ISA 200 – Overall Objectives of the Independent Auditor

Purpose: Sets the foundation for all other ISAs.

Key Objectives:

 Obtain reasonable assurance whether financial statements are free from material
misstatement (due to fraud or error).
 Report in accordance with ISA.

Key Concepts:

 Professional skepticism: Questioning mind, alert to inconsistencies.

 Professional judgment: Essential in decision-making.
 Ethical requirements: Compliance with Code of Ethics, including independence.
 Audit risk: Risk auditor expresses inappropriate opinion.

📌 Definition of the Premise:

The audit is conducted on the premise that management and, where appropriate,
those charged with governance have acknowledged and understand that they
have the following responsibilities:

💼 Management’s Responsibilities (the "Premise"):

1. Preparation and fair presentation of the financial statements in accordance

with the applicable financial reporting framework.
2. Internal control – Providing necessary internal controls to enable preparation of
financial statements that are free from material misstatement.
3. Providing auditor with:
o Access to all relevant information (records, documentation, etc.),
o Unrestricted access to persons within the entity from whom the auditor
deems it necessary to obtain audit evidence.

ISA 210 – Agreeing the Terms of Audit Engagements

Purpose: Ensures mutual understanding between auditor and client.

Key Requirements:

 Agree and document terms in engagement letter.

 Key elements:
 o Objective & scope of the audit.
o Responsibilities of the auditor & management.
o Identification of applicable financial reporting framework.
o Expected form & content of audit reports.

🔄 Recurring audits: Reconfirm terms if significant changes arise.

ISA 230 – Audit Documentation

Purpose: Provides a record of audit work and basis for opinion.

Key Requirements:

 Timely preparation of audit documentation (working papers).

 Must enable:
o Understanding of audit work performed.
o Who performed/reviewed the work.
 Retention: Keep documentation for minimum 5 years.

📝 Documentation should show:

 Compliance with ISAs.

 Evidence supporting auditor's conclusions.

ISA 500 – Audit Evidence

Purpose: Guide on what constitutes sufficient, appropriate evidence.

Key Sources:

 Physical inspection, observations, inquiries, confirmations, recalculations.

Key Concepts:

 Sufficiency: Quantity of evidence.

 Appropriateness: Relevance & reliability.

📌 Reliability Hierarchy:

1. Direct auditor observation.

2. External evidence (confirmations).
3. Internal evidence.
 4. Oral representations (least reliable).

ISA 505 – External Confirmations

Purpose: Deals with obtaining evidence from third parties.

Key Areas:

 Bank balances
 Receivables
 Loans
 Inventory held by third parties

� Types of confirmations:

 Positive: Request recipient to respond in all cases.

 Negative: Respond only if information is incorrect (less reliable).

ISA 530 – Audit Sampling

Purpose: Application of procedures to less than 100% of items.

Key Terms:

 Sampling risk: Risk sample is not representative.

 Sample size: Based on risk of material misstatement & control environment.
 Statistical sampling: Uses random selection and probability theory.
 Non-statistical sampling: Based on auditor judgment.

ISA 315 – Identifying and Assessing Risks of Material Misstatement

Purpose: Understand entity & environment to assess risks.

Key Activities:

 Understand:
o Industry, regulatory, and other external factors.
o Nature of the entity.
o Objectives, strategies, risks.
o Internal control.
  Perform risk assessment procedures: inquiries, observation, inspection, and
analytical procedures.

🛑 Identify and assess:

 Inherent risk
 Control risk

ISA 320 – Materiality in Planning and Performing an Audit

Purpose: Determines what matters in financial reporting.

Types:

 Planning materiality: Overall level to plan audit procedures.

 Performance materiality: Set below planning materiality to reduce aggregation
risk.

🎯 Materiality = Misstatements that could influence decisions of financial statement

users.

ISA 330 – Auditor’s Responses to Assessed Risks

Purpose: Guide auditor response based on risk assessment.

Responses:

1. Overall response (e.g., assign more experienced staff).

2. Design/perform further procedures:
o Tests of controls
o Substantive procedures (tests of details + analytical procedures)

🔁 Reassess risk if new info arises.

ISA 700 – Forming an Opinion and Reporting

Purpose: Establish form and content of unmodified opinion.

Standard Report Elements:

 Title, Addressee
  Opinion section
 Basis for opinion
 Management’s responsibility
 Auditor’s responsibility
 Date & Signature

✔️ Opinion should state FS are free from material misstatement and prepared in
accordance with applicable framework.

ISA 705 – Modifications to the Opinion

Purpose: Guide when modification is necessary.

Types of modifications:

1. Qualified Opinion – Material but not pervasive.

2. Adverse Opinion – Material and pervasive misstatements.
3. Disclaimer of Opinion – Unable to obtain evidence, pervasive.

ISA 706 – Emphasis of Matter and Other Matter Paragraphs

Purpose: Add communication to the audit report.

 Emphasis of Matter (EOM): Draw attention to a matter in FS (e.g., significant

uncertainty).
 Other Matter: Relevant to users’ understanding of audit, but not in FS.

📌 Must not modify the opinion.

ISA 550 – Related Parties

Purpose: Identify and assess RMM from related party relationships.

Key Procedures:

 Understand related party controls.

 Identify relationships & transactions.
 Confirm appropriate disclosure.

🔍 Risk: Undisclosed or non-arm’s length transactions.

ISA 560 – Subsequent Events

Purpose: Address events after reporting date.

Types:

1. Adjusting events: Conditions existed at year-end (e.g., court ruling).

2. Non-adjusting events: New conditions (e.g., fire).

✏️ Update audit conclusions if needed; modify opinion if management refuses

disclosure.

[FS Date] ------- [Auditor’s Report Date] ------- [FS Issued]

↑ ↑

Adjusting events Non-adjusting events

→ Adjust FS → Disclose if material

How Auditors Counter Them (as per ISA 560):

Before the Auditor’s Report Date:

 Inquire with management and those charged with governance.

 Read minutes of meetings after year-end.
 Inspect updated financial information or budgets.
 Ensure all adjusting and disclosable events are reflected in the FS.

After the Auditor’s Report Date but Before FS Are Issued:

 If a material subsequent event is identified:

o Discuss with management and ensure FS are amended.
o Extend audit procedures if necessary.
o Amend auditor’s report accordingly (new date or dual dating).

After FS Have Been Issued:

 If facts become known that would have caused modification:

o Assess reliability of FS.
o If FS need amendment:
 Request management to revise.
 Issue new auditor’s report on amended FS.
  If management refuses → inform regulatory authorities and
possibly withdraw from the engagement.

ISA 570 – Going Concern

Purpose: Assess whether entity will continue operations for 12 months.

Procedures:

 Evaluate management’s assessment.

 Consider events/conditions that may cause doubt.

🔄 If material uncertainty exists → Include disclosure or modify opinion.

When to Add “Material Uncertainty” in the Audit Report:

You add a Material Uncertainty Related to Going Concern (MURGC) paragraph

when:

✅ All 3 of the following conditions are met:

1. Events or conditions exist that may cast significant doubt on the entity’s ability
to continue as a going concern.
2. Management has appropriately disclosed this uncertainty in the financial
statements.
3. The uncertainty is material to the financial statements.

Going Concern Risk Identified?

Yes → Is the uncertainty material?

Yes → Is it adequately disclosed?

↓ ↓

Yes → Add MURGC No → Modify opinion

No → No action needed
ISA 520 – Analytical Procedures

Purpose: Use analysis to gather audit evidence.

Types of Use:

 Risk assessment (planning)

 Substantive testing
 Final review

📊 Involves comparisons, ratios, and trends.

No. Procedure Description Example

1️⃣ Inspection Examining records, Inspecting an invoice,
documents, or physical contract, or physical
assets. inventory.
2️⃣ Observation Watching a process or Observing inventory count
procedure being performed. or cash counting.
3️⃣ Inquiry Seeking information from Asking management about
knowledgeable persons credit policies or legal
(written or oral). disputes.
4️⃣ Confirmation Obtaining evidence from Bank confirmations,
third parties (external accounts receivable
confirmations). confirmations.
5️⃣ Recalculation Checking mathematical Recalculating depreciation
accuracy of documents or or interest expense.
records.
6️⃣ Reperformance Independently executing Re-performing aging of
procedures to validate accounts receivable.
results.
7️⃣ Analytical Evaluating financial Comparing GP margin year-
Procedures information using over-year or actual vs
relationships and budgeted results.
expectations.

ISA 510 – Opening Balances – Initial Audit Engagements

Purpose: Guide when auditing initial year or changing auditors.

Key Tasks:

 Obtain sufficient audit evidence about:

 o Opening balances
o Consistency of accounting policies

❗ If unable to obtain, consider modifying opinion.

ISA 610 – Using the Work of Internal Auditors

Purpose: Determine if internal auditors' work can be used.

Key Factors:

 Competence and objectivity of internal audit function.

 Whether work is adequate and relevant.

✔️ Can use work to reduce audit procedures, but not in areas requiring judgment.

ISA 620 – Using the Work of an Auditor’s Expert

Purpose: Use expert when specialized knowledge is needed (e.g., valuations).

Key Requirements:

 Evaluate expert’s competence & objectivity.

 Agree on scope of work.
 Evaluate adequacy of expert’s findings.

🛠️ Examples: Actuaries, engineers, legal experts