of identified misstatements on the audit and of uncorrected misstatements on the financial statements. These requirements include: ·         Accumulation of identified misstatements. ·         Consideration of identified misstatements as the audit progresses. ·         Communication and correction of misstatements. ·         Evaluating the effect of uncorrected misstatements. ·         Written representations from management or those charged with governance. ·         Documentation of the process of evaluation of misstatements.  

 ISA 402 deals with the user auditor’s responsibility to obtain sufficient appropriate audit evidence when a user entity uses the services of one or more service organizations. It defines the objectives of the user auditor and the requirements relating to audit of the entity using a service organization. These requirements comprise: ·         Obtaining an Understanding of the Services Provided by a Service Organization, Including Internal Control. ·         Responding to the Assessed Risks of Material Misstatement. ·         Type 1 and Type 2 Reports that Exclude the Services of a Subservice Organization. ·         Fraud, Non-Compliance with Laws and Regulations and Uncorrected Misstatements in Relation to Activities at the Service Organization. ·         Reporting by the User Auditor.

 ISA 315 deals with the auditor’s responsibility to design and implement responses to the risks of material misstatement identified and assessed by the auditor in accordance with ISA 315  in an audit of financial statements. The standard defines such requirements as Overall Responses, Audit Procedures Responsive to the Assessed Risks of Material Misstatement at the Assertion Level, Adequacy of Presentation of the Financial Statements, Evaluating the Sufficiency and Appropriateness of Audit Evidence, Documenting of auditor`s response to assessed risk.

  The ISA 315 deals with the auditor’s responsibility to identify and assess the risks of material misstatement in the financial statements using the   understanding the company and its environment, including the company’s internal control.

  Planning an audit includes establishing the overall audit strategy for the engagement and developing an audit plan. Adequate planning benefits the audit of financial statements in such ways: helping the auditor to pay appropriate attention to important areas of the audit, helping the auditor to   identify and resolve potential problems, helping the auditor properly organize and manage the audit engagement, assisting in the selection of engagement team members. ISA 300 deals with the auditor’s responsibility to plan an audit of financial statements and apply in the context of recurring audits.

  An auditor obtains an understanding of internal control relevant to the audit when identifying and assessing the risks of material misstatement. In making those risk assessments the auditor may identify deficiencies in internal control. Also, deficiencies in internal control may be detected by an auditor at any other stage of the audit. ISA 265 deals with the auditor’s responsibility to communicate appropriately to those charged with governance and management deficiencies in internal control1 that the auditor has identified in an audit of financial statements

  The communication of auditors with those charged with governance is very important in audit process and    helps in communicating the responsibilities of the auditor in relation to the financial statement audit, obtaining from those charged with governance information and communicating significant findings. ISA 260   deals with the auditor’s responsibility to communicate with those charged with governance in an audit of financial statements.   It defines objectives and requirements of auditor communications with those charged with governance .

  The primary responsibility for the prevention and detection of fraud rests with both those charged with governance of the company and management. An auditor conducting an audit in accordance with ISAs is responsible for obtaining reasonable assurance that the financial statements taken as a whole are free from material misstatement, whether caused by fraud or error . ISA 240   deals with the auditor’s responsibilities relating to fraud in an audit of financial statements.

 L aws ang regulations have an effect on companies’ activities and financial reporting. Non-compliance with laws and regulations may result in fines, litigation or other consequences for the entity that may have a material effect on the financial statements . ISA 250 deals with the auditor’s responsibility to consider laws and regulations in an audit of financial statements. It defines objectives, definitions, and requirements in relation to consideration of laws and regulations in an audit of financial statements.

  Auditors are responsible to prepare audit documentation for an audit of financial statements. Audit documentation is necessary to support audit opinion on financial statements and confirmation of audit was planned and performed in accordance with ISAs and applicable legal and regulatory requirements .  ISA 230 defines objectives and requirements for audit documentation

  An auditor deals with specific responsibilities regarding quality control procedures for an audit of financial statements. Quality control systems, policies and procedures are established by the audit firm prior to the audit. These policies and procedures are compulsory to abide by all audit engagement teams and engagement quality control reviewer. ISA 220 defines the objective and requirements for an audit of financial statements quality control.

  Audit firms are responsible for setting up its system of quality control for audits and reviews of financial statements, and other assurance and related services engagements. International Standard on Quality Control (ISQC) deals with the objective, definitions, and requirements for quality control for audit firms.