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International Standards on Auditing (ISA) refer to professional standards dealing with the
responsibilities of the independent auditor while conducting the financial audit of financial
info. These standards are issued by International Federation of Accountants (IFAC) through
the International Auditing and Assurance Standards Board (IAASB). The ISAs include
requirements and objectives along with application and other explanatory material. The
auditor is obligatory to have knowledge about the whole text of an ISA, counting its
application and other explanatory material, to be aware of the objectives and to apply the
requirements aptly.
List of the Standards
The key standards issued by the ISA include:
Respective responsibilities
Audit planning
Internal control
Audit evidence
Using work of other experts
Audit conclusions and audit report
Specialized areas
Structure of ISAs
Every ISA is structured in individual sections as:
Introduction
Introductory material can include the purpose, scope, and subject matter of the ISA, as well
as the responsibilities of the auditor and others in context in which the ISA is established.
Objective
Every ISA consists of as clear statement about the objective of the auditor in the audit area
addressed by that ISA.
Definitions
For higher understanding of the ISAs, pertinent terms are delineated in each ISA.
Requirements
Every objective is shored up by clearly stated requirements. Requirements are always
expressed by the phrase the auditor shall.
Application and other explanatory material
The application and other explanatory material explains more exactly what is meant by a
requirement or is intended to cover, or includes examples of procedures that can be
appropriate under certain circumstances.
Objectives of the ISA
The ISA objectives are two-fold:
Analyzing the comparability of national accounting as well as auditing standards with
international standards, determine the degree with which applicable auditing and
accounting standards are complied, and analyze strengths and weaknesses of the
institutional framework in sustaining high-quality financial reporting.
Assist the country in developing and implementing a country action plan for
improvement of institutional capacity with a view of strengthening the corporate
financial reporting system of the country.
List of ISAs
ISA 200, Overall Objectives of the Independent Auditor and the Conduct of an Audit
in Accordance with International Standards on Auditing
ISA 210, Agreeing the Terms of Audit Engagements
ISA 220, Quality Control for an Audit of Financial Statements
ISA 230, Audit Documentation
ISA 240, The Auditor's Responsibilities Relating to Fraud in an Audit of Financial
Statements
ISA 250, Consideration of Laws and Regulations in an Audit of Financial Statements
ISA 260, Communication with Those Charged with Governance
ISA 265, Communicating Deficiencies in Internal Control to Those Charged with
Governance and Management
ISA 300, Planning an Audit of Financial Statements
ISA 315, Identifying and Assessing the Risks of Material Misstatement through
Understanding the Entity and Its Environment
ISA 320, Materiality in Planning and Performing an Audit
ISA 330, The Auditor's Responses to Assessed Risks
ISA 402, Audit Considerations Relating to an Entity Using a Service Organization
ISA 450, Evaluation of Misstatements Identified during the Audit
ISA 500, Audit Evidence
ISA 501, Audit Evidence-Specific Considerations for Selected Items
ISA 505, External Confirmations
ISA 510, Initial Audit Engagements-Opening Balances
ISA 520, Analytical Procedures
ISA 530, Audit Sampling
ISA 540, Auditing Accounting Estimates, Including Fair Value Accounting Estimates,
and Related Disclosures
ISA 550, Related Parties
ISA 560, Subsequent Events
ISA 570, Going Concern
ISA 580, Written Representations
ISA 600, Special Considerations-Audits of Group Financial Statements (Including the
Work of Component Auditors)
ISA 610, Using the Work of Internal Auditors
ISA 620, Using the Work of an Auditor's Expert
ISA 700, Forming an Opinion and Reporting on Financial Statements
ISA 705, Modifications to the Opinion in the Independent Auditor's Report
ISA 706, Emphasis of Matter Paragraphs and Other Matter Paragraphs in the
Independent Auditor's Report
ISA 710, Comparative Information-Corresponding Figures and Comparative
Financial Statements
ISA 720, The Auditor's Responsibilities Relating to Other Information in Documents
Containing Audited Financial Statements
ISA 800, Special Considerations-Audits of Financial Statements Prepared in
Accordance with Special Purpose Frameworks
ISA 805, Special Considerations-Audits of Single Financial Statements and Specific
Elements, Accounts or Items of a Financial Statement
ISA 810, Engagements to Report on Summary Financial Statements
International Standard on Quality Control (ISQC) 1, Quality Controls for Firms that
Perform Audits and Reviews of Financial Statements, and Other Assurance and
Related Services Engagements
European Court of Auditors: the European Court of Auditors performs its audits in
accordance with the IFAC and INTOSAI International Auditing Standards and Codes of
Ethics, in so far as these are applicable in the European Community context.
The United Nations Board of Auditors (the external audit of the UN) has adopted
the ISAs [1] although this Board is composed of three Supreme Audit
Institutions chairmen, usually using the INTOSAI Auditing Standards
Amongst the many calls was a well researched argument from Maurice
Moonitz, Director of Accounting Research at AICPA, in his 1978 book
International Auditing Standards which set out the case for a set of
standards, and went on to recommend the establishment of an International
Auditing Standards Committee (IAudSC). The title from Moonitz is useful in
comparing the situation worldwide prior to the adoption of an international set
of standards, and in identifying the various calls for international standards at
the time.
In the late 1970s the Council of International Federation of Accountants (IFAC)
created the International Auditing Practices Committee (IAPC) which would be
a standing committee of the IFAC Council and subsequently the IFAC Board
(in May 2000 the IFAC Council was renamed the IFAC Board).
Between 1980 and 1991 the IAPC issued International Auditing Guidelines
(IAG), and addendums to these. The first International Standard on Auditing
(ISA) was issued in 1991, and this has remained the series to the present day.
As 500
Introduction
2. This ISA is applicable to all the audit evidence obtained during the course of the
audit. Other ISAs deal with specific aspects of the audit (for example, ISA 3151 ),
the audit evidence to be obtained in relation to a particular topic (for example, ISA
5702 ), specific procedures to obtain audit evidence (for example, ISA 5203 ), and
the evaluation of whether sufficient appropriate audit evidence has been obtained
(ISA 2004 and ISA 3305 ).
Effective Date
3. This ISA is effective for audits of financial statements for periods beginning on
or after December 15, 2009.
Objective
4. The objective of the auditor is to design and perform audit procedures in such a
way as to enable the auditor to obtain sufficient appropriate audit evidence to be
able to draw reasonable conclusions on which to base the auditors opinion.
Definitions
5. For purposes of the ISAs, the following terms have the meanings attributed
below:
(a) Accounting records The records of initial accounting entries and supporting
records, such as checks and records of electronic fund transfers; invoices;
contracts; the general and subsidiary ledgers, journal entries and other adjustments
to the financial statements that are not reflected in journal entries; and records such
as work sheets and spreadsheets supporting cost allocations, computations,
reconciliations and disclosures.
(b) Appropriateness (of audit evidence) The measure of the quality of audit
evidence; that is, its relevance and its reliability in providing support for the
conclusions on which the auditors opinion is based.
(c) Audit evidence Information used by the auditor in arriving at the conclusions
on which the auditors opinion is based. Audit evidence includes both information
contained in the accounting records underlying the financial statements and other
information.
(e) Sufficiency (of audit evidence) The measure of the quantity of audit
evidence. The quantity of the audit evidence needed is affected by the auditors
assessment of the risks of material misstatement and also by the quality of such
audit evidence.
6. Other information that the auditor may use as audit evidence includes minutes of
meetings; confirmations from third parties; analysts reports; comparable data
about competitors (benchmarking); controls manuals; information obtained by the
auditor from such audit procedures as inquiry, observation, and inspection; and
other information developed by, or available to, the auditor that permits the auditor
to reach conclusions through valid reasoning.
19. The auditor obtains audit evidence to draw reasonable conclusions on which to
base the audit opinion by performing audit procedures to:
(a) Obtain an understanding of the entity and its environment, including its
internal control, to assess the risks of material misstatement at the financial
statement and assertion levels (audit procedures performed for this purpose are
referred to in the ISAs as risk assessment procedures);
(b) When necessary or when the auditor has determined to do so, test the operating
effectiveness of controls in preventing, or detecting and correcting, material
misstatements at the assertion level (audit procedures performed for this purpose
are referred to in the ISAs as tests of controls); and
21. Tests of controls are necessary in two circumstances. When the auditors risk
assessment includes an expectation of the operating effectiveness of controls, the
auditor is required to test those controls to support the risk assessment. In addition,
when substantive procedures alone do not provide sufficient appropriate audit
evidence, the auditor is required to perform tests of controls to obtain audit
evidence about their operating effectiveness.
22. The auditor plans and performs substantive procedures to be responsive to the
related assessment of the risks of material misstatement, which includes the results
of tests of controls, if any. The auditors risk assessment is judgmental, however,
and may not be sufficiently precise to identify all risks of material misstatement.
Further, there are inherent limitations to internal control, including the risk of
management override, the possibility of human error and the effect of systems
changes. Therefore, substantive procedures for material classes of transactions,
account balances, and disclosures are always required to obtain sufficient
appropriate audit evidence.
23. The auditor uses one or more types of audit procedures described in
paragraphs 26-38 below. These audit procedures, or combinations thereof, may be
used as risk assessment procedures, tests of controls or substantive procedures,
depending on the context in which they are applied by the auditor. In certain
circumstances, audit evidence obtained from previous audits may provide audit
evidence where the auditor performs audit procedures to establish its continuing
relevance.
24. The nature and timing of the audit procedures to be used may be affected by
the fact that some of the accounting data and other information may be available
only in electronic form or only at certain points or periods in time. Source
documents, such as purchase orders, bills of lading, invoices, and checks, may be
replaced with electronic messages. For example, entities may use electronic
commerce or image processing systems. In electronic commerce, the entity and its
customers or suppliers use connected computers over a public network, such as the
Internet, to transact business electronically. Purchase, shipping, billing, cash
receipt, and cash disbursement transactions are often consummated entirely by the
exchange of electronic messages between the parties. In image processing systems,
documents are scanned and converted into electronic images to facilitate storage
and reference, and the source documents may not be retained after conversion.
Certain electronic information may exist at a certain point in time. However, such
information may not be retrievable after a specified period of time if files are
changed and if backup files do not exist. An entitys data retention policies may
require the auditor to request retention of some information for the auditors review
or to perform audit procedures at a time when the information is available.
25. When the information is in electronic form, the auditor may carry out certain
of the audit procedures described below through CAATs.
AS 501
Introduction
Scope of this SA
1. This Standard on Auditing (SA) deals with specific considerations by the
auditor in obtaining sufficient appropriate audit evidence in accordance with SA
330 3 , SA 500 4 and other relevant SAs, with respect to certain aspects of
inventory, litigation and claims involving the entity, and segment information in an
audit of financial statements.
Effective Date
Objective
(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.
Requirements Inventory
4. When inventory is material to the financial statements, the auditor shall obtain
sufficient appropriate audit evidence regarding the existence and condition of
inventory by:
(a) Attendance at physical inventory counting, unless impracticable, to: (Ref: Para.
A1-A3)
(ii) Observe the performance of managements count procedures; (Ref: Para. A5)
(b) Performing audit procedures over the entitys final inventory records to
determine whether they accurately reflect actual inventory count results.
5. If physical inventory counting is conducted at a date other than the date of the
financial statements, the auditor shall, in addition to the procedures required by
paragraph 4, perform audit procedures to obtain audit evidence about whether
changes in inventory between the count date and the date of the financial
statements are properly recorded. (Ref: Para. A9-A11)
8. When inventory under the custody and control of a third party is material to the
financial statements, the auditor shall obtain sufficient appropriate audit evidence
regarding the existence and condition of that inventory by performing one or both
of the following:
(a) Request confirmation from the third party as to the quantities and condition of
inventory held on behalf of the entity. (Ref: Para. A15)
(b) Perform inspection or other audit procedures appropriate in the circumstances.
(Ref: Para. A16)
9. The auditor shall design and perform audit procedures in order to identify
litigation and claims involving the entity which may give rise to a risk of material
misstatement, including: (Ref: Para. A17-A19)
(a) Inquiry of management and, where applicable, others within the entity,
including in-house legal counsel;
11. If:
13. The auditor shall obtain sufficient appropriate audit evidence regarding the
presentation and disclosure of segment information in accordance with the
applicable financial reporting framework by: (Ref: Para. A26)
SA 505
Introduction
. 3. ISA 330, The Auditors Responses to Assessed Risks requires the auditor to
obtain more persuasive audit evidence the higher the auditors assessment of risk.
Consequently, as the assessed risk of material misstatement increases, the auditor
may increase the quantity of the evidence or obtain evidence that is more relevant
or reliable.
4. When designing the nature, timing and extent of audit procedures, different
procedures may be effective in addressing the assessed risks of material
misstatement at the financial statement assertion level. The auditors selection of
audit procedures from a number of possible effective procedures is a matter of
professional judgment and depends on a number of factors, including:
The relevance of the audit procedures in addressing the assessed risk; The likely
persuasiveness of the audit evidence to be obtained;
Whether the audit procedures also may provide evidence relating to other
assessed risks or corroborate evidenced obtained by performing other audit
procedures; and
The cost of the procedures relative to the quantity and/or quality of audit
evidence that might be obtained. The auditor may determine that seeking external
confirmations is an effective response to address risk of material misstatement at
the financial statement assertion level on the basis of these factors. (Ref: Para.A7)
Effective Date
5. This ISA is effective for audits of financial statements for periods beginning on
or after [date].
Objectives
(a) To determine whether and to what extent, in the circumstances of the audit, to
request external confirmation of information as a means of obtaining sufficient
appropriate audit evidence in response to an assessed risk of financial statement
misstatement; and, if so,
Definitions
7. For the purpose of this ISA, the following terms have the meanings attributed
below: (a) External confirmation Audit evidence relating to assertions in the
financial statements or related disclosures either as a direct response to the auditor
from a confirming party as a result of a positive or a negative confirmation request,
or the lack of response to a negative confirmation request. (b) External
confirmation process The process of performing procedures directed toward
obtaining audit evidence in the form of an external confirmation.
(c) Negative confirmation request A request for information that asks the
confirming party to respond directly to the auditor only in the event of
disagreement with the information provided in the request.
(d) Positive confirmation request A request for information that asks the
confirming party to respond directly to the auditor, whether he or she agrees with
the information presented, or to provide information requested by the auditor.
(e) Non-response When the confirming party does not reply, or does not fully
reply, to a positive confirmation request, or when a positive or negative
confirmation request is returned undeliverable.
Requirements
) 9. The auditor shall seek external confirmations when that is the only means of
obtaining sufficient appropriate audit evidence in response to an assessed risk of
financial statement misstatement. If, in this circumstance, the auditor determines
that external confirmation will not provide reliable audit evidence, the scope of the
auditors work has been limited and the auditor shall consider the possible impact
on the auditors report in accordance with ISA 705, Modifications to the Opinion
in the Independent Auditors Report. (Ref: Para. A14)
10. When the auditor decides to request positive or negative confirmations, the
auditor shall plan, design, undertake and control the external confirmation
procedures, including:
(a) Identification of the member or members of the audit team responsible for
controlling the external confirmation process, the resources assigned and the
timing of the related procedures;
(c) Design and preparation of the confirmation requests; (d) Communication of the
confirmation requests to the appropriate confirming party;
11. The auditor shall only use negative confirmations to reduce the risk of
financial statement misstatement to an acceptable level without also performing
other substantive procedures when:
(a) The assessed risk of material misstatement associated with the relevant
financial statement assertion is low;
12. When management requests that the auditor not send a positive or negative
confirmation request, the auditor shall evaluate whether there are valid reasons for
such request. The existence of a dispute between the entity and the confirming
party, in and of itself, is not a valid reason for not requesting confirmation of a
balance or other information. (Ref: Para. A27)
13. When the auditor is prevented from requesting confirmation, the auditor shall
perform appropriate alternative procedures and shall consider the possible impact
on the auditors report in accordance with ISA 705. (Ref: Para. A28)
15. If the auditor has concerns about the reliability of an external confirmation,
then the auditor shall appropriately respond to such concerns. If the information in
an oral external confirmation is significant, then the auditor shall request that the
parties involved submit written confirmation of the specific information directly to
the auditor. (Ref: Para. A29-A31)
16. The auditor shall perform alternative audit procedures for non-responses. (Ref.
Para. A32-A33)
17. When the auditor determines that a response to a positive confirmation request
is the only means of obtaining sufficient appropriate audit evidence to respond to
an assessed risk of financial statement misstatement, and the auditor does not
obtain such confirmation, the auditor shall determine the implications for the audit
and the auditors report. (Ref: Para A34-A35)
18. The auditor shall investigate exceptions to determine whether they represent
misstatements or acceptable differences. (Ref: Para. A36)
Sa 510
Main Features
(b) provides audit procedures for the auditor to obtain audit evidence about:
whether the opening balances contain misstatements
balances have been consistently applied in the current periods financial report;
and whether changes in the accounting policies have been
(c) establishes requirements and provides guidance on audit conclusions and the
auditors report.
Introduction
Objective 3.
(a) Opening balances contain misstatements that materially affect the current
periods financial report; and
(b) Appropriate accounting policies reflected in the opening balances have been
consistently applied in the current periods financial report, or changes thereto are
appropriately accounted for and adequately presented and disclosed in accordance
with the applicable financial reporting framework.
Definitions
4. For purposes of the Australian Auditing Standards, the following terms have the
meanings attributed below:
(a) Initial audit engagement means an engagement in which either: (i) The
financial report for the prior period was not audited; or (ii) The financial report for
the prior period was audited by a predecessor auditor.
(b) Opening balances means those account balances that exist at the beginning of
the period. Opening balances are based upon the closing balances of the prior
period and reflect the effects of transactions and events of prior periods and
accounting policies applied in the prior period. Opening balances also include
matters requiring disclosure that existed at the beginning of the period, such as
contingencies and commitments.
(c) Predecessor auditor means the auditor from a different audit firm, who audited
the financial report of an entity in the prior period and who has been replaced by
the current auditor.
Requirements
Audit Procedures Opening Balances
5. The auditor shall read the most recent financial report, if any, and the
predecessor auditors report thereon, if any, for information relevant to opening
balances, including disclosures.
6. The auditor shall obtain sufficient appropriate audit evidence about whether the
opening balances contain misstatements that materially affect the current periods
financial report by: (Ref: Para. A1-A2)
(a) Determining whether the prior periods closing balances have been correctly
brought forward to the current period or, when appropriate, have been restated;
(i) Where the prior year financial report was audited, reviewing the predecessor
auditors working papers to obtain evidence regarding the opening balances;
(ii) Evaluating whether audit procedures performed in the current period provide
evidence relevant to the opening balances; or
(iii) Performing specific audit procedures to obtain evidence regarding the opening
balances.
7. If the auditor obtains audit evidence that the opening balances contain
misstatements that could materially affect the current periods financial report, the
auditor shall perform such additional audit procedures as are appropriate in the
circumstances to determine the effect on the current periods financial report. If the
auditor concludes that such misstatements exist in the current periods financial
report, the auditor shall communicate the misstatements with the appropriate level
of management and those charged with governance in accordance with ASA 450.
9. If the prior periods financial report was audited by a predecessor auditor and
there was a modification to the opinion, the auditor shall evaluate the effect of the
matter giving rise to the modification in assessing the risks of material
misstatement in the current periods financial report in accordance with ASA 315
11. If the auditor concludes that the opening balances contain a misstatement that
materially affects the current periods financial report, and the effect of the
misstatement is not appropriately accounted for or not adequately presented or
disclosed, the auditor shall express a qualified opinion or an adverse opinion, as
appropriate, in accordance with ASA 705.
(a) the current periods accounting policies are not consistently applied in relation
to opening balances in accordance with the applicable financial reporting
framework; or
A1. In the public sector, there may be legal or regulatory limitations on the
information that the current auditor can obtain from a predecessor auditor. For
example, if a public sector entity that has previously been audited by a statutorily
appointed auditor (for example, an Auditor-General, or other suitably qualified
person appointed on behalf of the Auditor-General) is privatised, the amount of
access to working papers or other information that the statutorily appointed auditor
can provide a newly appointed auditor that is in the private sector may be
constrained by privacy laws or regulations. In situations where such
communications are constrained, audit evidence may need to be obtained through
other means and, if sufficient appropriate audit evidence cannot be obtained,
consideration given to the effect on the auditors opinion
A3. The nature and extent of audit procedures necessary to obtain sufficient
appropriate audit evidence regarding opening balances depend on such matters as:
The accounting policies followed by the entity.
, if so, whether the predecessor auditors opinion was modified. A4. If the prior
periods financial report was audited by a predecessor auditor, the auditor may be
able to obtain sufficient appropriate audit evidence regarding the opening balances
by reviewing the predecessor auditors working papers. Whether such a review
provides sufficient appropriate audit evidence is influenced by the professional
competence and independence of the predecessor auditor.
A5. Relevant ethical and professional requirements guide the current auditors
communications with the predecessor auditor.
A6. For current assets and liabilities, some audit evidence about opening balances
may be obtained as part of the current periods audit procedures. For example, the
collection (payment) of opening accounts receivable (accounts payable) during the
current period will provide some audit evidence of their existence, rights and
obligations, completeness and valuation at the beginning of the period. In the case
of inventories, however, the current periods audit procedures on the closing
inventory balance provide little audit evidence regarding inventory on hand at the
beginning of the period. Therefore, additional audit procedures may be necessary,
and one or more of the following may provide sufficient appropriate audit
evidence: Observing a current physical inventory count and
opening inventory items. Performing audit procedures on gross profit and cut-of
Sa520
Introduction
Effective Date
2. This ISA is effective for audits of financial statements for periods beginning on
or after December 15, 2009.
Objectives
(a) To obtain relevant and reliable audit evidence when using substantive analytical
procedures; and
(b) To design and perform analytical procedures near the end of the audit that
assist the auditor when forming an overall conclusion as to whether the financial
statements are consistent with the auditors understanding of the entity.
Definition
4. For the purposes of the ISAs, the term analytical procedures means
evaluations of financial information through analysis of plausible relationships
among both financial and non-financial data. Analytical procedures also
encompass such investigation as is necessary of identified fluctuations or
relationships that are inconsistent with other relevant information or that differ
from expected values by a significant amount. (Ref: Para. A1A3)
Requirements
(b) Evaluate the reliability of data from which the auditors expectation of
recorded amounts or ratios is developed, taking account of source, comparability,
and nature and relevance of information available, and controls over preparation;
(Ref: Para. A12A14)
(c) Develop an expectation of recorded amounts or ratios and evaluate whether the
expectation is sufficiently precise to identify a misstatement that, individually or
when aggregated with other misstatements, may cause the financial statements to
be materially misstated; and (Ref: Para. A15)
(d) Determine the amount of any difference of recorded amounts from expected
values that is acceptable without further investigation as required by paragraph 7.
(Ref: Para. A16)
6. The auditor shall design and perform analytical procedures near the end of the
audit that assist the auditor when forming an overall conclusion as to whether the
financial statements are consistent with the auditors understanding of the entity.
(Ref: Para. A17A19)
A4. The auditors substantive procedures at the assertion level may be tests of
details, substantive analytical procedures, or a combination of both. The decision
about which audit procedures to perform, including whether to use substantive
analytical procedures, is based on the auditors judgment about the expected
effectiveness and efficiency of the available audit procedures to reduce audit risk at
the assertion level to an acceptably low level.
A5. The auditor may inquire of management as to the availability and reliability of
information needed to apply substantive analytical procedures, and the results of
any such analytical procedures performed by the entity. It may be effective to use
analytical data prepared by management, provided the auditor is satisfied that such
data is properly prepared.
persuasive evidence and may eliminate the need for further verification by means
of tests of details, provided the elements are appropriately verified. In contrast,
calculation and comparison of gross margin percentages as a means of confirming
a revenue figure may provide less persuasive evidence, but may provide useful
corroboration if used in combination with other audit procedures.
Analytical Procedures that Assist When Forming an Overall Conclusion (Ref: Para.
6)
A17. The conclusions drawn from the results of analytical procedures designed
and performed in accordance with paragraph 6 are intended to corroborate
conclusions formed during the audit of individual components or elements of the
financial statements. This assists the auditor to draw reasonable conclusions on
which to base the auditors opinion.
A21. The need to perform other audit procedures may arise when, for example,
management is unable to provide an explanation, or the explanation, together with
the audit evidence obtained relevant to managements response, is not considered
adequate.