Definition: International Standards on Auditing (ISA) are professional standards for the performance of financial audit of financial information. These standards are issued by International Federation of Accountants (IFAC) through the International Auditing and Assurance Standards Board (IAASB).
Purpose of ISAs: The IAASB works to establish: 1. High quality audits. 2. Uniformity of practice by professional accountants globally. 3. Strengthening public confidence in the global auditing profession. 4. Serving the public interest.
- ISA 200: Overall objectives of the independent auditor.
- ISA 210: Agreeing the terms of Audit Engagements.
- ISA 220: Quality Control for an Audit of Financial Statements.
- ISA 230: Audit Documentation (Working Papers).
- ISA 300: Planning an Audit of Financial Statements.
- ISA 315: Identifying and Assessing the risk of material misstatement.
ISA 200 - Overall Objectives: 1. To obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error. 2. To report on the financial statements and communicate as required by ISAs in accordance with the auditor's findings.
ISA 200 - Requirements: • Comply with relevant ethical requirements including independence. • Plan and perform audit with professional scepticism. • Exercise professional judgement. • Obtain sufficient appropriate audit evidence to reduce audit risk to an acceptably low level.
ISA 210 - Preconditions for Audit: 1. Determine if financial reporting framework is acceptable. 2. Obtain management agreement acknowledging their responsibility for: - Preparation of financial statements - Internal control necessary for accurate financial statements - Providing auditor with all necessary information
ISA 220 - Quality Control: The objective is to implement quality control procedures at the engagement level to ensure: 1. Audit complies with professional standards and legal requirements. 2. Auditor's report is appropriate in the circumstances.
ISA 230 - Audit Documentation: Defined as "The record of audit procedures performed, relevant audit evidence obtained, and conclusions the auditor reached."
ISA 300 - Audit Planning: Planning should NOT be seen as a discrete and separate part of the audit. The audit plan may be revised as the audit progresses and should NOT be viewed as fixed once the formal planning phase has ended.
ISA 315 - Understanding the Entity: Should cover: Industry/regulatory factors, nature of entity, accounting policies, objectives/strategies/business risks, and financial performance measurement.
- ISA 240: Auditor's responsibilities relating to Fraud.
- ISA 250: Consideration of Laws & Regulations.
- ISA 330: The Auditor's responses to assessed risks.
- ISA 500: Audit Evidence.
- ISA 505: External Confirmations.
- ISA 550: Related Parties.
ISA 240 - Fraud vs Error: Fraud is intentional, Error is unintentional. The primary responsibility for prevention and detection of fraud rests with those charged with governance and management. Auditor is responsible for obtaining reasonable assurance that financial statements are free from material misstatement, whether caused by fraud or error.
ISA 250 - Laws & Regulations: • Direct effect: Obtain evidence regarding compliance (e.g., tax legislation). • Indirect effect: Perform procedures to identify non-compliance (e.g., operating licenses, environmental regulations).
ISA 250 - When Non-compliance is Found: Notify those charged with governance. If they are involved, communicate with next highest authority (e.g., audit committee). Consider legal advice if no higher authority exists. Assess material effect on financial statements and audit report.
ISA 330 - Responses to Assessed Risks: Design and perform further audit procedures based on assessed risks of material misstatement at the assertion level.
ISA 330 - Substantive vs Control Tests: • Test of Control: Evaluates operating effectiveness of controls. • Substantive Procedure: Designed to detect material misstatements (includes Tests of Detail and Substantive Analytical procedures). • Must perform substantive procedures for each MATERIAL class of transactions, account balance and disclosure.
- ISA 260: Communicating with those charged with Governance.
- ISA 520: Analytical Procedures.
- ISA 560: Subsequent Events.
- ISA 570: Going Concern.
- ISA 580: Written Representations.
ISA 260 - Communication: Focuses on communications from auditor to those charged with governance. Effective two-way communication assists in understanding audit matters, developing constructive working relationship while maintaining independence, obtaining relevant information, and helping governance oversee financial reporting.
ISA 520 - Analytical Procedures: 1. Preliminary Analytical Review: Understand business and environment. 2. Substantive Analytical Procedures: Used as substantive procedures. 3. Final Analytical Review: At audit end to assess consistency with understanding.
ISA 560 - Subsequent Events: Events occurring between reporting date and date of approval of financial statements/audit report signing. Auditor must ensure all events up to audit report date are identified, properly accounted for and disclosed.
ISA 570 - Going Concern: • Assumption: Entity continues in business for foreseeable future. • Management Responsibility: Assess entity's ability to continue as going concern (IAS 1 requirement). • Auditor Responsibility: Obtain sufficient appropriate evidence about appropriateness of going concern assumption and conclude whether material uncertainty exists.