Question-1: ISA 200.

ISA 200 outlines the key responsibilities of independent auditors when they conduct financial
statement audits according to International Standards on Auditing (ISAs). It covers the purpose,
scope, authority, and framework of these standards, while also noting that auditors must adhere to
any other legal, regulatory, or professional obligations.

At all times, whenever an audit is performed on a financial statement, ethical considerations such as
independence and compliance with other relevant international standards are of utmost importance to
the users of the statement. In this context, the term opinion signifies the final assessment of
compliance with financial reporting frameworks.

Scope of ISA 200

This perspective accepts that the performance of an audit entails increased levels of both
responsibility and complexity for the audit industry. Guidelines are Stipulated. Procedures are Also
Intended. This ensures that all requirements please the stipulations if one contemplated limiting the
scope of the audit by the ISA.

Nature of Audit

The principal purpose of the audit is to promote confidence in the company’s accounts and reports
among the users. This is done by the examination of such statements and the assessment of whether
these are made according to the relevant accounting regulations.

The first goal for the auditor is to give reasonable assurance that the financial statements are free of
big mistakes (material misstatements). This assurance isn’t 100% guaranteed because audits have
limits which is that auditors can’t check everything, and there’s always a some chance they might
miss something or judge it incorrectly.

To gain assurance, auditors should plan the audit by learning about the organization and identifying
risks, gather evidence through inspections, interviews, and observation and evaluate financial
statements for fairness and accuracy.

The auditor's second responsibility is to deliver the findings. This happens in an audit report, where
they give an opinion on the financial statements. If they can’t get enough evidence, they may give
qualified opinion, or in extreme cases, they might even withdraw from the audit altogether.

Key Concepts

Material Misstatement

A material misrepresentation is defined as any error or omission in financial statements that could
influence decisions made by users of those statements (such as investors or lenders). The auditor
must figure out if something is material by looking at both the size of the error (quantitative) and its
potential impact (qualitative).

Professional skepticism is when the auditor keeps a critical, questioning mindset during the audit.
They stay on alert for anything that doesn’t seem right, especially signs of fraud.

Professional judgment is the auditor using their training, experience and knowledge to make
decisions throughout the audit. It helps them figure out things like what’s risky, what’s material, and
how to gather the right evidence.

Audit Risk is the possibility that an auditor will declare the financial statements to be accurate when
they include significant inaccuracies. Audit risk has three parts:

1. Inherent Risk: The risk that something could go wrong in the financials, even if there are no
controls in place.
2. Control Risk: The risk that the company’s internal controls (e.g., checks and balances)
won’t catch or prevent errors.
3. Detection Risk: The risk that the auditor’s judgment/procedures won’t find existing errors.

Ethical Requirements

Auditors need to follow ethical rules, like staying independent from the company they’re auditing
and keeping all information confidential. These rules are crucial to ensuring public trust in the audit.
It's also important to keep in mind the limitations of audits. Auditors must adhere to deadlines and
budgets, and they are not able to review everything. As a result, auditors can only guarantee a
reasonable level of accuracy in the financial accounts, not 100%.

Question-2: ISA 210.

The main goal of ISA 210 is to ensure that, prior to beginning the audit, the auditor and the company
being audited are in an agreement. This entails reaching a consensus over the scope of the audit,
assigning duties, and making sure the prerequisites are satisfied. As of December 15, 2009, this
standard has been applied to financial statement audits.

Objective:

ISA 210's primary objective is to make sure that the auditor only begins or continues an audit when
the management and the auditor have reached an agreement on how it will be carried out. This
agreement happens when the necessary conditions for the audit are in place and everyone involved
understands the terms of the engagement, including their responsibilities.

Key Requirements:
 1. Preconditions for an Audit:

The auditor needs to make sure the financial reporting framework (the rules and guidelines
used to prepare financial statements) is acceptable. Management must agree that they’re
responsible for preparing the financial statements, keeping the internal controls in check, and
giving the auditor all the information they need. If these conditions aren’t met, the auditor
shouldn’t accept the job—unless the law requires it.

2. Agreement on Audit Engagement Terms:

The auditor and management (or those in charge) must agree on the terms of the audit. This
includes what the audit will cover, the roles and responsibilities of both sides, and the
financial reporting framework. These terms should be put in writing, usually in an
engagement letter.

3. Change in Terms of Engagement:

The auditor shouldn’t agree to change the audit terms without a good reason. If a change is
necessary, it must be documented. If the auditor and management can’t agree on the new
terms, the auditor may need to step back from the engagement and consider whether they
need to inform others about the situation.

4. Additional Considerations:
a. If there are extra rules or regulations that supplement financial reporting standards,
the auditor needs to make sure there aren’t any conflicts. If the legal basis for
financial reporting is inadequate, the auditor can only move forward with the audit if
management consents to include the required disclosures. If not, the auditor needs to
think about how this would affect their report and refrain from claiming compliance
with international standards if it falls short of expectations.

In conclusion, ISA 210 emphasizes how crucial it is for the auditor and the company's management
to have open lines of communication and consensus. Effective documentation and organization on
both ends help guarantee that the audit proceeds without hiccups and satisfies global requirements.

Question 3:

Agency Theory:
Agency theory concerns the types of interactions that take place between two interested parties,
namely the ‘principal’ putting up the money (the shareholders) and the ‘agent’ managing that money
(the management). It’s a situation where the principal leans on the agent, and the agent undertakes
activities on behalf of the principal which could include as an example managing a firm. But there
are also situations whereby the agent may want to pursue goals that are not in the interest of the
principal, therefore arise differences. This is known as the agency problem. An example of this is
when a manager is busy trying to gain a big bonus or trying to keep hold of his position but not
contemplating the long-term profitability of the enterprise, which is the reason for the existence of
the shareholders. These conflicts of interests often lead to the standing of some measures by the
principals for example boards of directors and even stock options to try and ensure that the goals of
the agent fall under those of the principals usefully forwarding their policies. However, supervision
is not always made effective, and power comes to audits that help in imposing a check on the
legitimacy in the management of the resources in the principal’s custody.

Theory of Lending Credibility:

The theory of lending credibility proposes that an audit enhances the verifiability of the financial
statement of a business. This credibility is vital because it is needed by parties who are making
business and regulatory decisions such as investors, creditors, and even regulators. At such
situations, the fact that the financial reports had been externally prepared and were correct serves to
confirm and assure the stakeholders that the concern is sincere and open.

In simpler terms, when an independent auditor says, "These financial statements are fair and
accurate," it boosts the confidence of those who use these statements to make informed decisions.
Without this external check, stakeholders will doubt the company's financial health.

Question 4:

Agency theory and Auditing:

Agency theory emphasizes perception of a requirement for auditing as a consequence of the agency
dilemma between the principles like the shareholders and their agents, the company management.
Due to the unlikelihood of shareholder primacy from management at times, a third party auditor is
put in place to verify the inputs made by management into the financial information. Internal control
or audit helps balance these inequalities whereby one party management knows more than the other
party shareholders. Through an examination of the financial statements, auditors assure that
information presented is free from bias, thereby upholding shareholder's interests.

Need for an Audit:

 Since there is always the possibility that management has intrinsic pressure to present exaggerated
positive accounts of its performance, for instance on the company’s finances especially, audits are
important. In the absence of audits, stakeholders including investors and creditors would be very
much concerned as such a financial statement upon which they base their decisions is accurate.
Audits ensure that these statements are prepared and presented in the right manner and indeed
represent the truthful situation in a company.

In other words, it is seen that investment in the organization of audits and audit firms helps in
establishing confidence in the financial markets. This reliance is important as otherwise, the
adversities might lead to whole turmoil in the finance system in case the stakeholders become and
lose confidence in the standards of the financial reports.

Question 5:

Importance of Cross-Disciplinary Knowledge for Auditors:

No, auditing cannot be reduced to only counting and checking figures. There are other aspects that
auditors and financial professionals may not be familiar with but need to be endeavored to
understand that area. Here is why when considering an auditor, they do not suffocate on knowledge
based on a few concepts:

 Financial Accounting and Reporting: This usually comes out as the focus in financial
statements. This process also involves essay writing appertaining to systems of accounting
practices and standards such as the GAAP. This is one of the most critical pieces of
information necessary and must be issued to those people assessing and approving
transactions recorded in the books or reports submitted.
 Tax: The taxation touches almost all the financial activities of a company. A brief
explanation of this aspect may be that it is within the scope of the auditor to disclose
knowledge of tax laws that would be key in making sure the organization does what is within
the regulation and that items of tax are represented properly within the documents. However,
incorrect forecasting of tax liabilities and provisions may have adverse effects.
 Corporate Laws: Such laws relate to the general conduct of companies about financial
disclosures, shareholders and their rights, and corporate affairs. Like such concerns, in order
that necessary law procedures related to the merger, payment of dividends or restructuring,
all consequence of issuing out stocks of the company, are legally binding to the company, the
place of conducting such affairs must be known.
 Business and Industry Knowledge: Every industry has its tendencies. For example, the
recognition of revenue by a manufacturing company might be different as opposed to a
service provider. Appreciation of these variations helps the auditors in tailoring their
procedure suited to the type of business being examined.
 Risk Assessment and Control: Business understanding, internal beneficiary controls and
risk management activities are necessary for targeting the areas that are exposed to a greater
risk of misstatements. This such knowledge helps allocate effort to where it is most effective.

In summary, being well versed in these areas and especially informed the auditors conducts the
most comprehensive and useful of all audits and that they are able to identify and provide
solutions to existing and probable scenarios that would require rectification in view of the
truthfulness of the financial statements. It also ensures that the auditors are in a position to
provide such recommendations and count their applicability so that companies have better ways
of doing business and remain within the lines of the law.